On 30 November 2018, the Federal Council published the amended Banking Ordinance with the long-awaited implementing provisions for the new FinTech licence. The rules for this new licence will come into force on 1 January 2019.
Has the implementation been successful? Does the FinTech licence have the potential to spur innovation, or has another paper tiger been created?
The new FinTech licence
From 1 January 2019, companies whose operations do not form part of the core business of banks may, under certain simplified conditions, obtain a licence to accept deposits from the public of up to CHF 100 million on a commercial basis (FinTech licence). This measure is part of the provisions on innovation promotion, which Parliament incorporated into the Banking Act on 15 June 2018. The extension of the holding period for settlement accounts and the approval-free innovation room (sandbox) already came into force on 1 August 2017.
Further information on the FinTech licence can be found in our blog post dated 19 July 2017.
The definitive implementation
The Federal Council has now clarified which licensing conditions are linked to the receipt of the FinTech licence in accordance with the new Art. 1b of the Banking Act. The Banking Ordinance specifies the obligations from which the holders of a FinTech licence are exempt. However, all other laws that are applicable due to their activities (in particular with regard to money laundering and data protection) also apply to them.
The simplifications essentially comprise the following points:
- Significantly reduced minimum capital
- Exclusion of the requirements of the Capital Adequacy and Liquidity Regulations
- No deposit insurance
- Reduced accounting and auditing requirements
The minimum capital of persons pursuant to Art. 1b of the Banking Act will be 3% of the deposits accepted from the public, but not less than CHF 300,000. The use of this minimum capital is subject to restrictions. For example, it may not be invested in participations controlled by related parties.
Deposit protection measures
In addition to the exclusion of deposit insurance, the provisions of the Capital Adequacy and Liquidity Ordinances also do not apply. However, the deposits are subject to an investment and interest requirement. This means that they must be held in a way that substantially excludes risks for customers until repayment or proper transfer. The assets must either be kept separately from own funds or recorded in the accounts in such a way that they can be reported separately from own funds at any time. The latter mere accounting separation, however, requires the implementation of an ordinary audit.
It would also be possible to analogously cover the deposits with demand deposits at the Swiss National Bank (SNB). This would require holders of a FinTech licence to have a current account with the SNB and access to the Swiss Interbank Clearing (SIC) payment system. The decision on this issue was expressly left open by the Federal Council and will lie within the competence of the SNB.
Compliance and Risk Management
Analogous to the regulations for banks, holders of a FinTech license must also be equipped with their own compliance function. However, the scope and concrete form of such compliance depends essentially on the specific individual case. In addition, the departments responsible for compliance and risk management must be independent of the earnings-oriented core business. FINMA can grant exemptions from this requirement for business models with low gross income (i.e. less than CHF 1.5 million) and low risks.
Furthermore, the organizational requirements were specified. A FinTech licence can only be obtained by corporations with their registered office and actual administration in Switzerland. Its senior management bodies must comprise at least three members, of whom at least one third must be independent of the management. FINMA may deviate from these organisational requirements in special situations for start-ups in the FinTech sector.
Finally, the FinTech licence has been linked to special information obligations. Holders of a FinTech licence must inform their customers in plain language about the risks associated with their business model. The non-existence of deposit insurance must also be communicated to customers. The information must be made available in writing or in another form that allows proof to be provided in writing. A simple reference in the general terms and conditions does not satisfy these requirements.
Outlook and Application
Even though the Federal Council has set certain limits on the spirit of innovation, particularly through the strict investment and interest requirement, the FinTech license is an exciting new option for innovative business models. It remains to be seen whether it can give FinTech companies the hoped for wings. This will also depend on how FINMA applies the new regulations. FINMA has already been active and published guidelines for the application for the FinTech licence. The ball is now in the court of the market: the FinTech license will be ready for practical testing from 1 January 2019.
If you have any questions or require further information, please do not hesitate to contact our Financial Market Law Team.