Innovation
Blockchain
Switzerland is regarded internationally as a leader in the area of distributed ledger technology (DLT) and blockchain, and a growing fintech and blockchain ecosystem has flourished in recent years.
A rapidly evolving technology requires an agile legal framework to create the conditions in which novel technologies can thrive whilst reducing the risk of abuse or fraud.
Legal Framework in Blockchain: Striking a balance
For Switzerland, it is crucial for the legal framework to enable rather than impede innovation so that the potential of new technologies can be fully realised. At the same time, Switzerland’s integrity and good reputation as a business location must be protected in this area.
Blockchain Ecosystem: Keeping pace with change
Switzerland is one of the most advanced financial centres in the fintech and blockchain sector with over 1000 companies and innovation-friendly framework conditions.
On 1 August 2021, Switzerland became one of the first countries in the world to enact legal regulations for blockchain technology. This creates legal certainty and enables innovation and growth.One of the key areas of the proposal is the amendment of securities law to provide a secure legal basis for the trading of rights through electronic registers. Additionally, the segregation of crypto-based assets in the event of bankruptcy is to be clarified by law.
Switzerland attaches importance to ensuring that the same rules apply to cryptocurrencies as to real monetary assets, e.g. in the area of combating money laundering. Switzerland is actively working for the rapid international implementation of the corresponding international standards so that no loopholes in the law and no havens for criminal business are created.
Further information
State Secretariat for international finance: Blockchain / DLT (admin.ch)
Fintech Sandbox
Digitalisation requires an innovation-friendly framework, and financial market regulation should not create unnecessary barriers to entry for new technologies. Switzerland has already made significant progress on removing unjustified barriers to market entry, allowing its strong fintech and blockchain ecosystem to thrive.
Sandbox Regulation
In July 2017, the Federal Council created an extended authorisation-exempt area, known as a ‘regulatory sandbox’, and extended the timeframe for settlement accounts to 60 days. The Swiss supervisor FINMA has also examined the regulations in its area and redesigned them to be technology-neutral (e.g. video and online identification).
On 1 January 2019, a licence category specific to fintech entered into force. Companies that operate outside the core business of banks are now able to accept deposits from the general public of up to a maximum of CHF 100 million, on a professional basis and subject to simplified requirements.
Further information
FINMA – Authorisation and Supervision
Open Banking
Open banking is set to shape the future of the banking industry and will bring significant opportunities for financial centres, including Switzerland’s.
Potential for all
Changing customer needs, new stakeholders and innovative technologies are posing challenges for traditional banks. In light of the increasingly fragmented value chain, where customers are served by a variety of financial services providers including banks, fintech companies, neobanks and providers from other industries, it is no longer a question of whether open banking will establish itself, but what form it will take.
Switzerland recognises the significant potential of open banking for all market participants. It is establishing framework conditions that facilitate business models based on open banking, thus increasing the competitiveness of Switzerland’s financial centre.
Open Financial Interfaces: The importance of trust
The opportunities that arise from open interfaces and third-party collaboration are endless, but it is key that this openness is not one-sided. The mutual exchange of data provides added value to all stakeholders including customers, third-party providers, and banks.
The opening of interfaces and increased exchanges of data can give rise to new challenges, especially in the areas of data protection and cybersecurity. For Swiss banks, the protection of customer data is fundamental. Exchanges of data must take place at the highest technical level, and this must be safeguarded not only by the banks involved, but also by any third-party providers.
Further information
SIX: b-link
Cloud Banking
Cloud services have the potential to boost the competitiveness of the banking sector, and cloud service providers are poised and ready to make this happen. A number of legal challenges must now be resolved before banks can successfully fully migrate to cloud-based systems.
New models = greater efficiency?
Many of us are not even aware of how often we use cloud services in our day-to-day lives, including when we send e-mails, stream music, or save our photos. Cloud services also offer banks and financial service providers myriad opportunities for increasing efficiency and for new business models.
Essential for success in the banking business is the ability to remain agile and adapt to new developments. Because of their specialisation, cloud service providers can usually provide their corporate customers with new business functions faster and more seamlessly than internal IT departments ever could. Additionally, companies can combine services almost entirely as desired, and with migration to a cloud infrastructure, they could potentially reduce their need for in-house IT infrastructure.
Cloud Banking: Opportunities for all
Certain technologies that were previously reserved exclusively for big companies are now becoming accessible to smaller banks, making significant economies of scale possible. This is game-changing for smaller institutions, potentially freeing them from some of the current requirements in terms of IT security and managing the IT infrastructure lifecycle that can be difficult to afford.
Further information
Reg Tech
Beyond the RegTech buzzword, regulatory technology offers potential for innovative, digital solutions. In the highly-regulated financial sector, banks and other service providers are continuously confronted with increasing regulatory requirements, which go hand in hand with risk management and compliance expenses.
Greater efficiency and improved compliance quality
RegTech refers to the use of technological tools to make internal compliance at financial institutions more efficient and effective. It can be used to record and manage straightforward, recurring cases completely digitally, significantly improving the work done by legal and compliance departments and allowing internal compliance experts to concentrate on more complex issues. But this is not the only benefit; just as important is the improvement of compliance quality through intelligent analyses in real time, and a lower error rate. All of this leads to a more efficient collaboration with supervisory authorities.
Broad spectrum of application
Existing and new rules must be explicitly verified in terms of their suitability for implementation using these new technologies. Successful implementation can be expected in the areas of risk management, regulatory reporting, customer identification and anti-money laundering, as well as overarching corporate governance.
Further information
State Secretariat for international finance (French and German only)
Future of Infrastructure
By definition, infrastructure is designed for stability and reliability, and any rapid change risks undermining the function it was designed to fulfil.
Nevertheless, all industries must evolve and adapt, and when it comes to innovation, the Swiss Stock Exchange (SIX) is at the forefront. The financial industry is going through a period of significant disruption both culturally and technologically and SIX is at the forefront, investing heavily in the advancement of its products and services in the areas of listing, trading and post-trade.
SIX Expertise
SIX is optimally positioned to take an active role in shaping the future of the Swiss financial centre and is focussed on the development of new services.
Further information
SIX: Future of Finance
SIX: Start-ups
L-QIF: an innovation for the Swiss fund market
Switzerland may be one of the world's major financial centres but until recently it had one significant area of unmet potential: investment funds. The volume of Swiss investment funds is just over 900 billion francs whereas Luxembourg has funds totalling over 4,000 billion euros.
Limited Qualified Investor Fund (LQIFs): A Welcome Development
The Federal Council decided to act to increase Switzerland’s share in the investment funds market and submitted to Parliament a proposal to create a new type of fund, the Limited Qualified Investor Fund. L-QIFs already exist in various forms in other European countries. The Swiss concept will offer institutional investors an innovative alternative to foreign solutions and thus close the gap between the Swiss investment fund market and its competitors. The Association of Swiss Fund Managers (SFAMA) warmly welcomed this announcement.
A flexible approach
Whilst specific investment requirements will apply to the L-QIF, they are defined very flexibly so as not to restrict innovation. The L-QIF is particularly suited to new types of alternative funds, such as crypto-funds, but the legislation does not seek to limit the potential of the model. The funds, which will not be subject to the approval of the supervisory authority (FINMA), are reserved exclusively for qualified investors such as pension funds or insurance companies.
This concept is a step in the right direction and marks an exciting moment for the industry.
Further information
Swiss State Secretariat for international finance
The industry’s view: Asset Management Association Switzerland