Switzerland: Fintech Laws And Regulations 2019

Last Updated: 4 June 2019
Article by Daniel Flühmann and Peter Hsu

Most Read Contributor in Switzerland, July 2019

1 The Fintech Landscape

1.1 Please describe the types of fintech businesses that are active in your jurisdiction and any notable fintech innovation trends of the past year within particular sub-sectors (e.g. payments, asset management, peer-to-peer lending or investment, insurance and blockchain applications).

The Swiss fintech landscape has evolved significantly over the past years and Switzerland continues to be an attractive base for innovators in the financial sector. More than 300 active companies in various sectors form the core of the ecosystem of start-ups and aspiring young fintech businesses that have been founded in the recent past. New start-up projects continue to emerge on a regular basis. However, the scope of fintech in the Swiss market is much broader, with many established financial institutions entering the space in the recent past. As a result, the distinction between fintech and traditional financial services has become increasingly blurred. Furthermore, technology-oriented businesses from outside of the financial sector, including large multinational players, are entering the fintech market in Switzerland as well.

Swiss-based fintech businesses include payment systems, investment and asset management services, crowdfunding and crowdlending platforms, insurance-related businesses (insurtech) as well as distribution and information platforms in the area of collective investment schemes. Furthermore, blockchain-based businesses continue to be another key focus area, including but not limited to the areas of cryptocurrencies and decentralised ecosystems. Many blockchain start-ups are based in the so-called "cryptovalley" in the Canton of Zug, which also became known in the recent past as a hub for initial coin offerings ("ICO"). Six out of the 15 biggest ICOs since 2016 took place in Switzerland. More recently, the focus of attention has shifted towards the nascent market of so-called security token offerings ("STO") and, by extension, the legal framework and market infrastructure to support them.

The Swiss fintech industry has formed a number of associations and shared interest groups (e.g. the Swiss Finance + Technology Association, Swiss Fintech Innovations, Swiss Finance Startups, the Crypto Valley Association and the Swiss Blockchain Federation) to promote, together with investors, experts, political representatives and the media, the further development of a strong Swiss fintech sector.

1.2Are there any types of fintech business that are at present prohibited or restricted in your jurisdiction (for example cryptocurrency-based businesses)?

Switzerland has no specific prohibitions or restrictions in place with respect to fintech. Generally speaking, Swiss financial regulation is technology-neutral and principle-based, which has so far allowed it to cope with technological innovation. That said, fintech operators may be subject to regulation and supervision by the Swiss Financial Market Supervisory Authority FINMA ("FINMA") or by self-regulatory organisations, depending on the nature and specifics of their business. The relevance and application of Swiss laws on, e.g., anti-money laundering, collective investment schemes, financial market infrastructures, banks, insurance companies, securities dealers and/or data protection has to be assessed in the individual case (see question 3.1). With regard to ICOs in particular, FINMA published a guidance letter in which it emphasised the concept of an individual review of each business case regarding the regulatory impact. It is therefore prudent for fintech start-ups to seek clearance from the regulator before launching their project in the market.

2 Funding For Fintech

2.1Broadly, what types of funding are available for new and growing businesses in your jurisdiction (covering both equity and debt)?

Switzerland has an active start-up scene and various funding opportunities are available for companies at every stage of development. There are seed and venture capital firms for early funding as well as mature debt and equity capital markets for successful companies at a later stage. In addition, there are many financial institutions that have a potential interest in buying an equity stake in fintech companies or in a full integration.

Crowdfunding and crowdlending as alternative sources of funding have shown rapid growth rates in Switzerland, both in terms of the number of platforms and the funds raised. The first crowdfunding platform was founded in 2008 and currently there are over 40 active platforms (compared to only four in 2014). In 2017, apparently CHF 374.5 million was raised via these platforms, which is 192% more than in the previous year (Crowdfunding Monitoring Switzerland 2018).

The legislator has facilitated crowdfunding and crowdlending platforms by way of the introduction of the fintech regulation in Switzerland as follows: a) as of 1 August 2017, the maximum holding period during which the acceptance of funds for the purpose of settlement of customer transactions does not yet qualify as taking deposits from the public (and therefore do not count towards a potential banking licence requirement) was extended from seven to 60 days, b) a so-called regulatory sandbox was introduced in the BankO, according to which more than 20 deposits from the public can be accepted on a permanent basis without triggering a banking licence requirement as long as: i) the deposits accepted do not exceed CHF 1 million; ii) no interest margin business is conducted; and iii) depositors are informed, before making the deposit, that the person accepting the deposits is not supervised by FINMA and that the deposits are not covered by the Swiss depositor protection scheme (see question 3.3 for further details).

Furthermore, a growing number of incubators and accelerators, either exclusively fintech-related (such as the association F10 or Thomson Reuters Labs – The Incubator) or focused on digital innovation in general including fintech (such as Kickstart Accelerator), support and guide fintech start-ups in transforming their ideas into successful ventures.

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Originally published in ICLG

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