On April 27 1999, the Swiss Federal Banking Commission ('SFBC') released its annual report for the year 1998. This report summarises the activity of the SFBC in 1998, as supervisory authority responsible for broad areas of the Swiss financial sector and assuming in particular, on an independent basis, the supervision of banks, investment funds, mortgage bond business, stock exchanges, securities dealers and disclosure of shareholdings and public take over bids.

One of the main subjects treated in the SFBC's annual report concerns the 1998 activity of supervision of securities dealers in Switzerland. As a matter of fact, with the entry into force of the new Stock Exchange Act on February 1 1997, stock exchanges and securities dealers are now subject to a licensing requirement and are subordinated to supervision by the SFBC, in order to achieve transparency and equality of treatment for all investors and to create the framework for fully functioning securities markets. The securities dealers are now submitted to criteria and requirements closely resembling to those imposed to the banks by the Swiss banking legislation.

On the occasion of the release of the 1998 annual report, the SFBC held a press conference concerning the recent liquidation of several financial intermediaries. The SFBC presented a summary of the investigations of the SFBC concerning securities dealers (i) operating in Switzerland or abroad without any licence or (ii) operating with a licence, but in violation of the law and affecting the interests of its creditors or investors and the confidence which the public places in the Swiss financial system. At this press conference, the SFBC has for the first time officially revealed the measures taken within the framework of the supervision of securities dealers, in particular the withdrawal of licences which triggers the dissolution of the illegal entity, and the liquidation of companies operating without a licence.

This report of the SFBC follows abundant information revealed in 1998 by Swiss and international media, which announced that several companies were operating in Switzerland and carrying out the business of securities dealers without being authorized by the SFBC and that these companies might be dissolved.

The SFBC's control was made on a case by case basis and did not concern any new company registered in a cantonal companies registrar. Most of the time, the commission has been informed by complaints or requests for information from creditors or investors of the company, who have been or could have been adversely affected by the activities of the securities dealer concerned.

According to the practice of the SFBC, if it appears that a company might be subject to the Stock Exchange Act and so to the requirement for a licence from the SFBC, then the SFBC shall ask the company concerned to provide it with more information about its activities. In the case where the company does not cooperate, the SFBC may instruct its own investigators to monitor the real activity of the company. If it appears that the company acts as a securities dealer, the company may still apply for a licence to be granted by the SFBC. It is only if it is clear that the company does not fulfil the conditions to obtain the authorization or does not want to apply for such a licence, that the SFBC shall force the dissolution of the company.

In 1998, the SFBC monitored the activity of more than 200 companies. This has led to 16 liquidations of companies because of a violation of either the Banking Act or more often the new Stock Exchange Act. One-third of these companies was incorporated in Switzerland, but was acting on the Swiss market from another country and almost only for foreign clients. Another third of these liquidations concerned offshore companies whose activity was actually based in Switzerland. The SFBC did not take into consideration their foreign registered office. The last third of the liquidated companies was Swiss and worked with Swiss and foreign clients. These short statistics show us that many different types of companies, except foreign companies acting for foreign clients abroad, might be concerned by the new Stock Exchange Act and for this reason might be subject to an authorization from the SFBC to work as securities dealers in Switzerland.

The SFBC continued in 1999 its control and six financial companies have been closed down so far, while others are under investigation.

For further information on this topic please contact Guy-Philippe Rubeli, Thomas Keller or Robert Furter at Pestalozzi Lachenal Patry by telephone (+41 22 809 45 00 ) or by fax (+41 22 809 45 01 ) or by e-mail ([email protected], [email protected], or [email protected]).


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