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 its registered office is the Liechtenstein Financial Market Authority (FMA). As the bearer shares of the parent company are listed on the SIX Swiss Exchange, VP Bank is also subject to the rules laid down by SIX based on 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 comprehensive 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 Code – 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);
  • 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);
  • Act on the Recovery and Resolution of Banks and Securities Firms (Bank Recovery and Resolution Law; BRRA);
  • Persons and Companies Act (PCA).

The following discusses several 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.


International Taxation Agreements

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. Since 1 January 2017, Liechtenstein has defined 32 new countries (excluding Austria) as AIE partner states in Appendix 1 of the Liechtenstein AIE Ordinance. 

In this connection, particularly worth mentioning is the fact that the Principality of Liechtenstein and Switzerland have signed a comprehensive double-taxation agreement based on the OECD model on 10 July 2015 which took effect on 1 January 2017. The agreement does not contain a provision concerning the automatic exchange of information in taxation matters (AIE). 

The Agreement with Austria signed on 29 January 2013 on cooperation in the field of taxation as well as the Protocol on the amendment of the existing double taxation agreement (DTA) took effect on 1 January 2014. Based on the Taxation Agreement, all assets of persons resident in Austria recorded 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 on the accounts affected 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 compensatory 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, distributions as well as deemed distributions from investment funds has also 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 the basis of the Protocol concerning the amendment of the Agreement on cooperation in the area of taxes between Liechtenstein and Austria, which was ratified by the Austrian National Council in its session of 15 December 2016 (158/NRSITZ), the following amendments took effect principally on 1 January 2017:

As from 1 January 2017, only opaque asset structures and transparent asset structures established prior to 31 December 2016 are still caught by the Austrian/Liechtenstein Compensatory Tax Treaty. All other business relationships form part of the provisions on the automatic exchange of information. 

Furthermore, double-taxation agreements with Iceland and Austria were signed by Liechtenstein in 2016 (Protocol of Amendment DTA).


Automatic Exchange of Information

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. On 21 November 2013, Liechtenstein thus signed the Multilateral Convention of Mutual Administrative Assistance in Tax Matters, 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 for the first time in September 2017 in respect of the calendar year 2016. On 7 July 2015, the Government of Liechtenstein adopted the Law concerning the Automatic Exchange of Information in Tax Matters (AIE Law). The current AIE Act serves to implement the applicable international agreements with partner states which provides for an automatic exchange of financial account information. The AIE Act as well as the related implementing Ordinance took effect as of 1 January 2016.

On 28 October 2015, Liechtenstein and the EU signed an agreement to implement 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 were thus put in place in all EU member states as well as in Liechtenstein by 1 January 2016. An exception in this respect for the automatic exchange of information (AIE) relates to Austria which will become effective only on 1 January 2017. 

At the same time as the signing decision, 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 and with the signing and implementation of the agreement, significant outstanding tax inequalities encountered by Liechtenstein in individual member states still existing because 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. 

Switzerland has begun with the implementation of the OECD standard which takes effect as of 1 January 2017. Various further countries, including Singapore, have announced that the implementation of the OECD standard will be delayed by one year until 2018 in their countries. In summary, it is to be assumed that the automatic exchange of information will be an internationally implemented standard by 2018 at the latest. 


Amendments to Due-Diligence Ordinance

Regarding the automatic exchange of information in matters of taxation (AIE), 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” in accordance with the definition of the controlling person in the CRS and in the draft bill for an AIE Law. 

The amendments are introduced in two stages. The first stage, which took effect on 31 December 2015 (LGBl. 2015 No. 249), comprised the reappraisal of existing clients, who, by virtue of a transitional provision, were not yet required to be aligned until this date with the disclosure rules in force. In view of the implementation of the 4th EU Money-Laundering Directive planned to take place during 2016, a second stage, however, was enacted as of 1 January 2016 (LGBL. 2015 No. 250), as a result of which the related regulations regarding the definition of economic beneficiary as well as the standard forms used to ascertain the latter were introduced, ahead of schedule, with risk-based implementation deadlines of 31 December 2018 and 2020, respectively.


Extension of Legal Administrative Assistance in Taxation-Related Penal Matters

In November 2015, the Liechtenstein Parliament (Landtag) adopted in second reading 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. 


US Tax Legislation: Foreign Account Tax Compliance Act (FATCA)

With the Foreign Account Tax Compliance Act (FATCA), the USA has issued a law which pursues the objective of obligating so-called 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).

Compliance with these disclosure and reporting obligations resulting from FATCA is ensured 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). The two 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 discussion. 

Through FATCA, the USA is thus attempting to introduce a seamless system for the global exchange of information on persons who are liable to tax in the US (US persons), as well as attaining a higher degree of tax transparency. To ensure this, 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 on them 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% withholding tax on all incoming US payment flows. The GIIN is further required 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)

In the meantime, two FATCA reports were sent by VP Bank Group companies for all customer relationships identified as US-Reportable Accounts covering the 2014 and 2015 reporting periods 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 with the result that the complete reporting content is reached only with the 2016 reporting year (FATCA reporting to be undertaken 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 undertake 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 or its sponsor.

In the case of all customer relationships first entered into 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. 


Implementation of the Amended Markets in Financial Instruments Directive (MiFID II)

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 more transparent, strengthen 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, for which reason the EU has delayed the implementation of MiFID II until 3 January 2018. Nevertheless, the deadline for the implementation remains tight. Even after the introduction of MiFID II, the competence of ESMA to issue regulations will ensure a considerably more dynamic regulatory environment than under MiFID.

MiFID II introduces the following central innovations:

  • 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, inter alia, no longer accept retrocessions or similar benefits from third parties.
  • Suitability report: Increased duties of documentation and of disclosure shall apply to both dependent and independent investment advisors. In particular, banks must inform their clients as to the extent to which their investment advice was aligned with his/her objectives and personal circumstances.
  • 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 identify the risks asso­ciated with the financial instruments recommended or offered, determine the client base to whose needs the financial instrument corresponds. It must be assured on an on-going basis that distribution is undertaken only to the defined client base. 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 communications dealing with the area of investment advisory services and placing of orders in connection with financial instruments.
  • Cost transparency: MiFID II places increased emphasis on cost transparency for clients, both regarding the services offered by the banks as well as the financial instruments recommended or distributed by them. 
  • Notification of trades: Notification and publication obligations regarding trading in financial instruments have been in part reinstated or considerably expanded. 

The implementation of MiFID II will require strategic decisions to be taken by financial institutions at an early stage and to amend business models and will lead to considerably increased costs particularly as regards IT infrastructure. The delays in issuing implementing provisions by the European Commission and ESMA constitute an additional challenge in this respect.


Tightening of regulations in the area of market abuse

The Market Abuse Regulation (MAR) was published in the Official Journal of the European Union on 12 June 2014 and is in force in EU states since 3 July 2016. The goal of these reforms on a European level is the creation of a common legal framework regarding insider trades, the disclosure of insider information and market manipulation as well as measures to prevent market abuse. In this manner, the integrity of the market and the protection of investors should be enhanced. The MAR is supplemented through the new CRIM-MAD (Market Abuse Directive; Directive on penal sanctions in case of market manipulation) as well as delegated acts and the technical standards of the European Securities and Market Authority (ESMA). It will apply directly in Liechtenstein once it has been transposed into the EEA Agreement which is anticipated during 2017. To enable its implementation, a national implementing law will be passed, thus replacing the previous law on market abuse. 

Although the previous focus of the EU market-abuse regulations remains unchanged, they will, however, become more precise and the guidelines, in part, noticeably more stringent (e.g. insider lists, duties of documentation). New rules on market soundings and trading bans for executives within certain time windows are introduced. In future, financial penalties will be in relation to Group turnover. The public naming and shaming of the offending individuals is also new. 

VP Bank has already effective measures in place to combat market abuse. The introduction of MAD/MAR will, however, involve a noticeable deepening and enhancement thereof.


Amendment of Corruption Law and Ratification of the Criminal Law Convention on Corruption

On 2 October 2015, the Liechtenstein Parliament (“Landtag”) deliberated in first reading on the Report and Petition No. 94/2015 concerning the amendment to the Penal Code, the Code of Criminal Procedure, the Law on Taxation and further laws (revision of the Corruption Law and of the decrees concerning proprietary rights). The second reading took place on 3 March 2016 (Report and Petition No. 4/2016).

With this bill, the Liechtenstein Corruption Law was aligned with international standards, thus creating the national legal basis for the ratification of the Criminal Law Convention of the Council of Europe concerning Corruption and the United Nations’ Convention against Corruption, UNCAC as well as the supplementary Protocol to the Convention on Corruption (Report and Petition No. 110/2016). 

The key aspects of the revision of the Corruption Law were the introduction of the new offence of passive corruption and corruption in business dealings (§ 309 Penal Code), the overhaul of the existing criminal offences relating to corruption (§§ 304 to 308 Penal Code) as well the new legal definition of the office holder (§ 74 par. 1 sect. 4a lit. a to c Penal Code).

As a result of the criticism raised in the Moneyval/IMF evaluation of Liechtenstein, the system of decrees concerning proprietary rights was overhauled. In addition to the introduction of a provision on confiscation in § 19a Penal Code, the rules and provisions on forfeiture were also amended (§§ 20ff. Penal Code).


Cross-border transactions

Within the framework of cross-border transactions, VP Bank is obligated, by virtue of supervisory law, to appropriately identify and manage the legal and reputational risks arising from these activities and to take measures to minimise the risks. Compliance with applicable foreign law constitutes a central task of VP Bank. In this connection, foreign regulations regarding the distribution of products are of increasing importance and must be taken account of and complied with when distributing products across borders. Furthermore, taxation aspects also play a significant role. The client should be made increasingly aware of the fact that investment transactions can have taxation consequences and that, depending on the circumstances, consultation with external professional support may be advisable.

Using so-called “country manuals” and the holding of in-house training courses, the client-relationship officers of VP Bank are briefed in-depth on cross-border activities as well as on the need to comply with applicable foreign law, thus rendering them “fit” for their tasks. 


PRIIP – Key information documents for packaged retail and insurance-based investment products

The EU Regulation No. 1286/2014 concerning Key Information Documents, KIDs for packaged retail and insurance- based investment products (PRIIPs) will come into force on 31 December 2017. It obligates all issuers of PRIIPs to prepare, maintain and distribute a large number of clearly written KIDs.

All financial institutions distributing products are to make these KIDs available to their retail clients from the EU/EEA in anticipation of an investment transaction. Affected by this rule in particular are structured products, investment funds and insurance-based investment products. Some time ago. VP Bank initiated a project in view of implementing this EU legislation.


EU Passport for Alternative Investment Funds (AIA)

After a protracted tailback period, the EEA Joint Committee resolved to adopt, on 30 September 2016, the first package of legal acts concerning the European (Financial) Supervisory Authorities (ESAs). This EEA package of laws to be transposed comprised, inter alia, the so-called AIFM Guideline und its EU implementing acts. It took effect on 1 October 2016 with the result that Liechtenstein, as a member state of the EEA, now also possesses, from this date onwards, the long-awaited EU passport for alternative investment funds (AIA). As of this date, the related regulations of the Liechtenstein Implementing Act (Law of 19 December 2012 concerning the Managers of Alternative Investment Funds, AIFMA) were amended accordingly.


Effective Date of the New IUA

With the transposition of the AIFM Directive into EEA Law on 1 October 2016, the previous Law on Investment Enterprises (IUA) of 19 May 2005 was repealed and replaced by the new IUA of 4 December 2015.

Following the above transposition of the AIFM Directive, the largest part of Liechtenstein investment-fund legislation (UCITS i.e. securities investment funds and alternative investment funds) is bound by European requirements (UCITS and AIFM Directives). Although only little time thus remains 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 groups of corporate entities) 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 which are not distributed. 


Payment Accounts Directive

On 23 July 2014, the EU issued the Directive 2014/92/EU on the comparability of fees related to payment accounts, payment account switching and access to payment accounts with basic features (Payment Accounts Directive). 

This Directive encompasses essentially the following points:

  • A right to a payment account with basic features (so-called “basic account”);
  • Transparency and comparability of fees for payment accounts (fee information and fee overview as well as a website with comparative details);
  • Provision of payment account exchange services by banks.

The EU Directive is to be implemented in Liechtenstein by the creation of a new Law on Payment Accounts (PAL) (expected as of 1 January 2018).


European Market Infrastructure Regulation (EMIR)

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 concerning OTC derivatives, central counterparties and a transaction register (“European Market Infrastructure Regulation, EMIR”). The obligations under EMIR are already in force, in part, in the EU. 

EMIR will be transposed into the EEA Agreement, in all probability, during 2017. The obligations arising under EMIR, however, will only become applicable in Liechtenstein when all legal and implementing acts of law delegated to EMIR have also been transferred into the EEA Agreement. The time on which this transfer (and any applicable implementation deadline) will take place, is currently unknown and thus the validity of the obligations introduced with EMIR is pending. 


Bank Recovery and Resolution Directive / Bank Recovery and Resolution Law

The EU has issued a Directive establishing a framework for the recovery and resolution of banks (RL 2014/59/EU) in order to be able in future to take preventive measures to surmount a banking crisis as well as the insolvency of a system-relevant bank. Based upon the aforementioned Directive, the Bank Recovery and Resolution Act (BRRA) was enacted in Liechtenstein and took effect on 1 January 2017. It is designed to enhance financial stability and replaces the existing provisions on the recovery and liquidation of banks. 

The BRRA contains three main elements: Firstly, there exists an obligation for every bank to prepare a recovery plan and a Group recovery plan for the attention of the supervisory authority and to update it regularly. Subsequently, the possibility is introduced for the authorities to take early intervention measures and finally for the new resolution authority to draw up an institution-specific resolution plan in order to be able to implement the latter when called for. 

If all prerequisites are met and there is public interest, the resolution instruments provided in the recovery plan can be implemented. These measures range from the possibility of selling the enterprise through to a bail-in and can be implemented against the will of the shareholders.

The effective use of the resolution instruments shall be assured through a resolution fund which is financed by the banks and is designed to protect taxpayers from additional burdens. Details are contained in the Law concerning the foundation to finance financial-market stabilising measures which took effect at the same time as the BRRA.

Important links to legislation and the Liechtenstein financial centre