FinTech License and Sandbox - Adjustments to FINMA Circulars 08/3 and 13/3

Tina Balzli Partner, Head Banking, Legal, PwC Switzerland 01 Jul 2019

As a result of the introduction of a new license category, the so-called Fintech license, and a revision of the provisions relating to the so-called Sandbox, FINMA had to amend its Circulars 08/3 "Public deposits with non-banks" and 13/3 "Auditing".

In addition to the conventional banking license, the partially revised Banking Act created a new license category with simplified requirements, the Fintech license (persons pursuant to Art. 1b Banking Act ("BA"); SR 952.0). The provisions regarding the Fintech license entered into force on 1 January 2019.

Furthermore, with effect from 1 April 2019, the Federal Council has adjusted the provisions regarding the Sandbox. Under the Sandbox exemption, institutions may receive and invest public funds of up to CHF 1 million without obtaining a license under certain conditions. A company may only operate beyond this threshold after FINMA has granted its Fintech license.

These changes, however, require a corresponding adjustment of FINMA’s supervisory practice. Therefore, FINMA had to partially revise its Circulars 08/3 "Public deposits with non-banks" and 13/3 "Auditing".

Circular 13/3: Fintech License – less extensive auditing requirements

The regulatory auditing requirements of companies with Fintech licenses (persons pursuant to Art. 1b BA) are based on the auditing of banks and securities dealers. Both the requirements for the risk analysis and the audit strategy take into account the simplifications for institutions with a Fintech license.

Irrespective of a possible reduced audit frequency, Fintech companies must, inter alia, confirm annually that the public deposits are kept in accordance with Art. 14f of the Banking Ordinance ("BO") and that the information obligations pursuant to Art. 7a BO are complied with.

Furthermore, the deadlines for the submission of the risk analysis, audit strategy and regulatory reporting are set at four months after the end of the financial year to allow companies with Fintech licenses to respond more promptly in the dynamic environment of the Fintech industry. The audit strategy is implicitly approved two months after submission.

Further adaptations and clarifications have also been made in Annexes 21 and 22 of FINMA's Circular 13/3.

Circular 08/3: Sandbox

Under the Sandbox exemption, institutions may invest the received public funds of up to CHF 1 million without obtaining a license. Operating in the so-called interest rate differential business, however, is prohibited under the Sandbox exemption and remains the privilege of the banks.

In FINMA's draft hearing on the partial revison of Circular 08/3, FINMA stated its interpretation of the term "interest rate differential business" pursuant to Art. 6 para. 2 let. b BO (paragraphs 9.1-9.3). The majority of the participants in the hearing, however, expressed the view that there is no room for interpretation of the term "interest rate differential business" since the will of the legislator is clearly established. FINMA recognised that Circular 08/3 is not necessarily the appropriate instrument for defining the interest rate differential business. Thus, FINMA's statements in the draft hearing on the term "interest rate differential business" pursuant to Art. 6 para. 2 let. b BO (paragraphs 9.1-9.3) have been deleted without replacement. According to FINMA, this term can be clarified by means of supervisory or, if necessary, court practice.

Entry into force on 1 July 2019

The amendments to FINMA Circulars 08/3 "Public deposits with non-banks" and 13/3 "Auditing" including Annexes 21 and 22 will enter into force on 1 July 2019.

 

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Tina Balzli

Tina Balzli

Partner, Head Banking, Legal, PwC Switzerland

Tel: +41 58 792 15 54

Thomas Schwyter

Thomas Schwyter

Senior Manager, Legal, PwC Switzerland

Tel: +41 58 792 24 14

Michael Kremer

Michael Kremer

Manager, Legal, PwC Switzerland

Tel: +41 58 792 23 54

Benjamin Bürgi

Benjamin Bürgi

Senior, Legal, PwC Switzerland

Tel: +41 58 792 24 39