New Swiss FinTech rules – FINMA to revise its supervisory practice

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1. Revision of the Banking Ordinance (BO)

a) General

On 1 February 2017 the Federal Council initiated a consultation process in order to amend Swiss banking regulations. Its aim was to create appropriate regulations for FinTech companies operating outside the traditional financial sector, taking into account the specific risk potential of their respective business models. The proposed revision included amendments to both the Banking Act (“BA”) and the Banking Ordinance (“BO”). The consultation lasted until May 2017. On 5 July 2017 the Federal Council adopted the new Swiss regulatory framework in as far as it concerned the BO. The new regime came into force on 1 August 2017 to enable FinTech companies to benefit from these new rules with immediate effect.

In order to reflect the new legal basis with regard to the Ordinance, it was also necessary to revise the supervisory practice of the Swiss Financial Market Supervisory Authority (“FINMA”) as laid down in FINMA Circular 2008/3 “Public deposits with non-banks” (“FINMA Circular 2008/3”). Accordingly, on 1 September 2017 FINMA published a draft of a revised circular 2008/3 (“revised FINMA Circular 2008/3”) in a public hearing. The consultation period will last until 16 October 2017.

Draft of the revised FINMA Circular 2008/3

b) Revised provisions in detail
The amended rules in the BO provide for the following:

(1) Settlement account exemption
An exemption has been created for settlement accounts. This aims to allow companies to hold funds in a settlement account for 60 days without the operations carried out via this account being considered as an acceptance of public funds subject to licensing under the BA (Art. 5 para 3 let. c BO). The BO in its previous version did not contain a 60-day period, thereby creating a degree of uncertainty.

(2) Innovation space (“sandbox”)
Companies are allowed to hold public deposits of up to CHF 1 million without having to obtain a banking license (“sandbox”). Consequently, holding public funds of less than CHF 1 million does not qualify as “operating a commercial business” which is a requirement in order to fall within the scope of the BA and the BO (Art. 6 para 2 let. a BO). According to the former version of the BO, accepting public funds from more than 20 persons was always deemed as “operating on a commercial basis”. Under the revised version of the BO, the number of persons providing funds is irrelevant as long as the threshold of CHF 1 million is not exceeded. Furthermore, the funds raised may neither be invested nor be subject to interest payments, unless the main activity of the person raising the funds is of a commercial or industrial nature (Art. 6 para 2 let. b BO). Finally, the persons providing the funds must be informed that the respective business model is not subject to supervision by the Swiss Financial Market Supervisory Authority (FINMA) and that the rules on deposit insurance do not apply (Art. 6 para 2 let. c BO). This new innovation space will enable FinTech companies to try out new experimental business models without immediately having to obtain a banking license.

2. Content of the revised FINMA Circular 2008/3

Consequently, the revision of the BO outlined above should now also be reflected in FINMA supervisory practice. On 1 September, 2017 FINMA therefore published a draft version of the revised Circular 2008/3 implementing the new provisions on the settlement account and “sandbox”.

Section 16 of the revised FINMA Circular 2008/3 specifies that the settlement period within the settlement account exemption (see 1.b.[1] above) now stands at 60 days. Furthermore, the revised FINMA Circular 2008/3 points out that securities dealers are not affected by the settlement period and are therefore not limited in their activities. Finally, the revised FINMA Circular 2008/3 clarifies that the settlement account exemption has been created specifically to facilitate the operation of business models with the purpose of transmitting funds (e.g. money transmitting, crowdfunding or payment collection).

In section 8.1-8-5 of the revised FINMA Circular 2008/3, the provisions on the development area without licensing obligation (“sandbox”) are outlined in more detail (see 1.b.[2] above). The following points are of importance within these provisions:

  • Firstly, section 8.1 of the revised FINMA Circular 2008/3 clarifies that the threshold of CHF 1 million (Art. 6 para 2 let. a BO) should not be understood in an absolute manner. An enterprise may raise more than CHF 1 million provided that the liabilities towards clients never exceed CHF 1 million in total;
  • Section 8.2. of the revised FINMA Circular 2008/3 examines the prohibition of interest rates and investment activities (Art. 6 para 2 let. b BO). A person whose main activity is not of a commercial or industrial nature is prohibited from paying interest on or investing the funds raised. Accordingly, the funds must be liquid and remain permanently available in an account. FINMA expects the account to be kept separate from the other accounts used for the standard operations of the enterprise. It is assumed that a commercial or industrial activity is carried out if no financial services are provided or mediated (section 8.4. of the revised FINMA Circular 2008/3);
  • Clients must be informed individually (in writing or in a different verifiable form) of the fact that no supervision or deposit insurance is in place (Art. 6 para 2 let. c BO). A message displayed on the website of the enterprise or a disclaimer in the general terms and conditions is not sufficient (section 8.3. of the revised FINMA Circular 2008/3).

3. Summary and Outlook

All in all, These innovative amendments to the BO and the corresponding provisions in the revised Circular 2008/3 will substantially facilitate the Operation of FinTech business models in Switzerland. Moreover, the Revision of the BO and FINMA Circular 2008/3 is further evidence of the Determination of the Swiss government and FINMA to constantly improve and redesign the regulatory Environment in order to promote Switzerland as a Major FinTech hub.

Please do not hesitate to contact us:

Günther Dobrauz
Leader Legal FS Regulatory &
Compliance Services
+41 58 792 14 97

Tina Balzli
Head Banking, Legal FS Regulatory &
Compliance Services
+41 58 792 15 54

Simon Schären
Legal FS Regulatory &
Compliance Services
+41 58 792 14 63

Published by

Guenther Dobrauz

Guenther Dobrauz

Guenther Dobrauz
Leader PwC Legal Switzerland
Birchstrasse 160
Postfach, 8050 Zurich
+41 58 792 14 97

Guenther leads PwC Legal in Switzerland and the Legal FS Regulatory & Compliance Services department. He is a PwC Partner since 2015 and a global expert on legal advisory, specializing in supporting the structuring, authorization and ongoing lifecycle management of financial intermediaries and their products. He in particular also focuses on leading large scale regulatory change and compliance alignment projects.

Guenther is the author of books on investment selection, FinTech Regulation and European, Swiss and Liechtenstein investment law. He also wrote 80+ publications in international expert magazines and has to date been speaking at more than 60 conferences worldwide.

Guenther Dobrauz received his Masters and PhD degrees in law from Johannes Kepler University (Linz, Austria). He holds an MBA from the University of Strathclyde Graduate School of Business (Glasgow, UK) and has participated in Harvard Business School’s Executive Education Program.

Guenther Dobrauz was Legal Counsel of an international hedge fund group and served as Managing Partner and Legal Counsel of a Swiss Venture Capital firm. He has practiced in court and with a leading business law firm.