The online magazine of the Swiss Bankers Association
December 12, 2018


The right framework conditions foster innovation

The right framework conditions foster innovation

Electronic identity, amended outsourcing circular, sandbox, fintech licence and guidelines for initial coin offerings - the framework conditions for the Swiss financial centre have been optimised during the year with these and similar measures. It is now essential to keep up the momentum and to implement other important elements, for example in the area of cloud computing.

Good framework conditions increase the international location attractiveness of Switzerland and thus strengthen the competitiveness of the Swiss financial centre. Principles-based and technology-neutral regulation is as an important basis for this. It provides room for innovation and ensures that each institution can implement the requirements in accordance with the size, complexity and the risk profile of its concrete business model. During the current year, the authorities and the sector took measures to further improve the framework conditions, in particular with respect to the increasing digitalisation of the economy. A detailed overview of Swiss regulatory activities in the context of digitalisation can be found here.

Better protection of personal data and the digital identity

With the increasing digitalisation of business processes and customers’ greater use of digital services, data are becoming the economy’s most important resource. Control over personal data, trust in the identity and authenticity of digital counterparts and protection from cyber risks are key factors in this world.

It is important to quickly implement the revision of the Swiss Act on Data Protection.

The revision of the Swiss Federal Act on Data Protection (FADP) intends to take this development into account. It is aligned with new technological standards and takes into consideration the developments at the European level as well. However, with the General Data Protection Regulation (GDPR) that came into effect in the EU this year, Switzerland now finds itself lagging behind in this area. To ensure that it doesn’t lose its recognition as a “third party with an adequate level of data protection”, which would complicate cross-border data transmission, it is important to quickly implement the revision of the Swiss Act on Data Protection.

In addition to the protection of individual data, success also depends on a reliable digital identity. In this context, the Swiss Bankers Association (SBA) is supporting the Federal Council in its endeavours to develop the legal framework conditions for a state-recognised electronic identity (e-ID). For example, with the help of the e-ID, selected attributes (e.g. name, address) can be shared, qualified electronic signatures  provided and payment orders approved. Both consumers and online services providers will benefit equally from this.

In addition to the protection of individual data, success also depends on a reliable digital identity.

In the corresponding draft of the e-ID Act of 1 June 2018, the division of responsibilities between the government and the private sector is particularly to be welcomed, which is best suited to ensure the key objectives security, data protection and rapid dissemination. The Act will be deliberated in parliament in 2019 and is envisioned to come into force by the end of 2020.

Consideration of the requirements of a digital economy

Increasing digitalisation is also resulting in greater outsourcing of business processes by banks and insurance companies to third parties. With FINMA’s revised outsourcing circular, the guidelines in place since 1999 for the outsourcing of business processes have been brought into line with the current requirements of the digital economy. The new circular governs the way in which banks are to deal with outsourced services and came into force on 1 April 2018.

More room for innovation

Today, both fintech companies and established firms benefit from greater freedoms for testing innovative business models. With the sandbox concept, they have been exempted from authorisation and supervision by FINMA for the acceptance of public funds of up to CHF 1 million since 1 January 2018. As a result, they can try out new business models in the market without the need for a licence. On 1 January 2019, the new fintech licence will be introduced, which compared to the current banking licence, will simplify the authorisation and operational requirements in the areas of financial reporting, auditing and deposit protection under certain conditions. These are welcome developments. However, it must be ensured that the new business models and opportunities are of benefit to all market participants, not just the new ones.

Guidelines for new technologies

The development and application of new technologies such as blockchain also require clear framework conditions and transparency for market participants. In mid-February 2018, FINMA issued guidelines on how it intends to deal with enquiries from ICO  organisers. It was one of the first authorities in the world to classify tokens, focusing on the economic function and purpose of tokens. FINMA’s guidelines are an integral part of positioning the Swiss financial centre as an international blockchain hub.

Harnessing momentum

Within the context of its priorities the SBA supports and promotes innovation-friendly framework conditions for the Swiss financial centre. For example, it published guidelines on opening corporate accounts for blockchain companies in adherence to the applicable due diligence requirements. In doing so, the SBA takes into account the growing market momentum in this area and contributes to the promotion of a diverse fintech ecosystem.

Further to this, the greater utilisation of cloud services by banks is another top priority. The task at hand now is to harness the momentum and to successfully implement the outstanding regulatory measures in the context of digitalisation.