Legislation and Supervisory Authorities

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 the country of its registered office is the Liechtenstein Financial Market Authority (FMA). As the registered shares A of the parent company are listed on the SIX Swiss Exchange, VP Bank is also subject to the rules issued by SIX on the basis of the legislation pertaining to stock exchanges, in particular 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 basis governing the entire financial services sector in Liechtenstein subject to the due-diligence requirements. 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 observe, in particular, 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 of relevance from the perspective of regulating financial markets and related pertinent legal bases which, during the past financial year, have been revised, enacted or are likely to be of relevance in the future.

The revised version of MiFID (2014/65/EU), supplemented by the directly applicable Regulation No. 600/2014 (MiFIR), became law on 3 January 2018. These regulations should render financial markets more efficient, more resilient and more transparent as well as strengthen investor protection. 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, the ESMA (European Securities and Markets Authority) has been given extensive powers of authority to issue detailed regulations, to which great importance in practice is attached. Even after the introduction of MiFID II, the powers of ESMA to issue regulations will ensure a considerably more dynamic regulatory environment than under MiFID.

MiFID II introduces the following central innovations:

Investment advisors must decide whether they wish to profile themselves as dependent or independent investment advisors on the market. Independent investment advisors may, inter alia, no longer may accept retrocessions or similar benefits from third parties.

In asset management, the acceptance of retrocessions or similar benefits from third parties is forbidden across the board.

Increased duties of documentation and disclosure apply both in the areas of investment advisory services and asset management. In particular, the client must be informed as to the extent to which investment recommendations and decisions taken correspond to his/her objectives and personal circumstances. 

Issuers of financial instruments must determine a target market for their products. Distributors (investment advisors, assets managers as well as depositary banks) must take this into account and in certain cases, bring sales outside the target market to the attention of the customer and report them to the issuer.

Additional recording duties exist 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.

The costs of the services provided to the client and the recommended or distributed financial instruments must be disclosed to the client prior to consummating the transaction. 

Notification and publication obligations regarding trading in financial instruments have been in part re-introduced or considerably expanded.

In the industry, the implementation of MiFID II has led to considerably more additional cost primarily in the area of IT infrastructure giving rise, in part, to the modification of business models.

The EU Regulation No. 1286/2014 concerning key information documents (Key Information Documents, KIDs) for packaged retail and insurance-based investment products (PRIIPs) came into force on 31 December 2017. It obligates all issuers involved to prepare, maintain and distribute KIDs which, in their structure and content, are largely standardised and must be particularly easy to understand for the consumer. All financial institutions distributing products are to make these KIDs available to their retail customers from the EU/EEA in anticipation of an investment transaction. As a result, investors should be better able to understand and compare the functioning, risks and costs of the products. Affected by this regulation are particularly structured products, investment funds as well as insurance investment products.

With its Regulation 2016/679, the EU intends to harmonise data protection in the processing of data of natural persons Europe-wide. In particular, the obligations to inform and make disclosure will be reinforced as well as new comprehensive documentation obligations introduced. The processers are to provide evidence at any time to the authorities, upon demand, that the existing guidelines are being complied with (processing lists, system and process descriptions). The powers of authority of the supervisory authorities are broadened and the threat of sanctions massively increased (max. penalties amounting to EUR 20 million or 4 percent of annual turnover). The DPBO is in the phase of being transposed into the EEA Agreement and it is planned to subject the existing data protection law to a total revision. 

The previous Payment Services Directive 2007/64/EG (PSD) was repealed and replaced by the EU Directive 2015/2366 on payment services in the internal market (Payment Services Directive, PSD 2). 

In comparison to the previous PSD, PSD 2 broadens the scope of application to include payments with non-EU countries as well as in foreign currencies and brings increased obligations of transparency and information requirements. Also, consumer protection and security requirements should be reinforced. In addition, the rules provide for the creation of two further types of payment service providers and third-party providers: payment initiator service providers as well as account information service providers. If need be, banks must grant access by the latter to client accounts using special interfaces. 

PSD 2 is still in the process of being transposed into EEA law. Regarding the national implementation of this EU directive, Liechtenstein has completed a consultation process at the end of 2017 concerning a new, totally revised Payment Services Act (PSA).

On 23 July 2014, the EU issued the Directive 2014/92/EU (Payment Accounts Directive). This Directive encompasses essentially the following points:

The right to a payment account with basic features (so-called “basic account”) in order to guarantee all legitimate consumers access to a payment account (keyword “financial inclusion”);

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 still in the process of being transposed into EEA law. It should be implemented in Liechtenstein through the creation of a new Law on Payment Accounts (PAL).

The EU Regulation No. 909/2014 on improving securities delivery and settlement in the EU and on central securities depositories (CSDR) took effect in EU member states already on 17 September 2014. With this regulation, settlement periods and settlement discipline regarding the delivery of securities should be harmonised. In addition, the regulation defines certain supervisory-law requirements for central securities depositories providing securities delivery and settlement services. 

The corresponding Liechtenstein Implementing Act (EEA Implementing Act on Central Securities Depositories; EEA-CSDA) was published on 22 December 2017 and will take effect as and when the aforementioned EU Regulation is transposed into the EEA Agreement. 

With the EU Regulation 2016/1011 concerning indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds, the accuracy, robustness and integrity of the reference values used in the EU internal market (e.g. Libor, Euribor) should be guaranteed in the spirit of investor and consumer protection. The EU regulation lays down various obligations for so-called users, contributors and administrators of indices. In this manner, for instance, users may only utilise indices which originate from an authorised administrator in the EU. 

This EU Regulation is still in the process of being transposed into the EEA Agreement. A consultation process was conducted at the end of 2017 concerning the Liechtenstein Implementing Act (EEA Benchmark Regulation Implementing Act; EEA-BRIA) which remains to be issued.

The Mortgage Credit Directive (RL 2014/17/EU; MCD) took effect in the EU on 20 March 2014 and complements the existing guidelines on consumer protection, misleading and comparative advertising as well as unfair business practices in the area of residential real-estate loans. The directive is designed to enhance information for consumers on mortgage and similar credit products and aims to establish a single market for residential real-estate loans. The MCD obligations are already partially in force in the EU. 

However, the MCD has not yet been transposed into the EEA Agreement. For this reason, the implementation on a national level and effective date of the MCD in Liechtenstein is currently pending. 

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 desire by issuing Regulation (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 the EU. 

The basic regulation (EMIR) was transposed into the EEA Agreement as of 1 July 2017 and thus is in effect in principle in Liechtenstein. The obligations introduced by EMIR, however, will only apply in Liechtenstein when all legal and implementing acts of law delegated to EMIR have also been adopted in the EEA Agreement. The date on which this transfer will occur and any applicable implementation deadline is currently unknown, for which reason the applicability of the obligations introduced by EMIR remains open. In all probability, the further legal acts should be adopted during the course of 2018. 

In Liechtenstein, the implementation of the 4th Money-­Laundering Directive (RL 2015/849/EU) was effected through the partial revision of the Law on Professional Due Diligence to Combat Money Laundering, Organised Crime and Terrorist Financing (DDA) and the Ordinance on Professional Due Diligence to Combat Money Laundering, Organised Crime and Terrorist Financing (DDO). At the same time, the criticisms from the International Monetary Fund (IMF) and MONEYVAL from the most recent country examination were addressed.

The new law imposes more stringent requirements for determining and evaluating existing risks regarding money laundering, organised crime and the financing of terrorism. It is clearly specified that business profiles must be updated regularly. In addition, domestic politically exposed individuals have now been added as a risk category. The expanded scope of application now encompasses all investment funds, whereas in the past, only investment-fund management companies were subject to the due-diligence provisions. From now on, a member of management must be designated who shall assume responsibility for ensuring compliance with the DDA and its related ordinances. 

On 1 October 2017, the Act on the Enforcement of International Sanctions (ISA) was modified. In this respect, the emphasis was on enabling the unrestricted safeguarding of international-law obligations on the part of Liechtenstein. Further points of focus in these changes relate to the direct and automatic adoption of UN sanction lists into local law (without transformation). In addition, the legal protection for individuals acting in good faith as well as individuals and legal entities affected by coercive measures was reinforced. The latter may now make application to the government for the deletion of their name. 

The Market Abuse Regulation (Regulation No. 596/2014; Market Abuse Regulation/MAR) was published in the Official Journal of the European Union on 12 June 2014 and has been in force in EU countries 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 reinforced. 

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 legal acts and the technical standards of ESMA. In Liechtenstein, the MAR and the national implementing law is currently being debated in the Liechtenstein Parliament. The second reading in the Landtag should take place in March 2018. After transposition into the EEA Agreement, the regulations will be enacted probably on 1 June 2018, thereby replacing the previous law on market abuse. 

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, entail a noticeable broadening and deepening thereof.

With effect from 1 January 2018, Liechtenstein has implemented the changes decided upon in Switzerland in connection with value-added taxes, leading to a lowering of the standard rate to 7.7 per cent and of the special rate to 3.7 per cent. 

As from 1 January 2018, double taxation agreements between Liechtenstein and Monaco as well as the United Arab Emirates entered into force. As a result, Liechtenstein has entered into double taxation agreements with 18 countries overall as from this date. 

On 1 January 2016, Liechtenstein has introduced the automatic exchange of information (AEOI). The initial AEOI reporting for the 2016 reporting period took place in 2017. As from 1 January 2017, AEOI was conducted with 61 partner countries. As from 1 January 2018, the relevant data will be exchanged with 88 AEOI partner countries.

Through the changes in the Law on Administrative Assistance in Taxation Matters, the legal basis for the spontaneous exchange of information was created, which took effect as of 1 January 2018.