The regulatory regime applicable to banks
Although Liechtenstein is a small country with roughly only 38,000 inhabitants, it has a workforce of approximately 37,000. The majority come from Liechtenstein's neighbouring countries, Switzerland and Austria. Hence, Liechtenstein is dependent on its close neighbours. Every day, 20,000 employees commute from Austria and Switzerland, as well as a few from Germany. Liechtenstein enjoys the best of both worlds in this context: on one hand, there is a longstanding and traditional partnership with Switzerland, which is not a member of the EEA or the European Union; on the other, there is the strong relationship with the EU through Liechtenstein's membership of the EEA since 1995. Below is a brief summary of these aspects.i Currency treaty
For Liechtenstein's financial services sector, the currency treaty with Switzerland is of significance in several respects. The 1980 currency treaty not only declared the Swiss franc to be the official means of payment for Liechtenstein, but also declared certain Swiss legal and administrative provisions to be applicable in Liechtenstein under the currency treaty (see the annexes to the currency treaty). The Swiss National Bank (SNB) acts as the national bank for Liechtenstein. This means that certain financial intermediaries (banks, investment undertakings) have to comply with reporting obligations to the SNB for monetary policy reasons. However, supervision of all financial service providers licensed in Liechtenstein remains exclusively with the competent supervisory authority. The currency treaty is a bilateral treaty under international law that is regularly updated and, if necessary, adjusted.ii The EEA and the EFTA Convention 2001 (Vaduz Convention)
As a member of the EEA, Liechtenstein – together with Norway and Iceland – participates in the four economic freedoms (services, capital, persons, goods) within the EU. As a result, European guidelines, ordinances and directives concerning banking, alternative investment funds, UCITs, asset management and all the other financial market aspects in Liechtenstein are regulated according to EU legislation. As such, Liechtenstein has a European passport for its financial market companies as well as for its financial market products.
Because Switzerland did not join the EEA, this led to a situation where several transitional periods and solutions had to be implemented. With the signing into force of the Vaduz Convention, most of these problems were solved. Switzerland still does not have the same access to the European market – especially in the field of services – as Liechtenstein and other EEA members. However, the Vaduz Convention helps.
The Vaduz Convention was a complete revision of the European Free Trade Association (EFTA) Convention, which was originally limited to trade in goods. This revision became necessary due to bilateral negotiations between Switzerland and the EU. This brings the contractual relations between Switzerland and the other three EFTA states to a level comparable to that created by the bilateral agreements between Switzerland and the EU. The Vaduz Convention entered into force on 1 June 2002 at the same time as the seven bilateral agreements between the EU and Switzerland. The EFTA Convention also contains provisions on trade in services and investments. The EFTA states grant each other access to markets that goes beyond WTO standards.iii Main banking acts and laws
The main acts and laws governing the activities of banks are:
- the Banking Act (BA);
- the Banking Ordinance;
- the Act of 18 June 2004 on Financial Market Supervision;
- the Act of 11 December 2008 on professional due diligence to combat money laundering, organised crime and terrorist financing;
- the Financial Market Stabilisation Institution Act;
- the Restructuring and Winding-up Act;
- the Market Abuse Act;
- the Asset Management Act;
- the Consumer Credit Act of 24 November 2011; and
- the Persons and Companies Act of 20 January 1926 (PGR).
In the past, many new EU rules and regulations have been implemented in Liechtenstein that have made it necessary for market participants to have special licences for payment services, e-money and many other aspects in the field of financial market business.
Banking licences are the most comprehensive licence, putting banks in a special situation: with a full banking licence, they may engage in all of these activities without additional licences as long as they provide the necessary knowledge, employees and organisation to undertake these activities.
Banks engage in activities set out in Article 3 Paragraph 3 BA on a professional basis. Natural and legal persons that are not a bank may not accept deposits or other repayable funds on a professional basis. According to Article 3 Paragraph 3 BA, banking activities are:
a) the acceptance of deposits and other repayable funds; in the case of an e-money transaction in accordance with subparagraph (f), the receipt of a sum of money shall not constitute an acceptance of deposits or other repayable funds if the received sum is directly exchanged against e-money;
b) the lending of third-party funds to an indeterminate circle of borrowers;
c) safekeeping transactions;
d) the provision of investment services and ancillary services referred to in Annex 2 Sections A and B [of the BA] as well as the execution of other bank related off-balance-sheet transactions;
f) the issuance of electronic money pursuant to Article 3(b) of the E-Money Act.
g) the assumption of suretyships, guarantees, and other forms of liability for other parties where the obligation assumed is monetary in nature;
h) trading of foreign currency for one's own account or on behalf of others.
Liechtenstein has implemented the rules and regulations according to EU standards; reference is made to the guidelines of the European Banking Authority (EBA).