The LiechtensteinBanking Center

Edition 2012

bUSineSS loCation

Liechtenstein – in the heart of Europe

Liechtenstein – an international comparison:

A small country with an open, competitive and highly

diversified national economy. Liechtenstein’s economy is

heavily export-oriented. The manufacturing industry is the

largest sector, contributing a major share to the national

economy.

World rank

220 Area 160 km2

215 Population 36,476

151 Gross domestic product CHF 5.4 billion

71 Exports CHF 3.3 billion

(Sources: Office of Statistics 2012; UNdata, Key Global Indicators)

The Liechtenstein financial center

The Principality of Liechtenstein is a constitutional heredi-

tary monarchy on a democratic and parliamentary basis.

The country is situated in the middle of Europe, embed-

ded between Switzerland and Austria on the Alpine Rhine,

with a population of about 36,000. The official language is

German. The Head of State is Reigning Prince Hans-Adam II,

who transferred the state affairs to his son, Hereditary Prince

Alois, in 2004. Liechtenstein is governed by a grand coalition

headed by Prime Minister Klaus Tschütscher.

With its lean, citizen-oriented political system, Liechtenstein

offers a stable legal and social order as well as a tradition-

ally liberal economic order. The solid financial policy of the

country’s public budgets, short administrative channels and

transparent and predictable fiscal and legal frameworks

contribute to the attractiveness of the business location. The

Liechtenstein private sector benefits from the advantages

of its simultaneous membership in the Swiss economic area

and the European Economic Area (EEA) and its access to

highly trained specialists from its neighbouring countries.

Half of the more than 35,000 employees in Liechtenstein are

cross-border commuters.

Financial services constitute the second largest economic

sector, after industry and manufactring The location advan-

tages of the financial center include political continuity,

stability, legal certainty, the high quality of services, the

traditionally high protection of private property and privacy

and many years of experience in private banking and wealth

management.

FinanCial CenteR

tRadition

150 years of tradition

The establishment of the first Liechtenstein bank in 1861 be-

gan a long tradition that continues today. The 1923 Customs

Treaty with Switzerland and the introduction of the Swiss

franc as the official currency constituted the foundation for

the evolution of the financial center. Liechtenstein’s acces-

sion to the EEA in 1995 provided market access to the Euro-

pean single market and triggered a wave of bank formations.

1860

1880

1900

1920

1940

1960

1980

2000

1980 Currency Treaty with Switzerland

1991 Establishment of NEUE BANK1992 Establishment of Centrum Bank1997– Establishment of twelve today other banks*

1991 Accession to EFTA1995 Accession to the EEA and

the WTO2001 Creation of the Financial

Intelligence Unit (FIU)2005 Establishment of the

integrated Financial Market Authority (FMA)

1956 Establishment of Verwaltungs- und Privat-Bank

1970 First cash dispenser

1924 Introduction of the Swiss franc as official currency

1926 Enactment of the Law on Persons and Companies

1920 Establishment of LGT Bank in Liechtenstein

1923 Customs Treaty with Switzerland1923 Enshrinement of banking secrecy

in the Banking Act

1861 Establishment of the Liechten-steinische Landesbank

* Volksbank, Valartis Bank (formerly Hypo Investment Bank), Banque Pasche, Bank Frick & Co., EFG Bank von Ernst, Raiffeisen Privatbank, Kaiser Partner Privatbank, Alpe Adria Privatbank (in liq.), Bank Vontobel, Bank Alpinum, Lamda Privatbank AG, Sigma Kreditbank AG

The banking sector in figures

Of the 17 banks licensed in Liechtenstein today, seven are

subsidiaries of Swiss and Austrian institutions. In the years

since Liechtenstein’s accession to the EEA, the banking sec-

tor has experienced a phase of strong growth and expansion.

As of the end of 2011, client assets under management de-

clined slightly – due to market conditions – from the previous

year by 3.5 % to CHF 117 billion. By comparison, the broadly

based Swiss Performance Index (SPI) lost about 7.7 % over

the same time period. On a consolidated basis, i.e. including

the activities of the banks abroad, the assets under manage-

ment at the end of 2011 totalled CHF 166 billion. This repre-

sents a modest decline of 1.3 % compared with the previous

year, mainly due to the strong Swiss franc. The trend reversal

toward greater asset inflows observed since mid-2010 con-

tinued in 2011. The consolidated net inflow of new assets of

Liechtenstein banks was CHF 7.1 billion in 2011 (+21.5 % over

the previous year).

Assets under management in CHF billion

0

20

40

60

80

100

120

140

160

180

2000 2001 2002 2003 2004 2005

113106 103

107

127121 121

125

2006 2007 2008 2009 2010

117

2011

161171

96

bankS

(Source: LBA)

The financial sector – one of the main pillars

of Liechtenstein’s national economy

The financial sector contributes a total of 27 % to Liechten-

stein’s GDP and generates more than one third of State rev-

enue. Alongside industry, trades and other services, it is thus

one of the central pillars of the national economy. The finan-

cial sector is an important and attractive employer, with an

extraordinarily large share of highly qualified employees. A

total of about 5,000 of the approximately 35,000 employees

in Liechtenstein work in the financial sector. The banks play

a leading role in the financial center. They are among the

largest purchasers of goods and services in Liechtenstein.

Many small and medium businesses in Liechtenstein benefit

from their role as suppliers for the financial sector.

27 % of total value added

n 27 % Financial servicesn 28 % General services for business

(consulting, marketing, architecture)

n 37 % Industry and manufacturingn 8 % Agriculture and households

17 % of employees

n 17 % Financial services n 40 % General services for business

(consulting, marketing, architecture)

n 41 % Industry and manufacturingn 2 % Agriculture and households

FinanCial SeCtoR

(Source: Office of Statistics 2012, rounded)

International comparison of the economic significance

of the financial and banking center

Compared with other countries, the national economic

significance of the financial and especially the banking

sector is disproportionately high in Liechtenstein. Securing a

financial center with a long-term orientation based on

continuity and sustainability is thus of fundamental impor-

tance for Liechtenstein.

Contribution of financial services to the overall economy

Gross value added in % (2010 / 2011)

Liechtenstein

Luxembourg

Switzerland

UK

USA

Ireland

The Netherlands

Denmark

Spain

Belgium

EU 27

Japan

Italy

France

Hungary

Germany

Czech Republic

Poland

0 4 8 12 16 20 24 28

(Source: Office of Statistics 2012, Eurostat, EU key facts report TheCityUK, 2011)

added valUe

The Liechtenstein banking center –

niche player in a global market

Liechtenstein banks traditionally focus on private banking

and wealth management. They do not engage in invest-

ment banking and carry comparatively low risks. Their share

in the global market for cross-border private assets under

management is about 1 %. The financial center thus occupies

a niche position. Thanks to Liechtenstein’s participation in

the European single market, Liechtenstein banks enjoy full

freedom of services throughout the entire European Eco-

nomic Area. This makes it possible to offer financial products

from Liechtenstein that are based on the Swiss franc and

authorised throughout the entire EU. Thanks to this special

status, Liechtenstein offers attractive diversification options

to globally oriented investors.

Cross-border assets under management

Share in worldwide cross-border assets under managementTotal: USD 7,800 billion (2011)

n 27 % Switzerlandn 13 % Caribbean / Panaman 7 % Luxembourgn 24 % UK / Channel Islands / Dublinn 8 % United Statesn 13 % Hongkong / Singaporen 1 % Liechtensteinn 7 % Others

(Source: Boston Consulting Group 2012, rounded)

niChe playeR

Liechtenstein Bankers Association9490 Vaduz, LiechtensteinT + 423 230 13 23, info@bankenverband.liwww.bankenverband.li

Stability

The Liechtenstein banks – refuge of stability

Liechtenstein banks are distinguished by their financial

strength and stability. They have solid and high-quality equi-

ty capital resources. With an average core capital (Tier 1

ratio) of more than 17 % (17.2 % as of the end of 2011), Liech-

tenstein banks voluntarily hold more than twice the capital

resources required under Basel II and already today meet the

ratio required in future under Basel III. They are thus among

the best-capitalized banks in all of Europe and around the

world (average Tier 1 ratio of 10.4 % in the EU and 5.4 %

worldwide). During the financial crisis, no bank in the Princi-

pality of Liechtenstein required aid by the State. An impor-

tant reason for this is the banks’ prudent business strategy

based on along tradition in private banking and wealth

management. In this regard the banks offer an excellent

framework for long-term client relationships. Liechtenstein’s

AAA rating by Standard & Poor’s in November 2011 under-

scores the country’s reliability.

State aid for banks in % of GDP (2008 – 2009)

(Source: Avenir Suisse, April 2009)

BEL / NLD

USA GBR DEU FRA

52

46

2319 17

0

10

20

30

40

50

15

0

ESP CHE LIE

20

QUality

Competence, know-how and high quality of services in

the financial sector

As a small, specialized financial center, Liechtenstein com-

bines many years of practical experience with know-how in

private banking and wealth management. Professional ad-

vice and a high quality of services are the traditional

strengths and success factors of Liechtenstein banks. The

banks are able to draw on a pool of specialists from Liechten-

stein and abroad.

Thanks to the vicinity of the University of Liechtenstein and

its Institute for Financial Services as well as close ties with

various foreign providers of basic and continuing training

relevant to banking, the financial center can draw on finan-

cial expertise and high quality offerings in research and

teaching.

In the field of basic and continuing training, the banks invest

substantial effort in the future of highly trained young tal-

ents. At Liechtenstein banks, an average of approximately

100 young women and men receive basic training at any

given time. In 2003, the Swiss Bankers Association estab-

lished the Center for Young Professionals in Banking (CYP),

a competence and training center for young banking talents.

One of these centers was also set up in Liechtenstein in

August 2005. This ensures a high standard of training in the

field of non-academic education as well.

SUStainability

Innovation and responsibility

The Liechtenstein banking center promotes the develop-

ment of future-oriented products and business models that

do justice to clients’ great sense of responsibility toward

society and the environment. Two examples of innovative

ideas in this field are the Microfinance Initiative Liechten-

stein and the LIFE Climate Foundation Liechtenstein.

Microfinance Initiative Liechtenstein (MIL)

The MIL is an association to which the Liechtenstein Govern-

ment, the Bankers Association, and other private and public

promoters belong and which serves to promote Liechten-

stein’s engagement in the field of microcredits. Microfinance

makes an effective and entrepreneurial contribution to the

fight against poverty. Microfinance institutions provide finan-

cial services to people who are not perceived as clients by tra-

ditional financial institutions. The MIL promotes microcredits

and helps to position Liechtenstein as an active and compe-

tent actor in the field of microfinance. www.microfinance.li

LIFE Climate Foundation Liechtenstein

LIFE stands for “Liechtenstein Initiative of the Financial

Center in Emissions Trading”. As a charitable foundation, the

initiative has been given clear contours and a face for pre-

senting itself to the outside world. The goal of LIFE is to raise

and strengthen awareness of climate protection and sustain-

ability. This includes promoting market-based climate and

environmental mechanisms for achieving the global climate

protection goals set out in the Kyoto Protocol. With the par-

ticipation of the private sector, academia and policy, the LIFE

Climate Foundation Liechtenstein is a private-public partner-

ship networking the important actors and innovation trig-

gers in the field of sustainability and bringing them to the

same table. www.climatefoundation.li

RegUlation and SUpeRviSion

Modern and EU-compliant financial market regulation

Thanks to Liechtenstein’s EEA membership, the same legal

requirements apply to banks in Liechtenstein as in all EU

countries. As of the end of October 2011, Liechtenstein

achieved an exemplary implementation ratio of 99.6 % of

the EU single market directives according to the EFTA Sur-

veillance Agency (ESA). According to the International Mon-

etary Fund (IMF), Liechtenstein fulfils “high standards in

financial market supervision and anti-money-laundering

measures”. The Liechtenstein financial center is actively

engaged in the fight against money laundering and terrorist

financing and has fully implemented the Third EU Money

Laundering Directive Liechtenstein efficiently offers com-

prehensive and reliable mutual legal assistance in criminal

matters. Banking secrecy offers no protection for criminal

machinations. About 90 % of mutual legal assistance pro-

ceedings were concluded in a period of less than six months.

Liechtenstein thus maintains a leading position in the

defense against criminal acts through compliance with inter-

national obligations.

Recognized financial market supervision

Liechtenstein’s Financial Market Authority has been a regu-

lar member of the International Organization of Securities

Commissions (IOSCO) since April 2011 and has had observer

status in the European Securities and Markets Authority

(ESMA) since May 2011. This shows that Liechtenstein and its

financial center and supervision are recognized as an equal

partner within the international and European community.

At the same time, this further strengthens the integration of

the financial center and facilitates market access for Liech-

tenstein intermediaries in foreign markets.

CoopeRation

International cooperation in tax matters

For some time now, Liechtenstein has been on the path

toward stronger international integration and cooperation in

tax matters. Already in 2002, Liechtenstein concluded a mu-

tual legal assistance treaty with the United States. With the

Savings Tax Agreement of 2005, Liechtenstein adopted the

EU Savings Tax Directive. On 12 March 2009, Liechtenstein

issued the “Liechtenstein Declaration”, committing itself to

the OECD standards on cooperation in tax matters. Liechten-

stein thus accepts and implements the internationally valid

rules of transparency and information exchange in tax

matters. Meanwhile, Liechtenstein has concluded OECD-

compatible tax agreements with numerous countries and

has consistently expanded its network of double taxation

agreements (for more information, see www.regierung.li).

On the basis of these agreements, Liechtenstein authorities

can henceforth exchange information upon specific request

and justified suspicion with foreign tax authorities in indi-

vidual cases of tax offences. Information exchange upon re-

quest is not the same as automatic access to client data or

insufficiently specified searches for information or evidence

(so-called “fishing expeditions”). These continue to be ruled

out by Liechtenstein law.

The protection of privacy is compatible with the OECD stand-

ards. Stronger tax cooperation does not contradict banking

secrecy understood as protection of the privacy of clients

and their data from unjustified access by third parties. Bank-

ing secrecy will therefore continue to ensure the protection

of privacy and the control of clients over their own data.

FUtURe-oRiented

Sustainable, long-term strategy for the future

In February 2011, the Liechtenstein financial center adopted a

new strategy for the future and will further expand its position

as a professional, stable and sustainable financial center in the

heart of Europe. In this way, the financial center aims at

continuing to provide an attractive environment for clients

and to remain competitive for the long term.

For this purpose, the financial center is building on its al-

ready existing strengths such as legal certainty and stability.

At the same time, it already today has excellent additional

framework conditions that make it unique:

• One Stop Shop: The combination and networking of banks,

insurances, funds, company structures and asset manage-

ment make integral, comprehensive and tailor-made

wealth management solutions possible.

• Liberal company law: Liechtenstein’s company law is dis-

tinguished by the wide range of company forms and a high

degree of liberalism compared with other countries.

• Modern, attractive and competitive tax system.

• Market access to Switzerland and the European single

market: The access to two economic areas is unique world-

wide and offers opportunities for Liechtenstein intermedi-

aries as a gateway to Europe and a hub between Switzer-

land and Europe

Thanks to the combination of these framework conditions

and strengths as well as the high degree of innovation and

efficiency, the financial center will continue to be able to

provide tailor-made products and excellent services to de-

manding, internationally oriented clients. In March 2012 the

English magazine Spear’s praised and honored the Liechten-

stein financial center as the “Most Innovative International

Financial Center”.