Switzerland: Swiss Federal Government Proposes Comprehensive Fintech Legislation

This week, the Swiss federal goverment launched a draft legislation for consultation with interested parties which aims at easing the strict banking and financial market rules otherwise applicable to Fintech companies.

Generally speaking, financial service providers collecting monies from the public and lending these monies to an undetermined number of independent third parties need a bank or security dealer license which requires as a matter of fact at least CHF 25 million in equity (for banks). According to the Swiss federal government, this erquity requirement is an unreasonably high hurdle for new business models in the financial sector which do not correspond to the classical risks of the banking or security dealer business.

For example, internet platforms offering crowdfunding can quickly be regarded as a bank or security dealer under current banking and financial market laws, although they do not arrange for any long-term lending like a bank or a security dealer. In other words, the Fintech sector offers innovative and technology-related business models for the financial sector ranging from encryption software for digital currencies to computer programs for investment recommendations. According to a most recent business survey, there are around 160 Fintech companies operating in Switzerland, most of them in Zurich, Zug and Geneva. Particularly the Zug area praises itself as the Crypto Valley due to its more than fledgeling bitcoin and blockchain industry.

The proposed bill contains three core points. First, the Swiss federal government wants extended exemptions from the banking rules for institutions that provide pure settlement accounts and do not pay an interest on the balance. The Federal Council proposes to extend the maximum depository limit for settlement accounts from 7 to 30 days, as e.g. the funds for swarm financing often remain longer than 7 days as currently prescribed by FINMA, Switzerland's supervisory agency for banks and insurance companies. Second, financial service providers shall be able to accept deposits taken from the public without a bank permit provided that the deposits do not exceed CHF 1 mio. and under the further proviso that the financial service providers do not engage in lending business and inform their present and future customers that they are not subject to FINMA bank supervision.

Financial service providers exceeding the above limit on the volume of public monies shall qualify for a "light" banking license if the public monies do not exceed CHF 100 mio., and as long as the financial service providers do not engage in any commercial lending activity. Facilitated licensing requirements apply in terms of the organization of the financial service providers and their equity and liquidity requirements. For example, the minimum equity capital to get a "light" banking license shall only be CHF 300'000 or five percent of the public deposits instead of the least CHF 25 mio. as required for ordinary banks.

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