This country-specific Q&A provides an overview of Fintech laws and regulations applicable in Liechtenstein.
What are the sources of payments law in your jurisdiction?
As Liechtenstein is an active member of the European Economic Area (EEA), the main sources of financial markets law and regulation are heavily influenced by European law. Payment services are primarily regulated under the Payment Services Act (PSA) and the Payment Services Ordinance (PSO), implementing the European regulatory framework for payment services, specifically Directive (EU) 2015/2366 (PSD II). Implementing regulations issued by the European Commission are directly applicable, once they are transposed into the EEA agreement.
Other relevant legal acts are the Banking Act (BA), the Electronic Money Act (EMA), the Postal Act (PA) the Distance Financial Services Act (FernFinG), the Due Diligence Act (DDA) but also the General Civil Code (ABGB), the Law on Property (SR) as well as the law on persons and companies (PGR).
Can payment services be provided by non-banks, and if so on what conditions?
Payment services in Liechtenstein can be provided by non-banks. The provision of payment services on a professional basis in Liechtenstein is, however, is subject to licensing requirements under the PSA. The licence is issued by the Liechtenstein Financial Market Authority (FMA), if all preconditions set out in Article 9 PSA are met and the FMA’s overall assessment is favourable. The most important requirements relate to the legal form, head office and substance of the applicant in Liechtenstein, capital requirements, requirements regarding sound and prudent management and governance arrangements as well as shareholder structure.
Generally, licensed, banks, credit institutions and electronic money institutions as well as a number of state bodies and authorities, central banks and postal institutions are considered payment service providers pursuant to Article 2 (3) PSA.
What are the most popular payment methods and payment instruments in your jurisdiction?
Still, payments by cash, invoice and direct debit are among the most popular payment methods in Liechtenstein. However, over the last years mobile pay and e-money providers have gained popularity.
What is the status of open banking in your jurisdiction (i.e. access to banks’ transaction data and push-payment functionality by third party service providers)? Is it mandated by law, if so to which entities, and what is state of implementation in practice?
Following the implementation of the PSD II in Liechtenstein, open banking is to a certain extent mandated by law. Banks thus typically offer access for account information, confirmation of funds and payment initiation. In addition, some banks also offer APIs that allow for further services.
How does the regulation of data in your jurisdiction impact on the provision of financial services to consumers and businesses?
Traditionally, data protection and integrity are strong pillars of the Liechtenstein banking system and wrongful disclosure of client data constitutes a criminal offence e.g. under the Liechtenstein BA or insurance supervision act. Further, the GDPR is directly applicable in Liechtenstein. Liechtenstein market participants and regulators have managed to navigate the digital transformation well so far.
What are regulators in your jurisdiction doing to encourage innovation in the financial sector? Are there any initiatives such as sandboxes, or special regulatory conditions for fintechs?
There is no genuine sandbox regime available. However, the regulator considers financial technologies to be an opportunity for Liechtenstein. To this end, the FMA has established a FinTech competence team (fintech[at]fma-li.li) with a mandate to support and accompany fintechs during the licensing process and to enter into a constructive exchange with innovative financial service providers to successfully implement innovative business models. Owing to the small size of the country, a core strength of the Liechtenstein market is its flexibility and short decision-making paths in all matters.
Do you foresee any imminent risks to the growth of the fintech market in your jurisdiction?
We do not see an imminent risk for the growth of the fintech market in Liechtenstein, however, qualified workforce is in high demand and in this regard, Liechtenstein is competing with financial centres all over the world. We believe that the ability to attract qualified workforce will be a challenge and an important factor to maintain growth.
What tax incentives exist in your jurisdiction to encourage fintech investment?
Liechtenstein generally is a very business friendly jurisdiction with a uniform income tax rate for companies of 12.5%.
Which areas of fintech are attracting investment in your jurisdiction, and at what level (Series A, Series B etc)?
Liechtenstein is attracting investors in insuretech, e-money business, payment services and blockchain related activities. There is no comprehensive study available for the Liechtenstein market, but it is not uncommon for fintechs in Liechtenstein to attract (pre-)seed to series A funding at the outset as well as series B funding.
If a fintech entrepreneur was looking for a jurisdiction in which to begin operations, why would it choose yours?
Liechtenstein strives to be a financial centre attractive for fintech start-ups and established intermediaries. As part of the government strategy, the financial centre welcomes and encourages research and development of innovative business models and financial services. One of the widely recognised efforts on a legislative level, was the enactment of a Blockchain Act (TVTG) as a first mover. As outlined above, the efforts continue on a supervisory level, where the FMA has installed a specialized practice group for fintech-related financial services (www.fma-li.li/en/regulation/fintech-in-liechtenstein.html).
Access to talent is often cited as a key issue for fintechs – are there any immigration rules in your jurisdiction which would help or hinder that access, whether in force now or imminently? For instance, are quotas systems/immigration caps in place in your jurisdiction and how are they determined?
Access to talent is one of the main challenges of any fintech hub. The Liechtenstein immigration laws are quite restrictive. Except for tourist visits, any stay / taking residence in Liechtenstein requires a permit. When issuing residence permits, a distinction is made between a permit for the purpose of work and for the purpose of residence without work. EEA citizens benefit from a semi-annual drawing of lots, where half of the residence permits issued for EEA citizens each year are allocated by a lottery.
Owning to the small size of the country, a large part of Liechtenstein’s workforce, however, is not resident in the country, but commuting in from neighbouring countries with much more lenient laws for immigration and residency, in particular for EEA citizens. The attractive salary and working environment give Liechtenstein companies access to a significant talent pool beyond its borders. With regard to third country nationals, the government has the possibility of granting residence permits on the basis of particular public interests.
If there are gaps in access to talent, are regulators looking to fill these and if so how? How much impact does the fintech industry have on influencing immigration policy in your jurisdiction?
There is no particular impact the fintech industry has on influencing immigration policy. As outlined above, however, the development of the financial centre as well as the promotion of research and development of innovative business models and financial services is an important pillar of the government strategy.
What protections can a fintech use in your jurisdiction to protect its intellectual property?
Copyright and patent law are particularly important for fintechs. Patents are effective for the entire protected area of Liechtenstein and Switzerland, based on a patent protection treaty the two countries. Administrative matters are handled entirely by the Swiss Federal Institute of Intellectual Property (IGE) in Bern. Further, Liechtenstein is a member of the European Patent Convention, the Patent Cooperation Treaty of June 19, 1970, and other international agreements in the field of patents. A work eligible for copyright protection is immediately protected from the moment of its creation and does not have to be recorded for this purpose. It expires 70 years after the death of the creator. A trademark will be registered in the Liechtenstein Trademark Register. An international registration with protective effect for Liechtenstein has the same effect as the national deposit and registration in the Liechtenstein trademark register. There is also the possibility of filing the trademark with the European Union Intellectual Property Office (EUIPO). Lastly, with regard to design protection, Liechtenstein is a member of the Hague Agreement, a design can be deposited internationally and thus obtains the protection of this law in the same way as if the design had been deposited in Liechtenstein.
Of course, it must always be assessed on a case-by-case basis, what protective measures are possible and appropriate.
How are cryptocurrencies treated under the regulatory framework in your jurisdiction?
Cryptocurrencies, assets and token in general as well as service providers that are active in the field are regulated under the Token and TT Service Provider Act of January 2020 (TVTG). The TVTG addresses both civil law and regulatory aspects and provides for necessary and relevant ground rules for dealing with cryptocurrencies and -assets. It is expected that MICAR, currently awaiting formal adoption on a European level, will be transposed into the EEA agreement.
Cryptocurrencies are not considered a legal tender under Liechtenstein law, other token, depending on their specific characteristics, may qualify as financial instruments or e-money.
How are initial coin offerings treated in your jurisdiction? Do you foresee any change in this over the next 12-24 months?
Liechtenstein has seen a number initial coin offerings and security token offerings between 2017 and 2019, with first ICOs conducted in 2017 and the approval of the first approved prospectus for an STO in 2018. Regulation depends on the quality of the token. An issuer may be required to draw up a prospectus under the Prospectus Regulation (EU) Νο. 2017/1129 or investor information specifically regulated under the Liechtenstein TVTG. Further, Liechtenstein token issuers will be required to register with the FMA under the TVTG. As outlined above, it is expected that MICAR will be transposed into the EEA agreement.
Are you aware of any live blockchain projects (beyond proof of concept) in your jurisdiction and if so in what areas?
The blockchain scene in Liechtenstein is vibrant and active and there are a number of successful blockchain projects live in the area of banking, custody solutions, asset management, infrastructure or trading.
To what extent are you aware of artificial intelligence already being used in the financial sector in your jurisdiction, and do you think regulation will impede or encourage its further use?
In some areas of the financial sector, AI is already being used. Generally, regulation takes a technology-neutral approach and is not expected to impede its further use.
Insurtech is generally thought to be developing but some way behind other areas of fintech such as payments. Is there much insurtech business in your jurisdiction and if so what form does it generally take?
The notion that insurtech is way behind, cannot be confirmed from a Liechtenstein perspective, as it is one of the most important and lively areas of fintech in Liechtenstein. Various internationally renowned players active in life as well as non-life insurance are domiciled in Liechtenstein.
Are there any areas of fintech that are particularly strong in your jurisdiction?
Liechtenstein is particularly strong in the areas of payment services, insurtech and blockchain related business models, such as custody services.
What is the status of collaboration vs disruption in your jurisdiction as between fintechs and incumbent financial institutions?
The approach of established financial institutions to fintechs varies widely, ranging from a rather conservative approach to a pioneering role. Established Liechtenstein financial instructions have recognised the importance and potential of rapidly developing technology and with notable international success.
To what extent are the banks and other incumbent financial institutions in your jurisdiction carrying out their own fintech development / innovation programmes?
Also in this regard, approaches vary widely. Generally, it seems that a number of institutions are looking to develop and collaborate as far as it suits their business model.
Are there any strong examples of disruption through fintech in your jurisdiction?
Fintech has not proven to be disruptive, but seems to be rather an addition to Liechtenstein’s business models and the financial market. Important trends in recent years have created opportunities and catered to needs that were previously not adequately met and have thus strengthened and greatly benefited the financial centre.