Alternative investment fund managers (AIFM)
Alternative investment fund managers (AIFMs) are entities of the financial service industry that manage and sell alternative investment funds (AIFs) on a commercial basis. Provided that they obtain a separate licence, they may also perform individual portfolio management with discretionary mandate. Further permissible services of a management company are listed in Article 29 of the Liechtenstein Alternative Investment Fund Managers Act (AIFMG).
AIFMs are not permitted to accept or hold assets of their clients at any time.
Asset management company
Asset management companies are entities of the financial service industry that perform or broker asset management services for third parties on a commercial basis. This especially includes individual portfolio management with discretionary mandate and investment advisory services. Other permissible services of an asset management company are listed in Article 3 of the Liechtenstein Asset Management Act (VVG).
Asset management companies are not permitted to accept or hold assets or funds of their clients at any time.
Auditing company (recognised)
The compliance of EAS organisation and business activities as well as the annual report must be regularly audited by a recognised (external) auditing company.
Auditing companies that meet the formal requirements of Article 37 para. 2a BankG may be recognised as auditors under banking law. Recognised auditing companies are supervised by the FMA.
Law from 21 October 1992 on Banks and Investment Firms (Banking Act).
Every bank and investement firm operating in Liechtenstein requires a licence from the FMA and must comply with the provisions of the Liechtenstein Banking Act. According to Article 7 BankG, one of the authorisation requirements is affiliation to a protection scheme in accordance with the Deposit Guarantee and Investor Compensation Act (EAG)
Bankruptcy occurs if an entity is insolvent despite recapitalisation or if it has poor prospects for recapitalisation.
If an insolvent business company cannot be recapitalised, bankruptcy proceedings will be instituted. The court of justice is responsible for opening and conducting the proceedings. The FMA acts as a recognised party.
Banks are entities of the financial service industry that are especially authorised to perform the following types of business on a professional basis:
- Acceptance of deposits and other funds subject to repayment (deposit business);
- Lending of funds to an undetermined group of borrowers;
- Safekeeping and administration of financial instruments for others (custody account business);
- Assumption of sureties, guarantees and other contingent liabilities for others (guarantee business)
- Proprietary trading or trading for third-party account with currencies, checks or exchanges (foreign exchange and notes/currency business)
Banks may also provide the following services:
- Investment services and ancillary services (investment business)
- Payment services
- Issuing of e-money
Individuals and entities that are not licensed as a bank and governed by the Liechtenstein Banking Act (BankG) are not permitted to accept deposits and other funds subject to repayment on a professional basis.
Call money and fixed-term deposits
Forms of time deposit accounts.
A compensation event in a investor compensation scheme pursuant to Article 36 EAG occurs when:
- the FMA has determined that a bank or other financial service provider is unable, for the time being, for reasons which are directly related to its financial circumstances, to meet its obligations arising out of investors' claims and there is no current prospect of being able to do so at a later date;
- the FMA has issued a prohibition on disbursements with respect to covered investments of a bank or other financial service provider (Article 35 para. 2 let. g BankG); or
- a judicial authority has made a ruling, for reasons which are directly related to the bank's or other financial service provider's financial circumstances, which has the effect of suspending investors' ability to make claims against the member institution.
Maximum amount up to which entitled depositors/investors can be repayed/compensated.
A bank client who holds credit balances on a bank account (holder).
Deposits are basically credit balances held by clients on bank accounts. The client becomes a creditor of the bank in the amount of the deposit. Client deposits can be kept in different types of accounts (e.g. private accounts, current accounts, savings accounts and time deposit accounts).
Law from 27 February 2019 on Deposit Protection and Investor Compensation at Banks and Investment Firms (Deposit Guarantee and Investor Compensation Act)
This Act governs deposit insurance and investor compensation at banks and other financial service providers. Its purpose is to protect depositors and investors in banks and other financial service providers and to safeguard confidence in the Liechtenstein banking and securities system and the stability of the financial centre.
European Forum of Deposit Insurers, headquartered in Brussels, Belgium (www.efdi.eu). EFDI covers the entire area of the European Council and is regularly consulted by the EU Commission and the European Banking Authority (EBA) as an expert association. EFDI’s main objective is to contribute to the stability of financial systems by enhancing the role of and promoting European and International co-operation in deposit insurance and investor compensation, facilitating discussion and exchange of experiences and expertise among its members.
The EAS has been a member of EFDI since 2010.
EU Directives are legal acts of the European Union (EU) and as such part of the secondary European Union law. Directives that are legislative acts are generally jointly released according to the ordinary legislative procedure by the Council of the European Union and the European Parliament by proposal of the European Commission.
The individual EU/EEA member states are free to decide how to implement the directives. Thus, they have certain degree of discretion in connection with the transposition of directives. However, if a directive requires the introduction of concrete rights or obligations, the national law that serves its transposition must establish the respective concrete rights or obligations.
Fiduciary and escrow accounts
In principle, a fiduciary account is an account held in one's own name, but for the account of a third-party. An escrow account is a special type of fiduciary account. The holder of the escrow account manages it on a trust basis on behalf of the third party.
Financial instruments include:
- Transferable securities of all classes which are negotiable on the capital market, such as
- shares in companies and other securities equivalent to shares in companies, partnerships, or other entities, including depositary receipts in respect of such securities;
- bonds or other forms of securitised debt, including depositary receipts in respect of such securities;
- any other securities giving the right to acquire or sell any such transferable securities or giving rise to a cash settlement determined by reference to transferable securities, currencies, interest rates or yields, or other indices or measures;
- Money market instruments which are normally dealt on the money market, such as treasury bills, certificates of deposits and commercial papers (excluding instruments of payment);
- units in undertakings for collective investment in transferable securities (UCITS; public funds), units in investment undertakings and units in alternative investment funds (AIFs);
- Derivative contracts such as options, futures, swaps, OTC forward transactions and all other derivative contracts;
- Other securities according to Annex 2 Section C of the Liechtenstein Banking Act (BankG).
Also included are blockchain-based instruments issued via distributed ledger technology (DLT) in the meaning of a 'security token'.
According to its statutory mandate, the Financial Market Authority Liechtenstein (FMA) ensures the stability of the financial market Liechtenstein, the protection of clients, the prevention of abuse and the implementation of and compliance with accepted international standards.
More detailed information is available at www.fma-li.li.
For a particular purpose dedicated assets that are made legally and economically independent within a separate legal person (legal entity).
Investment business comprise activities in connection with one or several financial instruments:
- Reception and transmission of orders;
- Execution of orders on behalf of clients;
- Individual portfolio management (with discretionary power within the scope of a client mandate);
- Investment advisory services;
- Dealing on own account (proprietary trading);
- Underwriting and placement;
- Operation of a multilateral or organised trading facility (MTF/OTF)
Ancillary services include the following:
- Safekeeping and administration on client's behalf;
- Investment research and financial analysis;
- Granting of credit/loans to investors;
- Consulting services in connection with corporate structuring;
Investment firms are entities of the financial service industry that perform investment business on a professional basis.
Investment firms are NOT permitted to accept deposits. They may, however, accept funds to be used in connection with investment business. Funds and financial instruments held, administered or managed by investment firms are NOT covered by the deposit guarantee scheme.
Funds and financial instruments that are held, administered or managed by a bank or other financial service provider in connection with investment business that require a licence.
Client of a bank or other financial service provider to whom he entrusts money or financial instruments for the purpose of safekeeping, managing and/or administration in connection with investment business requiring licence.
A joint account is a bank account with at least two account holders. Depending on the contract, the holders may dispose of the deposited assets individually ('or' account) or jointly (collective account, 'and' account).
Legal arrangements (similar to foundations)
Dedicated assets of all types with or without own legal personality that are legally independent and organised under civil law.
This especially refers to foundations or entities whose structure is very similar to that of a foundation (e.g. the Liechtenstein 'Anstalt') and trusts.
Liechtenstein Bankers Association (LBA)
The Liechtenstein Bankers Association (LBA) was established in 1969 and is the voice of the banks operating in Liechtenstein, both domestically and abroad. It represents the interests of affiliated banks vis-à-vis the government, authorities, the public as well as national and international organisations and associations, and coordinates the joint activities of the member banks.
Further information is available at www.bankenverband.li
Liechtenstein Banking Act (BankG)
Every bank and investment firm that operates in Liechtenstein requires a licence from the FMA and must comply with the provisions of the Liechtenstein Banking Act (BankG).
Management companies are entities of the financial service industry that manage and sell public funds (UCITS) on a commercial basis. Provided that they obtain a separate licence, they may also perform individual portfolio management with discretionary mandate. Further permissible services of a management company are listed in Article 14 of the Liechtenstein Collective Investment in Transferable Securities Act (UCITSG).
Management companies are not permitted to accept or hold assets or funds of their clients at any time.
Other financial service providers
Within the scope of investor compensation, the following financial service providers can join the protection scheme:
- Investment firms according to the BankG
- Asset management companies according to the VVG
- Public fund management companies according to UCITSG and alternative investment fund managers according to AIFMG, both with additional licence for individual portfolio management with discretionary mandate
A payout event in the deposit protection scheme pursuant to Article 7 EAG occurs when:
- the FMA has determined that a bank is unable, for reasons which are directly related to its financial circumstances, to repay deposits which are due and there is no current prospect of repayment at a later date;
- the FMA has issued a prohibition on disbursements with respect to covered deposits of a bank (Article 35 para. 2 let. g BankG); or
- a judicial authority has made a ruling for reasons which are directly related to the bank's financial circumstances and which has the effect of suspending the rights of depositors to make claims against it.
For purposes of creditor protection, certain account balances (deposits) are given preferential treatment in bankruptcy proceedings of banks (Article 56a BankG).
Financial instruments according to Annex 2 Section C BankG
The ongoing monitoring of the compliance with the preconditions for granting a license to entities that perform banking and other financial services on a commercial basis as well as the prevention of abuses are core duties of a prudential financial market authority. In Liechtenstein, banks and other financial service providers are supervised by the Financial Market Authority Liechtenstein (FMA).