Switzerland is Next Country Looking to Boost Fintech Innovation with Light Touch Regulations

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Announces Creation of a Regulatory Sandbox for Fintech Firms. New Fintech License to be Granted to Aspiring Firms.

The Swiss Federal Councial has announced its intent to reduce barriers to entry for disruptive financial firms. Joining a growing litany of nations, Switzerland is embracing Fintech

Excessive regulations can crush creativity and innovation out of any marketplace. Too frequently, myopic politicians and policy makers do what they believe is right by creating rule upon regulation attempting to protect people from themselves. Unfortunately the net affect can be a stifled economy and low job growth. Everyone believes regulation is extremely important and needed for markets to emerge. But you have to be thoughtful as to how you craft new rules. Switzerland correctly states that a “dynamic fintech system can contribute significantly to the quality of Switzerland’s financial centre and boost its competitiveness”.

Against this backdrop, the Federal Council of Switzerland has called for an easing of the regulatory framework for providers of disruptive financial technologies. The decision was made during its meeting today (2 November 2016). This easing should reduce barriers to market entry for providers in the fintech area and increase legal certainty for the sector overall. The Federal Department of Finance (FDF) has been instructed to prepare a consultation draft to help in the process.

The Federal Council said it was “striving for a future-oriented solution which is as comprehensive as possible”.

Their recommendations included three supplementary elements:

  • Set a deadline of 60 days for the holding of money in settlement accounts, which is particularly relevant for providers of crowdfunding services. Fundraising for a crowdfunding project can thereby be facilitated. This amendment would not be restricted to fintech companies, and would instead be generally applicable.
  • swiss-franc-money-switzerlandCreation of a regulatory sandbox (an innovation area). In this area, a provider can accept public funds up to a total value of CHF 1 million. These activities do not have to be authorised and are not monitored by FINMA. This fact must be disclosed, however. The current money laundering provisions are applicable in the case of a sandbox.
  • A new fintech licence will be granted by FINMA. For institutions which are restricted to the deposit-taking business (acceptance of public funds) and thus do not operate in the lending business with maturity transformation, less stringent regulatory requirements should apply than those for classical banks. Involvement in the depositor protection system is thus not envisaged. The public funds accepted by providers with a fintech licence may not exceed the overall value of CHF 100 million. So long as protection of the individual client is guaranteed by special conditions, FINMA can authorise a higher threshold. For institutions with the new licence, the minimum capital should amount to 5% of the accepted public funds, but no less than CHF 300,000.

Officials pointed to the fact that a Fintech license is new by international standards.  The Sandbox concept was created by the UK but many nations have since followed suit.

The FDF is expected to have draft by the beginning of 2017.



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