Open Finance, Green Fintech Among Swiss Federal Council’s Top Areas of Focus for Coming Years

Open Finance, Green Fintech Among Swiss Federal Council’s Top Areas of Focus for Coming Years

by February 24, 2022

Switzerland’s Federal Council has set out 12 key fintech trends and technologies it will be putting a focus on for the coming years as part of the government’s ambition to establish the country as a top business location for digital finance.

A new report released on February 2, 2022 identifies opportunities and risks relating to digital finance, and outlines 12 specific areas of action for the government, among which open finance, regtech and suptech, and green fintech.

Open finance and open data

Striving to expand and promote open finance in the sector, the Federal Council says that it will be considering formal regulation if adoption and development turn out to be underwhelming.

Unlike the EU and the UK, Switzerland has so far refrained from mandating regulated financial institutions to use open interfaces, instead choosing to let the private sector itself push ahead with the standardization and opening of interfaces.

“If the progress is deemed insufficient, e.g. with regard to client and investor interests, the Federal Council shall instruct the Federal Department of Finance (FDF)/State Secretariat for International Finance (SIF) to submit a proposal to it on possible measures, including the examination of a statutory obligation to open up access to data via standardized interfaces,” the report reads.

Open finance, which refers to the practice of exchanging financial data over standardized and secure interfaces at the request of clients, has many potentials, the Federal Council says, providing customers with the ability to obtain an overview of all of their financial assets at the click of a button, open new bank accounts much more easily, and have their creditworthiness calculated much more quickly and accurately, among other use cases.

Beyond open finance, the Federal Council says it wants to encourage the use and exchange of data in the financial sector more broadly, an area that’s been largely underdeveloped in Switzerland, the report says. In particular, two distinctive themes are brought up in the report: the use of customer data to provide services that are personalized and better suited to one’s needs; and the use of shared data where one financial institution is granted access to another institution’s data either bilaterally or based on a shared or third-party operated platform.

Though shared data use remains largely theoretical at this stage, the concept holds great promises, it says. Larger and more diverse data pools means improved knowledge-building. Using algorithms and big data related technologies, insights extracted from these pools can be used to better combat money laundering and terrorist financing, mitigate cyber risks or optimize operations, products and distribution, among other use cases, it says.

Green fintech

The report also touches on green fintech, a field which Switzerland has committed to becoming a global leader in. Switzerland’s excellence and vast expertise in asset management gives it a competitive advantage over other jurisdictions, the Federal Council says, an edge it is looking to capitalize on in the ongoing shift toward sustainable investing.

In the coming months, the Federal Council says the Green Fintech Network will commence work on sustainability data with the goal of improving access for Swiss green fintech companies.

Fostering access to data was previously identified as a top priority for the group, which argued in its April 2021 action plan that gaining access to high quality sustainability data was one of the most potent innovation drivers for green fintech startups, helping them to create new products, processes and organizational methods, and boosting productivity.

The Green Fintech Network, a group of leading representatives of the Swiss green fintech sector, was formed in late-2020, spearheaded by SIF. It includes experts representing companies and organizations such as the Zurich University of Applied Sciences, F10 Fintech Incubator and Accelerator, PwC, Swisscom, MSCI Carbon Delta, Rep Risk and Inyova.

Aimed at acting as a bridge between the private green fintech sector and the government, the network will also be working towards other objectives, including encouraging the establishment of green fintechs in Switzerland, simplifying access to potential clients, and increasing the supply of risk capital in Switzerland, the report says.

Regtech/Suptech

Regtech and suptech were also identified as critical themes for Switzerland. Regtech, which refers to the use of technology to enhance regulatory and compliance processes, can be applied to many functions and processes, ranging from the opening of client relationships, the monitoring of risk (credit, market, liquidity and operational risk), trading and portfolio management, to reporting and disclosure requirements, the report notes. These solutions allow for efficiency and effectiveness gains.

Suptech, where technology is used by supervisory agencies and public sector regulators to carry out their responsibilities, involves tools and applications aimed at improving reporting, monitoring and enforcement capabilities.

In Switzerland, the Swiss Financial Market Supervisory Authority (FINMA) and the Swiss National Bank (SNB) are already using suptech solutions in addition to other supervisory instruments, the Federal Council says. However, more developments are expected in the foreseeable future, building on recent initiatives by FINMA such as the establishment of its Data Innovation Lab where the regulator has been conducting pilot projects.

Recent pilot projects included the use of machine learning to enhance time series analyses and forecasts, as well as the automatic processing of relevant text information such as annual reports or press articles using natural language processing.

To further enable the use of regtech and suptech in Switzerland, the Federal Council says it has instructed the FDF/SIF, in cooperation with FINMA and with the involvement of the industry, to identify possible obstacles to regtech solutions and to examine whether adjustments of the legal and supervisory framework are needed. A working group focusing on regtech and suptech will also be established later this year.

Besides open finance, green fintech and regtech/supertech, other themes and technologies of top priorities for Switzerland include artificial intelligence (AI), cloud computing and cybersecurity. The government says it will also be keeping a close eye on “new configurations and players” that are fragmenting the value chain. A review of the existing legal and supervisory framework will be done with the goal of determining whether the existing perimeter is sufficient or if adjustments will need to be made.

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