07. Financial innovation in Switzerland: what is changing in the sector?

Switzerland has already established itself as a global hub for fintech, the most innovative and emerging sector in the financial industry. It has successfully regulated blockchain technology and the crypto ecosystem, attracting hundreds of startups. It has also created a testing ground for new financial ventures. Switzerland is playing a pioneering role.

Living in Bern is quite pleasant. For two decades, the city has consistently ranked at the top of Mercer's quality of life rankings. For two decades, the city has consistently ranked at the top of Mercer's quality of life rankings. The city is also the seat of the Swiss government and is famous for its chocolate. More recently, the city has become the center of the financial innovation strategy, which aims to make Switzerland a global leader in the emerging fintech sector.

Since September last year, Bern has been home to the offices of the Swiss Financial Innovation Desk, better known as FIND. This new entity aims to serve as a catalyst for financial technology (Fintech), connecting innovation and research projects with investors and financial authorities around the world to drive progress in the financial sector. However, this is just the latest in a series of steps that Switzerland has taken in recent years to take a leading role in the fintech sector.

Financial innovation in Switzerland

Artificial intelligence, blockchain, sandbox, cryptoassets, cloud computing, regulation... In the future of finance, this new technological vocabulary intertwines with more traditional concepts. Many of these elements have crystallized in Switzerland's fintech revolution

Here are the latest trends and innovations in financial services in Switzerland:

  • Blockchain and cryptocurrencies. In August 2021, Switzerland became one of the first countries in the world to regulate blockchain technology and its applications, creating legal certainty in this emerging sector. According to Finance Swiss, a government platform in partnership with major financial market players, the country has established Lugano as its cryptocurrency capital and has successfully attracted over 1,000 blockchain companies in recent years. In addition, Switzerland is actively working to implement international standards to regulate crypto activities and put them on an equal footing with other financial assets.

The banking sector has also embraced innovation. In 2021, BBVA in Switzerland became a pioneer among the major banks in the eurozone by launching a Bitcoin trading and custody service, which was later extended to Ether. At the end of last year, it migrated this custody service to Metaco's Harmonize platform,™ which offers improved operational agility, top-level security and the ability to connect to blockchains beyond Bitcoin and Ethereum.

  • Regulatory advances: Sandbox and RegTech. The term RegTech refers to the use of technological tools to help financial institutions comply with regulations more efficiently and effectively. Essentially, it is about improving the work of legal departments through the use of technology, allowing experts to focus on more complex issues and work more efficiently with regulators. Switzerland is home to many leading startups in the RegTech sector, which will shape the future of the banking sector.

In addition, Switzerland has been operating a regulatory sandbox — a secure test environment— since July 2017, which allows new projects to be tested in the highly regulated financial sector. In this way, projects in the sandbox can gain a better understanding of the existing regulatory obstacles to the implementation of new technologies and business models without jeopardizing their feasibility or the security of users. Many other countries have now adopted this approach.

  • L-QIF: An innovative approach for investment funds. Although Switzerland is one of the world's leading financial centers, its position in the investment fund market is not particularly strong. In an effort to change this dynamic, the country introduced Limited Qualified Investor Funds (L-QIFs) last year. These funds are designed to offer institutional investors an innovative investment alternative that is applicable to all types of funds, but is particularly suitable for new types of alternative investments, such as cryptocurrency funds.
  • A horizon shaped by AI. According to Deloitte's Finance Innovation Survey 2023, the vast majority of companies in the Swiss financial sector are researching or implementing artificial intelligence (AI) solutions. Furthermore, more than half of the executives surveyed stated that AI will make up a significant portion of their organizations' technology investments in the next two years, surpassing investments in process automation, advanced data analytics and blockchain.

In summary, financial innovation in Switzerland has fallen on fertile ground, supported by the banking system and the vision of the Swiss economic authorities. With the support of reliable and established financial players such as BBVA, the country has taken the lead, seizing the opportunities of this new era and establishing itself as the European center of the fintech revolution.