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 and regulations 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, branches and/or representative offices.
In Liechtenstein, the activities of VP Bank are subject primarily to the Act on Banks and Securities Firms (Banking Act, FL-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 Criminal 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 Act; 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.
Federal Law on Financial Services (FIDLEG) as well as Federal Law on Financial institutions (FINIG)
The FIDLEG and the FINIG entered into force on 1 January 2020, with different transition periods for different obligations. FIDLEG and FINIG represent the Swiss counterpart to the European Union’s MiFID, but in many aspects, they go much less far. Among other things, they are als applicable to banks domiciled outside of Switzerland, provided that they actively serve clients in Switzerland, so that the regulation must also regularly be observed by Liechtenstein banks.
However, by complying with the MiFID provisions, Liechtenstein banks are also likely to meet the FIDLEG/FINIG requirements in most cases, so that the implementation effort is low compared to other regulations. Essential requirements are that client advisors must register in Switzerland and that banks must join an ombudsman office in Switzerland.
Deposit Protection and Investor Compensation Act (DPICA)
On 1 June 2019, the newly created Deposit Protection and Investor Compensation Act (DPICA) came into force. It implements the requirements of the Deposit Guarantee Directive, which is intended to give customers improved access to deposit guarantee schemes and thereby strengthen their confidence in financial stability in the EU and the EEA. The Directive particularly affects the Deposit Protection and Investor Compensation Foundation SV (EAS Liechtenstein). The new requirements require more comprehensive and more precisely defined coverage and shorter reimbursement periods. This results in a significant expansion of the EAS’s operational activities.
From the bank's point of view, clients must be provided with an annual information sheet containing information on deposit insurance. Statements of account for the accounts concerned must also be provided with appropriate information.
Payment Services Directive 2 (PSD 2)
The previous Payment Services Directive 2007/64/EG (PSD) of the EU 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 introduces increased obligations of transparency and informational requirements. Also, consumer protection and security requirements are to be reinforced. In addition, the Directive provides 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.
In view of the desired passporting for payment service providers from the EU area, the PSD 2 has already been implemented in Liechtenstein by means of national pre-adoption prior to its legally binding transposition into the EEA Agreement. The new, totally revised Payment Services Act (PSA) entered into force on 1 October 2019.
Payment Accounts Directive
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 access to a payment account (keyword “financial inclusion”) by all legitimate consumers;
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). A corresponding Report and Motion (no. 70/2019) was published during the summer.
Blockchain Act (TVTA)
At the beginning of October 2019, the Liechtenstein Parliament passed the new Act on Token and VT Service Providers (Token and VT Service Provider Act; TVTA).
Due to the high pace of innovation in blockchain technology, the abstract term “transaction systems based on trustworthy technologies (VT systems)” was used in this Act for blockchain systems. It introduces a new legal object, the “token”, to enable the mapping of the “real” world to VT systems in a legally secure manner. The law defines a legal framework for all applications of the token economy in order to ensure legal certainty for many current and future business models and to support the positive development of the token economy in Liechtenstein.
With the TVTA, Liechtenstein is one of the first countries to attempt to create a regulatory framework for Blockchain applications. The TVTA entered into force on 1 January 2020.
Mortgage Credit Directive (MCD)
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 credits. 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 credits.
The MCD has not yet been incorporated into the EEA Agreement and is in the final stages of the transposition process.
The Report on the public consultation process regarding the implementation of the MCD in Liechtenstein (creation of a Law on Mortgage and Housing Loans, MHLA) was published at the end of October 2019. The MHLA will most probably enter into force in Liechtenstein on 1 January 2021.
European Market Infrastructure Regulation (EMIR)/EMIR REFIT
EMIR was incorporated into the EEA Agreement as of 1 July 2017 and the obligations arising therefrom became largely applicable in Liechtenstein as of 1 June 2018; the main exceptions are the collateral-exchange obligations for non-cleared OTC derivatives, as the incorporation of the Delegated Regulation 2016/2251 into the EEA Agreement is still pending.
EMIR REFIT (Regulatory Fitness and Performance Programmes; Regulation (EU) 2019/834) entered into force in the EU on 18 June 2019 and aims at simplifying, increasing efficiency and reducing the regulatory and administrative burden in connection with the application of EMIR. The EEA adoption of EMIR REFIT is currently pending.
Regulation on Securities Financing Transactions (SFTR)
The Regulation on the reporting of securities financing transactions and reuse thereof (SFTR, (EU) 2015/2365) is designed to enhance transparency on the market of such securities financing transactions. This applies in particular to securities lending and borrowing transactions and repo transactions. The reporting requirements for the details of securities financing transactions will begin in the EU in 2020 for the parties concerned and serve to limit risks to financial market stability. The content of SFTR reports is largely based on the reporting obligations of EMIR. The EEA adoption of the SFTR is currently pending.
Law on the Register of Beneficial Owners of Domestic Legal Entities (RBODLEA)
In order to ensure on-going compliance with guidelines and to guarantee access to international markets, the Law on the Register of Beneficial Owners of Domestic Legal Entities (RBODLEA) was enacted (LGBl. 2019 no. 8) in implementation of the 4th Money-Laundering Directive (RL 2015/849/EU).
The register, which is maintained by the Office of Justice, contains details of the beneficial owner(s) of domestic companies or other legal entities as well as trust companies within the meaning of the 4th Money-Laundering Directive.
The RBODLEA became law on the 1 August 2019 with the decision of the Joint EEA Committee concerning the transposition into law of the Directive (EU) 2015/849.
Amendment of the Criminal Code (CC) and Code of Criminal Procedure (CCP)
Due to an existing gap in criminal liability, the new offence of travelling for terrorist purposes (§ 278g Criminal Code) was introduced. In this manner, the amendment of the FATF standards was also adopted and the obligation to implement the 5th EU Money Laundering Directive was observed.
A further amendment of the Criminal Code and the Code of Criminal Procedure (LGBl. 2019 no. 122) was intended to counteract the lack of effectiveness noted in the Moneyval Country Review of Liechtenstein in 2014. The amendment includes, in particular, the extension of the list of predicate offences to all offences punishable by at least one year’s imprisonment, the increase of the penal framework for qualified offences and the extension of the money laundering offences to include tax savings. In addition, amendments to the Code of Criminal Procedure have made it possible to hold a final hearing before the criminal court in the absence of the accused and to issue a conviction.
Due-Diligence Act (DDA) and Due-Diligence Ordinance (DDO)
At European level, the 5th Money Laundering Directive is due to be adopted by 2020. Amongst other things, the circle of parties subject to due-diligence obligations and the scope of application of the Directive are expanded and enhanced due diligence obligations defined with regard to high-risk countries and the use of virtual currencies. The extension of the powers of central reporting offices is also defined. Central registers or electronic data retrieval systems are to be set up to enable the prompt identification of all natural or legal persons who hold or control payment and bank accounts or safe deposit boxes at credit institutions in an EU/EEA state. As a member of the European Economic Area (EEA), Liechtenstein must ensure the implementation of all minimum requirements provided for in the Directive.
As a member of Moneyval, the Council of Europe's Committee of Experts on Combating Money Laundering and Terrorist Financing, Liechtenstein is regularly audited with respect to its compliance with international regulations, in particular the recommendations of the Financial Action Task Force (FATF) and European guidelines (directives and regulations). The next Moneyval Assessment is planned for the beginning of 2021.
Automatic Exchange of Information (AEOI)
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 and then continued accordingly in subsequent years.
As of 1 January 2020, the relevant data will be exchanged with 111 AEOI partner countries.
EU Directive of Administrative Cooperation (DAC 6)
Since Liechtenstein is not an EU member state, VP Bank Ltd is not subject to any notification obligations with respect to cross-border tax arrangements, as provided for by the sixth amendment to the EU Directive on Administrative Cooperation (DAC) effective 1 July 2020. VP Bank Ltd will closely monitor developments in this area.
Taxation of the digitised economy
On 31 May 2019, the OECD published a work programme on the tax challenges associated with the digitisation of the economy. It provides for taxation even without physical market presence (Pillar 1) and minimum taxation (Pillar 2). This work should be completed by the end of 2020. VP Bank Ltd will closely monitor developments in this area.
Guideline on Tax Compliance of the Liechtenstein Bankers’ Association
On 1 November 2019, the updated directive of the Liechtenstein Bankers’ Association regarding the tax compliance of its clients became effective. VP Bank Ltd has implemented this amended directive within the prescribed period.