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Hoi Liechtenstein!

25 June 2019

Claire Coe Smith

Best known for its private banks for wealthy, international clients, at the end of last year Liechtenstein decided to also become a crypto hub. When the government published its innovative Blockchain Act, it revealed an ambition to develop a token economy and pinned its colours to the mast in the race to bank crypto wealth.

Sitting between Switzerland and Austria, and with a population of fewer than 40,000 people, Liechtenstein’s efforts signal a decisive move in a market renowned for political and legal stability, discretion and age-old private banks. But as regulatory requirements in the international wealth management business have reduced some of the jurisdiction’s business, the government has begun exploring alternative options. By introducing the token as a new legal entity, Liechtenstein is creating an instrument with which any right from the analogue world can be represented digitally. Crown Prince Alois intends to make the country into the place-to-be for tech and blockchain businesses.

Roland Schubert, CEO at LGT Bank in the country, says: “Liechtenstein offers a very high level of legal certainty. The country has always striven to implement European and international standards quickly and to conclude free trade and double taxation agreements. Especially Liechtenstein's membership of the European Economic Area is an advantage for our clients, meaning their banking relationships remain in the same jurisdiction and they can additionally benefit from Liechtenstein’s political and economic conditions. The Blockchain Act, which the Liechtenstein government is currently working on, will lay the foundations for a digital financial centre.”

Liechtenstein will face stiff competition, not least from neighbouring Switzerland, which has its own crypto ambitions, and other jurisdictions such as Malta.

But Schubert points out some of the attractions of the market for high net worth individuals: “Liechtenstein offers wealthy private clients optimal conditions, such as a strong currency, political and legal stability as well as legal certainty. Moreover, the financial institutions in Liechtenstein offer excellent service and are characterised by a high level of competence and strong expertise in wealth management. Located in the heart of Europe, Liechtenstein is also easily accessible.” 

Gerhard Holzhacker, who runs his own law firm in Liechtenstein, says: “The environment has changed considerably for private wealth management in recent years, and that has led to a reduction in the number of clients and the number of offshore companies existing here in Liechtenstein. However, those that remain are more valuable and more sophisticated structures, with more substantial funds and more complex requirements from their advisers.”

He adds, “It’s a major change, but to speak of a negative impact would be too pessimistic.”

Instead, he notes that while the majority of wealthy clients still include domestic clients and those from surrounding countries such as Germany, Austria and Switzerland, there is also a growing amount of business coming in from Asia. “In general, the tax advantages of Liechtenstein are of reduced importance now,” he says. “Instead, many of our clients are focused on asset protection and succession, because everyone who has substantial funds is well-advised to put them in a safe place, whether that involves a foundation or a trust.”

That is a view shared by Schubert, who adds: “LGT Bank in Liechtenstein is specialised in advising wealthy, international clients, including private individuals as well as medium-sized entrepreneurs, foundations and UHNWIs with their family offices. The majority of our clients are from Europe, but we also have a lot of clients from Asia at LGT who like to use our booking platform in Liechtenstein for diversification purposes. The growth potential for these target segments and regions is generally very good.”

As well as observing a shift towards crypto assets, advisers are also noticing a trend, as other jurisdictions have, towards more sustainable, impact investing. Schubert says his business is noticing a shift in client behaviour: “Sustainable investments are becoming increasingly important. Many clients want to invest responsibly and to create an ecological and social impact in addition to receiving financial returns. We expect this trend to intensify over the next five to ten years.”

Liechtenstein may be renowned as one of the world’s oldest and historically most discreet financial centres, but it is also keeping up with the times.

 

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