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Fintech regulation draft demolishes barriers to entry

Fintech regulation draft demolishes barriers to entry

The Swiss Federal Council has unveiled a draft of new rules that would smooth the path for fintech firms in the country.

The new fintech legislation, which has been released for public consultation, introduces a new licence with lower regulatory provisions. This would reduce market entry barriers through technology-neutral regulation.

The discussion on regulation was led by SECO’s Martin Godel at the Swiss Fintech Convention held in Geneva, and came against a backdrop of increasing interest in fintech in Switzerland.

The country is now the world’s fifth largest fintech hub, ranking ahead of London and Hong Kong, after Singapore, Amsterdam, New York and San Francisco.

Asset managers, investors, lawyers and academics all gathered at the beginning of February to celebrate the advance and open up the debate.

Speaking at the convention in Geneva, Martin Godel, head of SME policy and deputy head of promotion activities directorate at SECO (State Secretariat for Economic Affairs), said that it is crucial to respect technology and business model neutrality and risk orientation at Fintech is key for the future of the country’s competitiveness as a financial centre.

He underlined three major proposals for change:

1.       Expanding time horizons

The draft proposes to extend the time frame for settlement accounts to 60 days for temporary deposits, without the need of a banking licence.

This would enable more efficient Crowdfunding and would apply to all players, not only Fintech initiatives.

As it stands, settlement accounts holding deposits for over seven days require a banking licence.

This compares to specific crowdfunding regulations in the US, Germany, France and the UK among other countries.

2. Sandbox approach

Currently, the '20-rule’ says that a banking licence is required when accepting deposits from over 20 people or when publicly soliciting deposits.

The trouble is that Fintech firms usually aim at over 20 investors and publish their offers online, this prevents them from testing new ideas.

The proposed solution would see the firms able to receive up to CHF1 million without the need for a banking licence so long as the money laundering regulation is respected and clients are informed that the financial service provider is not supervised by Finma.

This is set up would be ahead of many other Fintech hubs as the UK and Singapore are considering limited number of selected companies and a tight oversight by the financial market authorities with limited duration.

The new Swiss regulation would be open for all market players, with no registration needed by Finma and unlimited duration.

3. A new Fintech licence

The new draft proposes a new Fintech licence for deposit-taking businesses without maturity transformation.

At the moment many Fintech firms require a banking licence even though they have a lower risk profile as they don’t undertake maturity transformation.

The new licence would require businesses not to have deposits exceeding CHF100 million and require that they are not invested or interest-bearing.

The minimal capital requirement of the firm would be 5% of deposits, a minimum of CHF300,000.

This new licence would offers a ‘one-size-fits-all’ approach with not attachment to a specific business model, unlike regulations in other countries attached to specific models.

Fintech firms react to the legislation

The Swiss fintech convention saw nine preselected start-up Fintech firms take part in a pitch contest in front of judges, the winner of which was BioWatch, specialist in watch authentication through the pattern of the veins.

Speaking to Citywire Switzerland at the Swiss Fintech Convention, contestant in the pitches Balàzs Némethi, CEO at fintech firm aimed at enabling banking for refugees, Taqanu, said: ‘As we learn more about how deeply over regulated the ecosystem is, we really see that there is a definite need to open it up because there is no way that it can grow as fast as the technology.’

Tiphaine Saltini, CEO and co-founder of behaviourial finance regtech firm, Neuroprofiler said: ‘I definitely think Switzerland, especially Geneva is a great place for fintech in wealth management especially with this philosophy of finding a link between the new and previous generation.’ 

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