Declared aims of revision
Use of ratings for regulatory purposes
Recognition requirements for rating agencies
Coverage of all areas supervised by FINMA


In August 2011 the Swiss Financial Market Supervisory Authority (FINMA) published a fully revised Circular 2012/1 on Credit Rating Agencies. The circular will enter into force on January 1 2012. However, transitional provisions apply to insurance companies.

In March 2011 FINMA started a consultation on amendments to its Circular 2008/26 on Credit Rating Agencies. The consultation was completed in May 2011 and FINMA's amendment proposals received generally positive feedback.

The circular will apply to all institutions supervised by FINMA that use ratings as part of financial market regulation. For regulatory purposes, these institutions – including banks, securities dealers, insurance companies and collective investment schemes – must use only ratings issued by rating agencies that are recognised by FINMA. FINMA is now promulgating consistent rules for the recognition of such rating agencies. However, FINMA neither supervises such recognised rating agencies nor provides any warranty for the ratings issued.

Further amendments are based on existing international guidelines that FINMA has adapted to the Swiss market. Ultimately, the new requirements on rating agencies are intended to provide minimum qualitative rating standards.

Declared aims of revision

The aims of the revision are essentially to:

  • issue standard recognition requirements for rating agencies;
  • impose a duty of ongoing compliance with such recognition requirements by rating agencies (the circular does not apply to non-regulatory use of ratings);
  • promulgate requirements to ensure a minimum quality of ratings; and
  • implement new guidelines from international standard setters, such as the International Organisation of Securities Commissions and the Basel Committee on Banking Supervision (BCBS).

Use of ratings for regulatory purposes

The scope of application of the circular has been expanded to include any regulatory use of ratings by all institutions supervised by FINMA. These institutions must use only ratings from rating agencies that are recognised by FINMA for regulatory purposes.

In essence, 'regulatory purposes' means:

  • for banks and securities dealers – calculation of the necessary regulatory capital;
  • for insurance companies – calculation of capital under the Swiss Solvency Test and of tied assets; and
  • for collective investment schemes – compliance with provisions regarding investment techniques and derivatives.

Recognition requirements for rating agencies

The circular establishes new rules on the recognition of rating agencies. Furthermore, such FINMA-recognised rating agencies will have to comply with the recognition requirements on an ongoing basis.

Rating agencies must apply to FINMA for recognition and may be recognised for one or more of the following market segments:

  • public sector finance and related credit instruments;
  • commercial entities, including banks and insurance companies and their respective credit instruments; and
  • structured finance, including securitisation and derivatives.

The requirements aim to ensure a minimum quality of ratings. The circular sets out particular requirements on objectivity, independence, access, transparency, disclosure, resources and credibility.

Furthermore, FINMA may impose conditions or restrictions (eg, recognition for a limited period) on the recognition of a particular rating agency.

If a rating agency is subject to adequate foreign permanent supervision, FINMA may apply a simplified recognition procedure.

FINMA will publish a list of all recognised rating agencies.

Coverage of all areas supervised by FINMA

The new regulation takes into account the international developments due to the financial crisis, such as the IOSCO-Code of Conduct Fundamentals for Credit Rating Agencies and the 2010 revised capital adequacy standards for banks of the BCBS (ie, Basel III).

FINMA considers the focus of the G20 countries on stricter standards for rating agencies as significant. However, in contrast to certain regulation programmes of some G20 countries, FINMA is not implementing state supervision of rating agencies because they are not subject to financial market regulation. FINMA does not provide any warranty for ratings issued by such recognised rating agencies. Notwithstanding the fact that rating agencies do not need a licence in Switzerland, FINMA may suspend or withdraw recognition in the event that an agency fails to comply with the recognition requirements. Ratings by a non-compliant rating agency may no longer be used for regulatory purposes.

Specific rules on the use of ratings for liquidity risks of banks and securities dealers are not covered in the circular. Rather, they will be incorporated into the new Swiss regulatory capital regime. The new Swiss regulatory capital regime will translate the Basel III liquidity framework into national law and is expected to be debated in Parliament in Autumn 2011.

For further information on this topic please contact Mark-Oliver Baumgarten or David W Frei at Staiger, Schwald & Partner by telephone (+41 58 387 80 00), fax (+41 58 387 80 99) or email ([email protected] or [email protected]). The Staiger, Schwald & Partner website can be accessed at