Introduction
FATF mutual evaluation report 2016
Consultation regarding Anti-money Laundering Act amendment
New FINMA Anti-money Laundering Ordinance
Revised CDB 20 applies to Swiss banks
Regulating self-regulatory organisations


Introduction

Swiss authorities are building a regulatory framework which considers the most important recommendations from the Financial Action Task Force's (FATF's) mutual evaluation report on Switzerland in order to strengthen the integrity of the Swiss financial sector.

First, the Federal Council has initiated the consultation on amendments to the Anti-money Laundering Act which will apply to, among others, Swiss banks.

Second, the Financial Market Supervisory Authority (FINMA) has published its revised Anti-money Laundering Ordinance. Shortly thereafter, the Swiss Banking Association (SBA) published its revised agreement on Swiss banks' code of conduct regarding the exercise of due diligence (CDB 20). Both will enter into force on 1 January 2020.

FATF mutual evaluation report 2016

The FATF conducted its fourth review of Switzerland in 2016. The mutual evaluation report acknowledged the generally good quality of the Swiss system for combating money laundering and terrorist financing. Further, it identified weaknesses in certain areas and issued recommendations. As a result, Switzerland is now engaged in an enhanced follow-up procedure. To exit this procedure successfully, Switzerland must implement a number of changes that will also apply to Swiss banks.

Consultation regarding Anti-money Laundering Act amendment

In June 2017 the Federal Council instructed the Federal Department of Finance to prepare a corresponding consultation draft to further reinforce the integrity of the Swiss financial sector. The consultation will last until 21 September 2018.

The key measures are as follows:

  • Due diligence obligations (eg, identifying contracting counterparties, verifying beneficial owners and documentary duties) are intended to be introduced for certain services provided by individual persons or legal entities on a professional basis (so-called 'advisers') which concern:
    • the establishment, management or administration of companies outside Switzerland, domiciliary companies in Switzerland and trusts; and
    • the purchase and sale of, and domiciliary and nominee services for, such entities.

Activities for operating companies in Switzerland are excluded due to their low risk. A planned duty to verify should ensure that the regulations are effective. Supervision or a duty to report will not apply.

The proposed provisions would explicitly oblige financial intermediaries to verify information relating to beneficial owners. The new law would thus create a basis for the existing practice and take into account case law. Further, financial intermediaries will be obliged to regularly check that client data is up to date. The frequency and scope of reviews will be based on the degree of risk posed by the contracting party.

Associations which are at risk of being misused for financing terrorism or money laundering will be obliged to register with the commercial register. This includes associations which are mainly involved in collecting or distributing assets abroad for charitable purposes.

The consultation draft also aims to improve the effectiveness of the suspicious activity reporting system for money laundering and terrorist financing. To this end, the right to report will be repealed as there is currently little scope for its application. Further, the threshold for cash payments in precious metals and gem trading will be reduced and authorisation for purchasing old precious metals will become compulsory.

New FINMA Anti-money Laundering Ordinance

The revised draft of the FINMA Anti-money Laundering Ordinance addresses perceived shortcomings identified in the FATF country review and incorporates findings from FINMA's supervisory and enforcement practice.

The amendments set out more detailed requirements for the global monitoring of anti-money laundering risks, including:

  • periodic risk assessments on a consolidated, group-wide basis;
  • group legal and reputation risk assessments;
  • determining globally material business relationships; and
  • periodic, risk-based on-site internal audits by group compliance.

These changes will affect Swiss financial intermediaries with branches or group companies outside Switzerland.

The revised draft also specifies the risk management measures which must be put in place if domiciliary companies or complex structures are used or if there are links to high-risk countries.

According to previous market standards, business relationships with persons domiciled in a high-risk or non-cooperative country according to the FATF qualify always as high-risk business relationships.

In terms of customer identification measures, FINMA has reduced the cash transaction threshold to the FATF level of Sfr15,000.

The ordinance's entry into force on 1 January 2020 gives financial intermediaries plenty of time to comply with the new rules. Further, it allows Switzerland to demonstrate to the FATF in the next follow-up report that it is making progress on addressing key issues.

Revised CDB 20 applies to Swiss banks

The CDB is issued by the SBA as a self-regulatory agreement and is approved by FINMA. It implements the AMLA's principle duties relating to the identification of contracting partners as well as the establishment of controlling persons or beneficial owners, specifically for banks. The newly revised CDB 20 addresses, among other things, the following major points:

  • The threshold amount in cash transactions for identifying the contracting partner have been lowered from Sfr25,000 to Sfr15,000.
  • The CDB's special regime on account openings without complete documentation will be stricter: after 30 days, the contracting party's bank account must be blocked for all deposits and withdrawals and the business relationship must be annulled in all cases if the missing information or documents cannot be provided.
  • FINMA Circular 2016/07 regarding video and online identification is formally incorporated into the CDB 20.
  • The rules for the abbreviated process by the supervisory board was updated.

The CDB 20 will enter into force on 1 January 2020 together with the new Anti-money Laundering Ordinance.

Regulating self-regulatory organisations

FINMA expects regulations relating to Swiss self-regulatory organisations, which it supervises according to the existing Anti-money Laundering Act, will be amended based on the new FINMA Anti-money Laundering Ordinance and the new Anti-money Laundering Act once the final version has been approved by the legislature.

For further information on this topic please contact Alexander Vogel or Reto Luthiger at Meyerlustenberger Lachenal by telephone (+41 44 396 91 91) or email ([email protected] or [email protected]). The Meyerlustenberger Lachenal website can be accessed at www.mll-legal.com.