On November 30, 2018, the Federal Council (the highest executive authority of Switzerland) published the implementing rules governing the newly introduced Swiss “innovator license.” The Swiss Parliament has recently enacted this new license category.
Younger companies, in particular from the fintech and blockchain space, often engage in taking deposits from the public. Until recently, this activity was reserved for banks. However, fintechs that operate payment systems, including such systems based on cryptocurrencies or other blockchain applications, do not necessarily generate the typical bank risks that arise from the deposits and loans business of a bank (banks “borrow short to lend long” and therefore incur the risks of maturity transformation). The Swiss regulators came to the conclusion that the relatively onerous organizational, capital and liquidity requirements of banks are not adequate for smaller players that do not engage in the typical banking business.
After first introducing the “sandbox” concept (an unregulated space that allows innovators to accept up to CHF 1 million in public deposits), the Swiss legislature then enacted the “innovator license”. This new license category allows the licensee to accept a significantly larger amount of deposits, as long as the deposits do not bear interest and are not reinvested.
It was known that the Federal Council was going to enact the implementing provision that would regulate the specific requirements to obtain the “innovator license”. However, until those details were available, one could not predict how attractive such a license would be in practice. Now that these rules have been published with an amendment of the Banking Ordinance, it has become evident that the new license can indeed be an appealing framework for fintechs and blockchain-based businesses, especially since licensees are not subject to the liquidity and capital provisions applicable to banks.
Provided that the company is not involved in the typical deposits and loans bank business, and that the deposits are not invested, the new provisions will allow a fintech to accept deposits up to a maximum of CHF 100 million (EUR 88 million), with a minimum capital requirement of CHF 300,000 or 3% of the accepted funds. The license will only be granted if certain conditions relating to organization, risk management, compliance and accounting are met. Also, certain provisions of the Swiss Banking Act will have to be observed.
The revised Banking Ordinance will still provide space for banks to advance into the fintech sector. However, as the total of accepted deposits is calculated on a consolidated basis, most traditional institutions would exceed the CHF 100 million threshold by far. Provided that the fintech company that is an affiliate of a bank is manifestly independent from the banking group’s other business, exceptions can be granted by the Swiss Financial Market Supervisory Authority (FINMA). Accordingly, in certain cases, banks may also take advantage of the new license.
The process of obtaining an innovator license is expected to take significantly less than six months to complete, compared to the usual minimum of six months to attain a traditional bank license.
It is anticipated that the revised framework will create favorable conditions for Switzerland to compete with jurisdictions such as the UK, Singapore and Hong Kong, which have also modified their regulations in order to attract innovative businesses.