7 Conclusion

Thanks to its developed banking and financial industry, stable politics, access to talent and attractivity as a living and working country, Switzerland has been able to use its strategic capabilities and build up its reputation in the FinTech industry (2). Its overall ranking is certainly skewed by some luck and competitive taxation (4.1), but the Confederation has also attributed this success to its innovation-friendly and technology agnostic regulatory style (2.1.2).

Recent developments in financial markets laws (3.1), namely the introduction of FinSA, FinIA and the FADP, do however seem to deviate from the aforementioned principles, innovation-friendliness in particular. These laws, rather than restrict activity, impose higher requirements for financial service companies. This is done through amendments forcing regulatory compliance before beginning their activity under penalty of law (FinSA), imposing a need for authorization through FINMA (FinIA) and imposing higher data protection laws (FADP). While these new regulations are aimed at improving client protection, their direct effect is an increase in running costs for all market actors - the consequence of which is higher barriers to entry. This makes already operational players more comfortable due to a smaller incoming competition threat, but also adversely affects the market by hindering innovation. The associated cost increase is also likely to asymmetrically burden start-ups, where innovation is usually concentrated.

Other departures of the regulatory “same business, same laws” and technology-agnostic style are to be highlighted within the FinTech industry. FinTech operating with business plans similar to those of banks benefit from a number of incentives including a regulatory sandbox and a FinTech license light (2.1.2.1), incentives that don’t apply to all FinTech businesses and allow for different requirements to be applied to different businesses. Selective improvements in the law have also been made in record time for distributed ledger technology (4.2), although the federal government deemed the then-current legislation sufficient. These improvements come in stark contrast to the higher barriers to entry that robo advisory firms are being faced with.

Finally, Switzerland’s position as the FinTech hub of Europe is one it may need to fight to keep. With the exception of main corporate taxation, the regulation in the United Kingdom we’ve put forward has proven more FinTech friendly, in particular with an open sandbox regime strategy catered to any innovative company ready to jump into the market (5.4). In comparison, Switzerland’s sandbox regime is rife with bureaucracy and licensing costs. The position of Switzerland, both in FinTech and innovation rankings, is especially threatened by the United Kingdom’s new target: DLT-based FinTechs. With their specially targeted FMI box, they could poach innovative start-ups trying to test their business plan and are not only using Zug as a tax haven.

True Swiss innovation must be created from within, not move to Switzerland for tax purposes. Switzerland has to foster real innovation for FinTechs by striking a balance between necessary regulation and leaving enough room for play to take full advantage of the capabilities it possesses. Whether this takes the form of deregulation or an increase in technology sensitivity is out of the scope of this paper, but is something industry actors feel strongly about.