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Compliance Risks Loom Large for Fintech Firms in Switzerland
As the Swiss Financial Market Supervisory Authority (FINMA) prepares to introduce new regulations for fintech companies, industry players are bracing themselves for increased compliance risks.
Proposed Amendments to Anti-Money Laundering Ordinance (AMLO-FINMA)
The FINMA recently announced an open discussion on proposed amendments to the AMLO-FINMA, which will affect fintech firms seeking a license under the new category. The changes aim to provide specific due diligence requirements under Switzerland’s anti-money laundering regime, effective January 1, 2019.
Eligibility for Fintech License
Under the amended Swiss Banking Act and Banking Ordinance, companies that accept public deposits up to CHF 100 million without offering interest or investment opportunities will be eligible for a fintech license instead of a traditional banking license. To qualify, firms must not operate an interest margin business model, generate interest margin profits, grant loans, or buy investment products.
Requirements for Fintech License
To obtain the fintech license, companies must also meet organizational, risk management, and compliance standards. The draft Banking Ordinance outlines requirements for:
- Information duties
- Licensing
- Organization
- Risk management
- Compliance
- Minimum capital requirement of CHF 300,000 for share corporations or limited liability companies incorporated in Switzerland
Adequate Compliance and Risk Management Systems
FinTech companies will also need to ensure adequate compliance and risk management systems are in place to:
- Record business risks
- Evaluate business risks
- Limit business risks
Smaller firms with lower-risk operations may be eligible for organizational relaxations regarding compliance and risk management.
Review by Licensed Auditor and Deposit Protection
Licensed fintech companies’ business models or activities must be reviewed by a licensed auditor, and deposits provided to these companies will not be protected upon bankruptcy or insolvency. It is crucial that fintech companies inform creditors of their claims not being protected by law.
Enhanced Anti-Money Laundering Due Diligence Requirements
The new regulations also introduce enhanced anti-money laundering due diligence requirements for fintech firms under the AML-regulation. These requirements are similar to those applicable to directly supervised financial intermediaries, with some exceptions and relaxations. For example:
- Fintech companies will be required to determine risk criteria based on risk analyses
- Directly supervised financial institutions (DSFIs) would only need to do so if they have business relationships with at least 20 people
Compliance Burden for Fintech Firms in Switzerland
The increased compliance burden for fintech firms in Switzerland highlights the importance of:
- Thorough due diligence
- Effective risk management
- Robust internal controls
As the regulatory landscape continues to evolve, fintech companies must prioritize compliance to avoid potential risks and penalties.