(a) Crowdfunding, peer-to-peer lending
Switzerland continues to see growth in crowdfunding (including crowd-supporting, crowd-sale and crowd-lending). The revision of the Swiss Banking Ordinance provides that the acceptance of funds for settlement purposes is allowed for up to 60 days without triggering a banking licence requirement. This exception is particularly important for crowdfunding platforms in Switzerland, as most collect money from supporters in a separate account on the platform before transferring the funds to the borrower or project initiator.
(b) Online lending and other forms of alternative finance
Alternative financing through initial coin offerings (ICOs) has also become popular and is thus receiving attention from the regulator. It is important to review each business model on a case-by-case basis. At present, ICOs are governed by no specific regulations and must therefore be individually reviewed for compliance with general financial market regulations. These includes the Banking Act, which may be applicable if the ICO includes the acceptance of deposits. The Anti-money Laundering Act may apply where the creation of a token by an ICO vendor involves issuing a payment instrument or where one virtual cryptocurrency is exchanged for another. The Stock Exchange Act may apply if the tokens qualify as securities. The Collective Investment Schemes Act may apply if the assets collected as part of the ICO are pooled and managed by a third party with a view to a return of profit.
(c) Payment services (including marketplaces that route payments from customers to suppliers (eg, Uber and AirBnb)
EU member states were required to implement the EU Payment Services Directive (2007/64/EC) by the beginning of 2018. The directive aims to make electronic payment transactions safer, more convenient and more cost effective. However, as it is an EU directive, it does not apply directly in Switzerland.
At present, there is no evidence that Swiss banks will need to consider the EU Payment Services Directive due to their participation in the Single Euro Payment Area. However, EU-based subsidiaries of Swiss banks must comply with the respective national implementation regulations. Further, the EU Payment Services Directive has an indirect effect on Swiss companies, given that EU payment service providers must also adhere to it if:
- only one payment service provider has its seat in the European Union; and
- currencies other than the euro are involved.
For the time being, the Swiss legislature has no plans to implement analogous regulations. The Swiss Finance Start-ups Association has launched an initiative for the self-regulation of market participants. As long as there are no analogous regulations to the EU Payment Services Directive in Switzerland, each bank is free to decide whether and how to make its application programming interface (API) accessible to third parties. If APIs are accessible, the bank must ensure compliance with adequate safety requirements.
Anyone that transfers money from one account to another, or that exchanges money/cryptocurrencies, must ensure it holds the necessary registrations as a financial intermediary in accordance with the Anti-money Laundering Act.
Pursuant to the Swiss Federal Act on Combating Money Laundering and Terrorist Financing of 10 October 1997, financial intermediaries include persons who, on a commercial basis, accept or keep assets belonging to others or who assist in the investment or transfer of such assets. Instead of being directly supervised by FINMA, such financial intermediaries may become a member of a recognised self-regulatory organisation to ensure compliance with the duties relating to the combating of money laundering. These self-regulatory organisations are in turn supervised by FINMA.
All securities dealers must be licensed by FINMA pursuant to the Swiss Federal Act on Stock Exchanges and Securities of 24 March 1995. The law distinguishes between various categories of securities dealers. Securities dealers are individuals, entities and partnerships that, on a commercial basis:
- trade in securities on the secondary market, either on their own account on a short-term basis or for the account of third parties;
- offer securities to the public on the primary market; or
- create derivatives and offer them to the public.
(f) Investment and asset management
The legislature has established innovation initiatives that may also cover business models in the field of investment, asset and wealth management. The acceptance of public deposits up to CHF 1 million no longer triggers a banking licence requirement, subject to the fulfilment of certain conditions. This sandbox exemption does not apply to other financial markets regulations, such as the Collective Investment Schemes Act and the Anti-money Laundering Act, which may also apply in this field. It is therefore important to review each business model on a case-by-case basis.
For the time being, asset managers that do not manage collective investment schemes are not subject to FINMA supervision – rather, they are required only to register as a financial intermediary under the Anti-money Laundering Act.
A supervisory regime for all asset managers will be introduced by the Financial Institutions Act, which is expected (together with the Financial Services Act) to come into force with the implementing ordinances on 1 January 2020.
(g) Risk management
Financial institutions must be adequately organised in view of the scope and complexity of the proposed business activities. They must also establish effective risk management systems,
in particular involving appropriate identification, limitation and monitoring of market, credit, default, settlement, liquidity, image operational and legal risks. In addition, they must have an effective
internal control system and an internal audit function which is independent from the executive management. Further details are included in circulars published by FINMA.
Switzerland has seen an increase in the use of roboadvice by financial institutions. A number of fintech businesses based in Switzerland are using artificial intelligence methods, which also benefit from the Domain of the Swiss Federal Institutes of Technology’s international position.
For the time being, pure investment advice does not trigger any licence requirements if it does not involve the distribution of any units of collective investment schemes. A new regime for investment advisers will be introduced by the Financial Services Act, which is expected to come into force with the implementing ordinances on 1 January 2020.
Even under the Financial Services Act, mere investment advice remains possible without a licence in principle. However, certain client advisers must now be entered in an adviser register and are subject to all duties of conduct set out in the new financial regulations, including their penal provisions. This will apply to client advisers of unregulated domestic financial service providers (ie, pure investment advisers) and of foreign financial service providers.
Fintech start-ups intending to provide insurance require authorisation under the Insurance Supervision Act. Further, independent insurance intermediaries that do not represent an authorised insurance company are subject to registration. The Insurance Supervision Act is currently under revision. Envisaged amendments include the possibility for insurance companies with particularly innovative business models to be exempt from supervision if they can guarantee the protection of policyholders.