The Swiss Sandbox and a new Fintech Licence

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This Federal Council is the seven member executive that represents the seven states of Switzerland. The Council have prioritised fintech regulation as a means of making Switzerland’s financial system more competitive and increasing its quality.

Its main intended approach appears to create a non-interventionist – or in the words of the Federal Council – “authorisation-exempt” environment for innovation.

This is the Swiss equivalent of a ‘Sandbox’.

A ‘sandbox’ is commonly understood as a monitored regime for fintech. However, the Swiss approach does not involve active monitoring by the financial regulator, FINMA. In fact, firms in the Swiss sandbox regime would need to “inform their clients that their firm is not supervised by FINMA”.

That said, the Swiss Sandbox is to be a scale-based regime. The higher, for instance, the amount of public funds held by a fintech operator the more likely authorisation may be required. It also appears to be designed as a fairly generic regime with no attempt to categorise certain business models. This is to ensure, in the words of the Council, that the approach is “forward-looking”.  

The Federal Council is suggesting certain amendments to Swiss law to allow for the implementation of its Sandbox.

The first amendment proposed is to extend the amount of time public funds can be held on ‘settlement accounts’. This should be relevant for example for crowdfunding platforms that receive funds on behalf of project investors/backers. This should also be relevant for crowdfunding campaigns which can run for weeks where funds are received directly by the project owners throughout the course of the campaign. At the moment funds can only be held on settlement accounts for 7 days. The Council intends to increase it to 60 days.

Second, according to the Federal Council, Swiss law requires that “funds can be accepted from a maximum of 20 depositors without authorisation being required”. The Federal Council intends to add to that a legislative requirement that the amount of value raised should also not exceed CHF 1 million. See quote from Background Documentation here: “More extensive fund acceptance [above CHF 1 million] or if more than 20 public depositors were involved would require a separate approval by Finma

In summary, in the Swiss Sandbox if: a) you raise funds from less than 20 persons; b) the funds do not exceed CHF 1 million; and c) you complete the campaign or settle the funds in 60 days then you do not need to be licensed in Switzerland. Please note of course that the new regime is not in place yet and may change.

The above requirements have been extracted from the Background Documentation from the Federal Department of Finance here. The Federal Council Press Release that references the Background Documentation is here.

There are certainly some areas that require further clarity. The Press Release mentions that a person within the sandbox would need to be disclosed to FINMA and that their business would need to comply with the “current money laundering provisions” however there is no mention of these requirements in the Background Documentation. Further it is not clear what level of money laundering compliance is warranted and the form of disclosure required to FINMA.

Swiss lawyers Bar & Karrer have reviewed the Swiss Sandbox proposal and have noted the following on the application of anti-money laundering provisions:

The exemptions and reliefs proposed by the Federal Council do not extend to anti-money laundering regulations. FinTech firms that act as financial intermediaries will therefore continue, as a matter of principle, to be subject to the duty to join a selfregulatory organization or be directly supervised by FINMA for anti-money laundering purposes and comply with regulatory requirements regarding knowyour-customer and anti-money laundering.

Lastly, the Federal Council have proposed a new licensing regime for fintech firms. Under this new licence the fintech firm would be able to receive deposits of up to CHF100 million. However the fintech business would not be able to operate in the “lending business with maturity transformation”.   The capital requirements will be a minimum of CHF300k or 5% of the funds deposited whichever is highest.

The Federal Council have mandated the Federal Department of Finance (FDF) to prepare a draft of the amendments to implement the Swiss Sandbox and the new licensing regime.