Legislation and supervisory authorities in Liechtenstein

VP Bank Ltd, Vaduz, is constituted as a joint-stock company under Liechtenstein law. It is the parent company of VP Bank Group. The competent supervisory body in its country of domicile is the Liechtenstein Financial Market Authority (FMA). As the bearer shares of the parent company are listed on SIX Swiss Exchange, VP Bank is also subject to the rules laid down by SIX on the basis of the Swiss Federal Act on Stock Exchanges and Securities Trading and the related implementing ordinances and, as from 1 January 2016, on the basis of the Financial Market Infrastructure Law. The business activities of VP Bank Group are supervised by the local competent authorities of each country in which the Group is active through subsidiary companies or representative offices.

In Liechtenstein, the activities of VP Bank are subject primarily to the Act on Banks and Securities Firms (Banking Act, BankA) of 21 October 1992, as well as the Ordinance on Banks and Securities Firms (Banking Ordinance, FL-BankO) of 22 February 1994. The Banking Act lays down the framework for the supervisory activities of the FMA. The latter – together with the external banking-law auditors, who must in turn possess a licence from the FMA and are also under its supervision – constitutes the main pillar of the Liechtenstein system of supervision.

Under the Banking Act, banks and securities firms in Liechtenstein can offer a broad array of financial services. The Law on Professional Due Diligence to Combat Money Laundering, Organised Crime and Terrorist Financing (Due Diligence Act, DDA) of 11 December 2008 and its related Ordinance (Due Diligence Ordinance, DDO) of 17 February 2009 – in conjunction with the article on money-laundering contained in Art. 165 of the Liechtenstein Penal Law – constitute the relevant legal foundations for the entire financial services sector in Liechtenstein. These were revised on repeated occasions and comply with international requirements and standards. 

Within the scope of its business activities, and the financial services offered by it, VP Bank must, in particular, observe the following laws and related ordinances:

• Payment Services Act (PSA);
• Law on Certain Undertakings for Collective Investments in Transferable Securities (UCITSA);
• Law on Investment Undertakings for Other Assets or Real Estate (Investment Undertakings Act, IUA);
• Law on Alternative Investment Fund Managers (AIFMA);
• Law Governing the Disclosure of Information Relating to Issuers of Securities (Disclosure Act, DA);
• Securities Prospectus Act (SPA);
• Law Against Market Abuse in the Trading of Financial Instruments (Market Abuse Act, MAA);
• Law Governing Takeover Offers (Takeover Act, TOA);
• Persons and Companies Act (PCA).

The following discusses a number of developments and the legal foundations of relevance to financial market regulation which have been revised or put into effect during the past financial year or are likely to be of relevance in the future.

With its announcement of 12 March 2009, Liechtenstein undertook to implement the global standards on transparency and the exchange of information in matters of taxation in accordance with the OECD Standard. Since then, Liechtenstein has concluded numerous international taxation treaties, both double-taxation agreements (DTA) as well as Tax Information Exchange Agreements (TIEA) along the OECD model. 

In this connection, particularly worth mentioning is the fact that the Principality of Liechtenstein and Switzerland on 10 July 2015 signed a comprehensive double-taxation agreement based on the OECD model which is planned to take effect on 1 January 2017. The agreement contains a provision concerning the automatic exchange of information in taxation matters (AEOI). 

The agreement with Austria signed on 29 January 2013 on cooperation in the area of taxation as well as the protocol on the amendment of the existing double taxation agreement (DTA) entered into force on 1 January 2014. On the basis of the taxation agreement, all assets of persons resident in Austria held or administered by a Liechtenstein paying agent will be subject to an additional tax assessment on the basis of an anonymous one-off payment or disclosure of the banking relationship at 31 May 2014 or 30 June 2014, respectively. Since 1 January 2014, the current taxation of income from capital is levied using a lump-sum tax rate of 25 per cent or on the basis of voluntary disclosure on an annual basis. By ana­logy to the amendment of the Austrian capital gains tax (KeSt), the flat-rate withholding tax rate provided for in the Agreement between the Republic of Austria and the Principality of Liechtenstein for dividends, capital gains and realised gains on sale, income from derivatives as well as distributions as well as deemed distributions from investment funds has been increased to 27.5 per cent as from 1 January 2017. The tax rate for interest on savings remains unaffected by this change.

On 23 February 2015, the Government of Liechtenstein also signed a tax information exchange agreement (TIEA) with a supplementary protocol with Italy. The TIEA follows currently valid international standards. The rules set out in the supplementary protocol enable Italian taxpayers with assets in Liechtenstein to participate in the current Italian programme of voluntary declaration (VDP) on the best possible conditions. 

The supplementary protocol foresees the possibility of making requests, on the basis of current OECD standards, to identify persons who have not participated in the Italian voluntary disclosure programme and continue not to wish to disclose untaxed assets. The supplementary protocol will be applic­able for requests concerning the tax years or assessment periods commencing on 26 February 2015. The Agreement enters into force upon conclusion of the mutual approval process. The accord reached forms the basis for an enhanced cooperation between the two countries in which the commencement of negotiations on the conclusion of a double-taxation agreement is foreseen as a next step. 

Furthermore, during 2015 the following double-taxation agreements were signed by Liechtenstein: Andorra, Georgia, Hungary and the United Arab Emirates. In addition, the following agreements apply as from 2015: Belgium (TIEA), China (TIEA), Canada (TIEA), Malta (DBA), Mexico (TIEA) and Singapore (DTA).

On 9 July 2015, the Government and the Liechtenstein Tax Administration published a further joint declaration as to the Government Agreement from 2009 and the Liechtenstein Disclosure Facility (LDF). This "fifth joint declaration" contains in particular the necessary clarification in connection with the accelerated deadline as of 31 December 2015. 

With the Government declaration of 14 November 2013 and drawing on the previous financial-centre strategy, Liechtenstein again reaffirmed its commitment to the applicable OECD standards. Liechtenstein thus signed the Multilateral Convention of Mutual Administrative Assistance in Tax Matters on 21 November 2013, which regulates the various forms of cooperation in the field of taxation (in particular, the exchange of information). In October 2014, Liechtenstein committed itself politically in front of the Global Forum on Transparency and Exchange of Information (Global Forum) to commence the automatic exchange of information in September 2017 in respect of the calendar year 2016. On 7 July 2017, the Government of Liechtenstein submitted to the Liechtenstein Parliament (“Landtag”) a draft bill concerning the automatic exchange of information in tax matters (AEOI Law). The current AEOI Act serves to implement the applicable international accord with partner states which will foresee an automatic exchange of financial account information. The AEOI Act as well as the related implementing Ordinance entered into law as of 1 January 2016. 

On 28 October 2015, Liechtenstein and the EU signed an agreement of the implementation of the automatic exchange of financial account information. On this basis, Liechtenstein and the EU member states will collect account data as from 2016 and mutually exchange this data automatically as from 2017. The necessary national legal bases in this respect must thus be in place in all EU member states as well as Liechtenstein by 1 January 2016. An exception in this respect for the automatic exchange of information (AEOI) relates to Austria which will commence only one year later. 

At the same time as the decision on signature, all EU member states have issued a declaration that they will take account of the new agreement in their bilateral relationship with Liechtenstein. An important signal was thus sent by the EU member states. With the signing and implementation of the agreement, significant outstanding tax inequalities encountered by Liechtenstein in individual member states as a result of the lack of information exchange can be eliminated. 

Formally, the signed agreement is a protocol of amendment which replaces the agreement on the taxation of interest between Liechtenstein and the EU existing since 2005. 

Various further countries, including Switzerland and Singapore, have announced that the implementation of the OECD standard will be delayed by one year until 2018 in their countries. As a whole, it is to be assumed that the automatic exchange of information will be an internationally implemented standard by 2018 at the latest. 

With the Directive of 1 September 2013, Liechtenstein banks have agreed on uniform minimum standards to be applied in relation to the due-diligence obligations concerning tax compliance by their clients. This Directive was extended as of 1 February 2015. The most important amendment is the extension of due-diligence obligations for existing clients. In addition, measures were taken to prevent customer relationships circumventing the scope of application of the automatic exchange of information. 

Regarding the automatic exchange of information in matters of taxation (AIA), Liechtenstein joined the "Early Adopters Group". As the "Common Reporting Standard" (CRS) published by the OECD in July 2014 essentially makes reference to the standards of the Financial Action Task Force on Money Laundering (FATF), amendments to the legislation on due-diligence obligations were necessary in order to implement certain requirements of the CRS in the Due-Diligence Ordinance (DDO) ahead of schedule and to amend the term “economic beneficiary” to conform to the definition of controlling person in the CRS and in the draft bill for an AIA Law. 

The amendments are introduced in two stages. The first stage, which entered into law as of 31 December 2015, had principally the goal of overhauling the existing documentation on the basis of the 3rd EU Money-Laundering Directive. In view of the overall implementation of the 4th EU Money-Laundering Directive due to occur later, a second stage was enacted as of the beginning of 2016, which, however, institutes, ahead of schedule, the corresponding regulations in the area of the definition of economic beneficiary with deadlines for implementation. 

In June 2015, the Landtag created the legal framework, in certain exceptional cases, to enable the persons involved only to be informed after the information had been transmitted to the foreign authorities (so-called derogation proceedings). Furthermore, two provisions of law were amended to conform with constitutional requirements. These amendments came into law as from 1 August 2015. 

Under the enhanced OECD standard, it is also allowed, under certain conditions, to address requests for information for a group of taxpayers which can be identified by a certain behavioural pattern (group queries). The previous legal position in Liechtenstein did not permit such group queries. Accordingly, the Tax Administration Assistance Act as well as the Tax Administration Assistance Act-USA were expected to be amended. 

In November 2015, the Landtag deliberated on and adopted the related modifications in second reading. The amendments came into force as of 1 January 2016.

Already on 16 February 2012, the Financial Action Task Force (FATF) issued its revised recommendations for combating money laundering, the financing of terrorism and the prolifer­ation of weapons of mass destruction. The revised recommendations provide, amongst other changes, for an extension of the list of punishable predicate offences to also include severe tax offences. Against this backdrop, the list of tax offences as predicate offence to money laundering of the related legal provision (Art. 165 of the Criminal Code (Penal Code)) was expanded as from 1 January 2016 to include the offences of tax evasion and qualified tax fraud. This means that, from this date on, those persons who are subject to due-diligence obligations are to report to the Financial Intelligence Unit (FIU) in cases of suspicious facts or occurrences. The overall implementation of the 4th EU Money-Laundering Directive is already anticipated in this area. 

In November 2015, the Landtag adopted the proposed amendment of the Legal Mutual Assistance Act. In future, Liechtenstein will also provide legal assistance in tax-related criminal cases. The amendment of the Legal Mutual Assist­ance Act came into force as of 1 January 2016. 

With the Foreign Account Tax Compliance Act (FATCA), the USA has issued a law which pursues the objective of obligating foreign financial institutions (FFIs), by way of contract, to identify those clients of theirs who are liable to tax in the USA and disclose those clients’ assets and income to the US tax authorities (Internal Revenue Service, IRS).

These disclosure and reporting obligations resulting from this Act are assured principally through bilateral agreements between the USA and the respective target state which, at the same time, represent, together with related national legislation, the legal basis for the aforementioned obligations. At present, two different models are employed world-wide which are designated as intergovernmental agreements (IGA). Both models differ principally in that under IGA-1, the FFIs discharge their reporting obligations to the respective national tax authority which then passes on the data to the IRS, whereas under IGA-2, the reporting obligations are discharged direct­ly to the IRS. Liechtenstein has opted for IGA-1, whereas Switzerland has taken the path of IGA-2 although a change of model is under consideration. 

Through FATCA, the USA is thus attempting to introduce a seamless system for the global exchange of information on individuals who are liable to tax in the US (US persons), as well as attaining a higher degree of tax transparency. To ensure that, FATCA provides for the introduction of a 30 per cent withholding tax on all US payment flows (dividends, interest, proceeds from sales of US securities, etc.). The levying of this tax is waived, however, insofar as the respective financial institutions fulfil their obligations resulting from FATCA, IGA and the duties imposed under the respective national implementing legislation. In order to attain the status of a so-called participating FFI (Participating FFI or Reporting Model 1/2 FFI) under the FATCA regime, the FFI must register with the IRS in order to receive a Global Intermediary Identification Number (GIIN). 

With this GIIN which is published in a central IRS register, the Participating/Reporting FFI identifies itself in future in business transactions as FATCA participant thereby avoiding in particular the requirement to withhold 30 per cent withholding tax on all incoming US payment flows. The GIIN is further required in order to meet the reporting obligations under the FATCA regime (FATCA reporting) and to complete and submit in an orderly manner the necessary US reporting forms (e.g. electronic FATCA reporting / QI reporting). 

The initial FATCA reporting was sent by VP Bank Group com­­panies for all customer relationships identified as US report­able accounts in April, June and July 2015 covering the 2014 reporting period either directly to the IRS – in the case of VP Bank (Switzerland) Ltd – or the respective national taxing authorities (all other VP Bank Group companies covered by the reporting obligation). 

The FATCA reporting obligation is phased in three stages in such a manner with the complete reporting content reached only with the 2016 reporting year (FATCA reporting is then made in 2017). 

Customer relationships of VP Bank both with individuals (US persons) as well as corporate entities (only US entity and/or passive NFFE with controlling US persons) may be affected by FATCA reporting. 

A Participating/Reporting FFI – such as VP Bank – must, on the one hand, review all accounts of individuals to ascertain whether these are held, directly or indirectly, by US persons and as part of this review, identify and document the status as a US person or non-US person. As regards customer relationships with individuals existing already on 30 June 2014, only those customer relationships where a so-called FATCA indicator exists, pointing to the fact that the account holder is subject to full tax liability in the USA are to be processed in this manner.

On the other hand, VP Bank Group companies must have their FATCA status documented by their corporate-entity clients via a self-certification of the entity. In the case of corporate-entity clients, VP Bank Group companies are only obligated to perform FATCA reporting in those cases where the corporate entity has indicated the FATCA status as a “passive NFFE” in the case of which so-called controlling US persons exist which were reported to the VP Bank Group company. 

In the case of all other FATCA statuses, FATCA reporting obligations and the prior duties of identification and documentation in connection with the FATCA relevant persons of these entities reside with the respective entity and its sponsor.

In the case of all customer relationships commenced since 1 July 2014, the aforementioned identification and documentation was and is undertaken and completed as part of the account opening process. 

VP Bank and all Group companies are registered with the IRS and have a corresponding GIIN. 

As of the middle of November 2015, 70 countries have concluded a model 1 IGA with the USA and 8 countries a model 2 IGA. A further 28 countries have reached a substantial and thus acceptable stage in negotiations with the USA concerning a model 1 IGA and 6 further countries have reached a similar stage in negotiations regarding a model 2 IGA. 

The Liechtenstein Landtag adopted the FATCA Law on 4 December 2014 and it became effective on 22 January 2015, together with the FATCA Agreement. 

The background of the revised MiFID is the experience gained in the financial crisis in 2007-8. The revised version of the MiFID Directive 2014/65/EU as well as the directly applic­able Ordinance No. 600/2014 (MiFIR) are designed to make financial markets more efficient, more resilient and trans­parent, reinforce investor protection, enhance the supervision of less well-regulated markets and tackle the problem of excessive price volatility on commodity markets. MiFID II now encompasses the whole chain of added value from the distribution of to trading in financial instruments. In contrast to the original directive, both the European Commission as well as the ESMA (European Securities and Markets Authority) have been given extensive powers of authority in issuing implementing ordinances for MiFID II to which great importance is attached.

The issuance of these implementing ordinances has fallen behind schedule and the commitment to the financial sector to have finalised all implementing ordinances by the end of 2015 could not be honoured. With this background, a postponement of the deadline for the implementation of MiFID II by one year i.e. to the 3 January 2018, is presently being intensively discussed at the level of the European institutions. Notwithstanding this, the process of transposing the MiFID Directive 2014/65/EU into local laws, such as the Banking Act, is moving ahead in Liechtenstein. 

MiFID II introduces the following central innovations, the implementation of which will set new strategic directions as a consequence:

• Dependent/independent investment advisory services: Banks must decide whether they wish to profile themselves as dependent or independent investment advisors on the market. As independent investment advisors, banks may no longer accept retrocessions or similar benefits from third parties. In elaborating investment recommendations, independent investment advisors must take into consideration a sufficient number of financial instruments offered on the market (diversified in terms of product type and issuer). In this respect and more particularly, they may not restrict themselves only to financial instruments of issuers or product providers which are closely related to the advisory bank (e.g. through distribution contracts).
• Suitability Report: Increased duties of documentation and of disclosure shall apply to both dependent and independent investment advisors. In particular, the client must be informed as to the extent to which the advice was aligned with his preferences, objectives and other attributes. 
• Portfolio Management: In portfolio management, the acceptance of retrocessions or similar benefits from third parties is forbidden across the board. In periodic suitability reports, the client must be informed as to the extent the investment guidelines have been complied with and if not, of the reasons why not. 
• Product Governance: Banks must create actual product governance. They must identify the risks associated with the financial instruments offered, determine the customer base whose needs correspond to the financial instrument and ensure that the latter is only distributed to the defined target groups. The analysis of the financial instruments must be repeated periodically. 
• Duty to Maintain Records: Additional recording duties are established for telephone conversations or other forms of electronic communication which deal with the area of investment advisory services and placing of orders in connection with financial instruments. Private means of communication (e.g. private mobile phones) in principle may not be used for contact with the clients. 
• Rules pertaining to third countries: There exists a uniform regime for the services to eligible counterparties and professional clients (e.g. insurance companies, investment-fund companies, etc.) regarding the cross-border activity of financial institutions from third countries (countries outside the EU/EEA, e.g. Switzerland). In these cases, only registration with the ESMA is required which, however, depends on whether the rules applicable to the financial institution in the respective third country were recognised by a decision of the EU Commission as being equivalent. After registration is complete, financial institutions will be able to service clients EU-wide from the third country concerned. The national rules currently in force may still be applied during a transitional period of three years from the date of the decision on equivalence. 

In the case of contacting private clients on a cross-border basis, there is only a partially standardised regime available. Each EU/EEA member state continues to be free to prevent the servicing of clients in a cross-border relationship and to prescribe the mandatory establishment of a branch. If this should be the case, the same requirements for the establishment of a branch shall apply but EU/EEA-wide. The provision of banking services on a cross-border basis continues to be possible upon sole initiative of the client (passive freedom to provide services). 

As already mentioned, the implementation of MiFID II will require already strategic decisions to be taken by financial institutions, in particular as regards the manner in which investment advisory services are organised. Delays in the issuance of implementing provisions by the European Commission and ESMA constitute in this respect an additional challenge. 

In Switzerland, several legislative projects are pending which have, as their object, a partial alignment of the currently applicable provisions of MiFID and MiFID II. In addition to the planned Law on Financial Services (FIDLEG) and the Law on Financial Institutions (FinIG), the new Federal Law on the Financial Market Infrastructure (FinfraG) as well as the revised Law on the Federal Authority for the Supervision of Financial Markets (FINMAG) have already become law as of 1 January 2016.

On 4 December 2015, the Landtag adopted the amendment of the Act on the Financial Intelligence Unit (FIUA) as well as further laws such as the Due-Diligence Act or the Act on Market Abuse. 

Following the modifications made to the Standards of the Financial Action Task Force (FATF) in 2003 and 2012 regulating the combating of money-laundering and the financing of terrorism as well as after the Moneyval country assessments (2008 and 2014) which were based thereon, it was the view of the Liechtenstein Government that the FIUA dating from 2002 required a fundamental overhaul. 

The most significant modifications concern the following points: 

• creation of a clear legal basis for the FIU’s right to information as well as a clarification that this right may not be opposed by professional or official secrecy instituted under special laws; 
• creation of sanction norms in case the right to information is denied;
• limitation of freeze of assets to suspicious activity reports in connection as the financing of terrorism (whilst doubling the previous embargo period from five to ten working days);
• extension of the ban on information for the period until the filing of a suspicious activity report and the request for information by the FIU;
• harmonisation of the unlimited validity of information bans through corresponding amendments on the Act on Market Abuse;
• creation of the basis for the appropriate deletion of amassed data relating to individuals;
• improved protection of persons subject to due-diligence obligations which make reports to the FIU whilst the report itself in future is no longer to be forwarded to the prose­cuting authorities.

As part of a revision of the FMA Act, new procedural provisions were introduced regarding the cooperation with foreign supervisory authorities in the area of the supervision of secur­ities in order to align them with current international standards (international legal administrative assistance). 

On 2 October 2015, the Landtag deliberated on the Report and Petition No. 94/2015 concerning the revision of the Criminal Code, the Code of Criminal Procedure, the Tax Act and further laws (revision of the Criminal Law on Corruption and decrees on proprietary rights) in first reading. The second reading takes place in March 2016. 

With this draft, the Liechtenstein Criminal Law on Corrup­tion is to be adapted to international standards (Accord on Criminal Law of the Council of Europe on Corruption and the Agreement of the United Nations against Corruption, UNCAC).

A material element of both of these enactments of inter­national law is the sanctioning of active and passive bribery in the private sector. 

These international implementation obligations are now fulfilled with the introduction of the new punishable charges of corruption and bribery in business relationships (Art. 309 Penal Code), the overhaul of the existing criminal offenses regarding corruption (Art. 304 through Art. 308 Penal Code) and the new legal definition of the office holder (Art. 74 para. 1 point. 4a lit. a to c Penal Code).

A further focus of the proposals is the revision of the system of decrees relating to property rights which had given rise to criticism in the recent past in the Moneyval/IMF assessment of Liechtenstein. In addition to the introduction of a provision on confiscation in Art. 19a Penal Law, the discontinuation of the prescriptions concerning asset recovery and the introduction of new provisions on forfeiture as well a reform of the existing prescriptions on forfeiture (Art. 20 et seq. Penal Code) are to be highlighted as the most significant amendment.

In its Announcement 2015/3, the Financial Market Authority of Liechtenstein (FMA) formulated its expectations from banks active in Liechtenstein concerning the handling of risks in the provision of services to persons abroad (cross-border announcement). In this respect, these latter are to have comprehensive internal risk management procedures in place addressing the risks resulting from cross-border services in order to minimise the legal and reputational risks resulting from such business. Banks are to identify, classify, document and finally to limit cross-border risks through the establishment of internal business rules, processes, controls and in­ternal sanctions. These requirements are designed to ensure, from a supervisory-law perspective, that applicable foreign law is observed and complied within the scope of providing cross-border services. 

The EU Directive 2011/83/EU has established new binding standards in consumer law in the field of consumer protection which were to be transposed in national law. The new provisions regulate aspects of the distance selling business (e.g. online trading) as well as so-called doorstep selling. Thus in future a 14-day cancellation right shall apply Europe-wide in many cases for online trades. 

As the direct reaction to the 2008 financial-market crisis, tighter requirements on the supervisory regime became necessary, in particular the level and quality of the equity of banking institutions. At the end of 2010, the country and government heads of the G20 states committed to implement a recommendation of the Basel Committee on Banking Super­vision for new capital-adequacy and liquidity standards for internationally active credit institutions (Basel III). 

The goal of the Basel III reform package is to enhance the strength of financial institutions and the banking system to withstand shocks from the field of finance and the real economy. To achieve these goals, the Basel III reforms act both on the level of individual institutions (micro-prudential regulations) as well as the banking sector (macro-prudential approach). 

On the European level, Basel III is implemented by the so-called CRD IV package; this consists on the one hand of an ordinance (Capital Requirements Regulation, CRR) which represents directly applicable law, and on the other, of a directive (Capital Requirements Directive IV, CRD IV) which is to be transposed into national law. In order to ensure a uniform set of regulations (single rulebook), the European Banking Authority (EBA) issues technical standards of implementation and regulation for certain areas. 

The European requirements were implemented in Liechtenstein by an amendment to the Banking Law and of various further normative texts and were transposed into the body of law of the country. The CRD IV package became law on 1 February 2015 within the framework of the revision of Liechtenstein banking legislation. Liechtenstein banks had to implement the new requirements predominantly during 2015 in close conjunction with Finance Market Supervisory Autho­rity of Liechtenstein (FMA) and the Liechtenstein Bankers Association (LBA). As VP Bank is classified by the Finance Market Authority of Liechtenstein (FMA) as a locally system-relevant bank, it has to fulfil the far-reaching requirements accordingly. 

The new legislation involves increased requirements on the quantity and quality of the capital base of banks in Liechtenstein. The minimum capital requirements are increased markedly through an additional capital buffer over the pre­vious level. Increased quality of equity is achieved by more stringent eligibility requirements for core capital. 

For the first time, stress-based bank liquidity standards were introduced additionally with the CRR as a reaction to the crisis in financial markets. The question whether an institution possesses adequate liquidity in the event of a crisis is assessed on the basis of two new indicators, the Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR).

As a supplement to the computation of minimum capital requirements which are based on risk weightings, a leverage ratio was introduced. Total assets and off-balance-sheet positions are thereby expressed as ratio of equity in order to equally take into account arbitrary but risk-exposed trans­actions. 

Besides quantitative requirements (e.g. capital-adequacy, liquidity, indebtedness), the package of reforms includes a series of qualitative targets. This concerns in particular prin­ciples of corporate governance and encompasses aspects of the internal organisation, requirements for members of the Board of Directors and Management as well as the establishment of Board Committees. Corporate governance covers equally the rules governing compensation policies of banks with the objective of avoiding misplaced incentives in this area. 

As regards securities-based investment funds, the Liechtenstein Landtag already had issued the Act on Certain Undertakings for Collective Investments in Transferable Securities (UCITSA) on 28 June 2011 in implementation of the so-called UCITS IV Directive of the EU. 

In contrast, two laws exist currently as regards non-securities-based investment funds, viz.:

• the Act on Alternative Investment Fund Managers (AIFMA) which entered into force on 22 July 2013 and was issued to implement the AIFM Directive of the EU as well as
• the already previously existing Act on Investment Undertakings for Other Assets or Real Estate (IUA).

The AIFMA and the IUA will remain in effect in parallel for the time being as the AIFM Directive of the EU has yet to be adopted in EEA law and accordingly, Liechtenstein has not yet received the EU passport for alternative investment funds (AIF). With the transposition of the AIFM Directive into EEA law, the previous IUA will be repealed. 

The reason for the absence of the EU passport for alternative investments pursuant to the AIFM Directive is that various acts of law of the EU, which include the AIFM Directive, could not yet be adopted in EEA law because of concerns about unconstitutionality raised by Iceland and Norway concerning the new European Financial Supervisory Authorities. 

During a meeting of the EFTA finance ministers with the Council of Europe on 14 October 2014, however, it was made known that the EU and EEA/EFTA countries were able to find a solution for the adoption in the EEA Agreement of the legislation concerning the new European Financial Supervisory Authorities thereby including the adoption of the AIFM Directive.

The technical EEA procedural steps necessary for adoption will, however, still require a certain time. Currently, it is estimated that the adoption of the AIFM Directive in EEA law will take place during the first quarter or first half of 2016. 

Following the imminent transposition of the AIFM Directive into EEA legislation, the largest part of Liechtenstein investment-fund legislation (UCITS i.e. securities investment funds and alternative investment funds) will be tied to European requirements (UCITS and AIFM Directives).

Thereafter, although only little time will remain for purely national investment-fund legislation, the Landtag has exploited this by adopting the new Investment Company Law (IUA) of 4 December 2015. This purely national investment-fund law regulates four categories of funds (investment companies for single investors, families, interest groups and group companies) which fall neither under the UCITS nor the AIFM Directives. It relates to investment companies for qualified investors where no amassing of capital within the meaning of the AIFM Directive or the specifying ESMA Guidelines 2013/611 occurs and are not distributed. 

On 4 March 2015, the Landtag adopted the amendments to UCITSA and the Financial Market Supervisory Law in order to eliminate excessive regulations which occurred in the process of implementing the UCITS IV Directive of the EU. 

The previous Art. 49 UCITSA prescribed the applicability of the onerous merger provisions also for other “structural measures” of the UCITS Directive (such as change of management company or depositary) although this is not foreseen in the UCITS Directive itself. Accordingly, the other structural changes are now viewed, as in other countries of Europe, as a modification of the constituent documents (Art. 11 UCITSA), for which a simpler procedure applies. 

On 4 December 2015, the Landtag adopted changes to the UCITSA which were rendered necessary by virtue of the European Directive 2014/91/EU (UCITS V Directive) and also the Directives 2010/78/EU and 2013/14/EU. The aforementioned UCITS V Directive guarantees investor protection equivalent to that provided under the AIFM Directive, in particular through a reinforcement of the regulations applic­able to depositaries, through the introduction of principles and practices of remuneration in management companies and through an enhanced harmonised regime of sanctions. The aforementioned Directive 2010/78/EU, on the other hand, regulates the obligations for information exchange and co­operation of the national supervisory authorities with the European Securities and Markets Authority ESMA. Finally, the Directive 2013/14/EU prohibits management companies from excessive recourse on the ratings of external rating agencies by stipulating that management companies should make independent assessments within the scope of their risk-management processes. 

In September 2009, the G20 countries agreed that all standardised OTC derivatives contracts are to be processed via a central counterparty and OTC derivatives contracts are to be reported to a transaction register.

The EU Commission gave recognition to this matter by issuing Ordinance (EU) No. 648/2012 of 4 July 2012 pertaining to OTC derivatives, central counterparties and a transaction register (“European Market Infrastructure Regulation, EMIR”). The EMIR obligations on the agreement of risk mitigation techniques and the reporting of OTC derivative contracts to a transaction register are already in force in the EU. Depending on the categorisation of market participants, a step-by-step introduction of OTC derivative contracts which must be processed over central counterparties will start in 2015. 

It is thus estimated that EMIR will be adopted in the EEA Agreement during the course of 2016, after which the EMIR obligations will also apply – directly – in Liechtenstein. In order that EMIR can develop the desired effect in Liechtenstein and that all necessary legal bases on a national level exist, an EMIR Implementing Law will be issued additionally in Liechtenstein (and concurrently with the date on which EMIR becomes law). 

In Switzerland, the obligations which flow from EMIR and which serve to regulate trading in derivatives were implemented by means of the Financial Market Infrastructure Law (FinfraG). In all probability, the FinfraG will take effect in the first quarter of 2016. 

During 2015, various legislative amendments were initiated having an impact in the field of credit-granting, which should become law in all probability in 2016. The Liechtenstein Law on Property, inter alia, was amended and the register of mortgages was introduced for the purpose of securing charges over real property as well as the promulgation of the Law on Official Property Assessments. In addition, the Directive on Mortgages 2014/48/EG (Residential Property Credit Contracts for Consumers) was issued by the EU, which introduces obligations for banks in the area of consumer protection. The Directive on Mortgages provides that the obligations shall be transposed into national legislation through a corresponding law in 2016. 

The EU has issued a directive establishing a framework for the recovery and resolution of credit institutions and investment firms (RL 2014/59/EU) in order to be able in future to take preventive measures to surmount a banking crisis as well as overcoming the insolvency situation of a system-relevant bank. This Directive must first be transposed into national law before it can become applicable in Liechtenstein. It is assumed that the Bank Recovery and Resolution Law will become law in Liechtenstein on 1 January 2017.