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WHAT WILL THE NEW FINMA FINTECH LICENCE MEAN TO INVESTORS?

14/06/2019

Recent news covered the Swiss Parliament’s introduction of the new FinTech licence to encourage innovation within financial companies that interested parties can apply for from the Swiss Financial Market Supervisory Authority (FINMA). Daniel Terry, CEO of IntaCapital Swiss (Geneva, Switzerland), that can advise interested companies in the qualification for FinTech licenses, gives his thoughts on what this will mean to the investor market, what the opportunities are for those in the UK and investors abroad and whether other countries should follow suit.

FinTech is a phrase that has been banded about in financial markets for a few years now. From financial start ups through to disrupter banks, FinTech seems to be the new Emperor’s clothes when it comes to investments. However, like any new entrant to the market, until it is established, few know of the real opportunities and risks.

Created to encourage innovation within the financial sector, the Swiss Financial Market Supervisory Authority (FINMA) is responsible for granting the licence that has more lenient requirements than a normal banking licence.  Permitting companies to accept public deposits of up to CHF 100m (with the provisos that the money isn’t invested or has interest paid on them), the FinTech licence can only be granted to a business registered in Switzerland.

With our main business based in Geneva, Switzerland and our regulated subsidiary in the United Kingdom (recently opened in Central London and the South of England), we have watched closely as the Swiss Parliament introduced the new FinTech licence.  A new financial regulatory category for Switzerland, FinTech sits between the regulated financial service providers/intermediaries (the least regulated financial professionals) and the highly regulated banks. This new ‘tier’ will be suitable for those financial companies operating inside Switzerland in the tech industry, including the growing crypto currency markets. 

Crypto currency is still in its infancy and the majority of the providers have little following or trust. We have already seen a rollercoaster of a ride with bitcoin for example that has soared by 60% this year from a crash of 75% in 2018[1]. IntaCapital Swiss is currently exploring an internet based crypto currency platform to help provide an interchange between real and physical currencies, which might include for example the possibility of banking retail store vouchers.  We believe it is these types of enterprises that would interest the new FinTech regulation.

But what does this mean to investors?  Will the introduction of FinTech create more opportunities and different financial platforms for investors to consider?

 As with all new innovations in finance, a level of safeguarding and assurance in investments are key.  The FinTech licence in Switzerland means that there is now more protection to invest into internet-based or ‘non-physical’ entities and may inspire more confidence to create investment and trading confidence in this sector. 

We believe that globally the move made by the Swiss government to introduce FinTech licences and the model of FinTech regulation will follow suite throughout the EU and the United Kingdom as popularity grows in ‘tech’ investments and the need to protect investors against fake online investments. Although already estimated that there are 1,600 fintech start-ups recorded in the UK alone[2] this year and over 11,500 organisations globally[3], the key is how many are robust enough to invest in and what security there are if the start up fails.   

Whilst many large Swiss financial institutions have existing ‘tech’ funds or operate subsidiary investment firms, they may consider consolidation under a new Swiss FinTech license. This also has the opportunity to pull investment from outside Switzerland back into its infamous financial bastion as foreign tech investment firms incorporate under the new Swiss FinTech license structure.

FINMA holds a high standard and those investment firms seeking a new FinTech licence will be subject to strict application qualifications and requirements. Whilst the process to apply is straightforward, FINMA has offered guidelines for applicants and those applicants will be subject to FINMA fees. 

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Finance Derivative is a global financial and business analysis magazine, published by FM.Publishing. It is a yearly print and online magazine providing broad coverage and analysis of the financial industry, international business and the global economy.

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