Digitalisation and Innovation Made in Liechtenstein
Bankers have been talking about FinTech, RegTech and SupTech at the breakfast table for quite some time now. This is an unmistakable sign that digitalisation in financial services has become a reality and is omnipresent. A few years ago, doomsayers predicted the downfall of traditional banking. Talk of ‘disruption’ was making the rounds. And according to many experts, the banks were dinosaurs to be eaten by small, agile FinTech companies or Silicon Valley giants.
But today, the dinosaurs are doing great. The buzzword is no longer disruption, but rather cooperation – namely cooperation between banks and FinTechs all along the value chain. Were these so-called experts simply wrong? Why did no ‘uberisation’ occur in banking? Trust certainly plays a role. Entrusting your money to someone simply carries more weight than just buying a book. But that alone is not a sufficient explanation, and it is not what I would like to focus on today.
Instead, one main reason for this development is that digitalisation is nothing new for banks. Whether as an asset manager or a retail bank – every financial institution has always been affected by digitalisation. Two areas have been the major focus of investment: Firstly, there is constant competition on the front end. The aim here is to offer clients better, tailor-made services through digitalisation. Secondly, internal processes and costs are continuously being optimised on the back end.
In Liechtenstein, it is fortunate that not only the banks have realised the potential of digitalisation early on, but also the Government and the Financial Market Authority (FMA), which have launched two initiatives to encourage that potential. The FMA’s Regulatory Laboratory is a first point of contact for FinTech companies to enter into a dialogue on regulatory, licensing, and supervisory issues. The goal is to facilitate innovation without weakening customer protection. And with its Innovation Clubs, the Government is providing a public innovation process for start-up companies wanting to gain a foothold in Liechtenstein with new business ideas. Both initiatives also benefit traditional banks by helping important expertise to enter the country and by encouraging the local development of cooperative business models.
But the wheels keep turning faster and faster. Blockchain is the new miracle in town. Since the prices of cryptocurrencies like bitcoin began rising to unimagined heights and caused both ecstasy and recently also desperation with their daily ups and downs, blockchain has dominated the headlines. This technology not only underlies cryptocurrencies but is also much more: bitcoin is only one of many blockchain applications. Now everyone agrees that blockchain technology will revolutionise the entire financial industry. No wonder this has also attracted the attention of regulators. The topic dominates discussions not only at the level of the European Union but also in international bodies, which in turn will have an influence on Liechtenstein as a member of the European Economic Area.
Especially among us (overly) cautious Europeans, rapid change and new technologies often may lead to an overemphasis on risks and dangers. Even though due caution and risk awareness are called for, this reflex must be reconsidered. Innovation should not be nipped in the bud because of fear of the unknown or potential risks. The financial industry always has been and always will be a business that deals in risks. It is important to manage them properly and appropriately. But we are also convinced that the opportunities offered by the new technology outweigh the risks. “Responsibility is proportionate to opportunity,” Woodrow Wilson said. Blockchain offers banks the opportunity to get to know clients and their needs even better and to do banking in a completely different way. And blockchain is ideally suited to making transactions more traceable and thus more secure and transparent.
Not least thanks to the spirited initiative of individual banks, Liechtenstein is not being ‘typically European’ in this regard. International specialists are recognising this. Liechtenstein has made a name for itself far beyond the FinTech and blockchain scene and also beyond the German-speaking world. In particular, the Government's announcement of a blockchain law has attracted considerable international attention. This is also reflected in the fact that Liechtenstein just won the Blockchain Ecosystem of the Year award at the Crypto Challenge Forum in London.
But the complexity and dynamics of blockchain are steadily increasing – in both regulatory and technological terms. For Liechtenstein, this means that businesses, policymakers, and supervisors must continue to coordinate closely so that laws and regulations do not remain dead letters. At the same time, we must continue to take care of the positive image of the financial centre that has been steadily built up over the past decade. And it must be borne in mind that neither regulatory nor technological standards are constrained by international borders. Cooperation across borders will be crucial. Last but not least, this must lead to the development of business and the creation of jobs. Governments and supervisors must always be willing to adjust their framework conditions to changing technological requirements and never lose sight of practice. For once, the following principle applies: “It’s not about our achievement, it’s all about our vision and our ambition.” And finally, we still face the greatest challenge, namely to make this technological change usable for our transformation into a more sustainable economy. The latest IPCCC report is no longer just a wake-up call – it’s a kick in the ass. Or in the words of Pat Cox, the former President of the European Parliament: “We are the first generation which destroys our planet, and we are the last which can save it.” Having said that, leadership is needed to unlock the trillions necessary for a sustainable future. Blockchain is the HOW. Sustainability is the WHAT.
