What powers do national financial services authorities have to examine and investigate compliance? What enforcement powers do they have for compliance breaches? How is compliance examined and enforced in practice?
As a rule, compliance is enforced by way of a dualistic system in which regular compliance reviews are undertaken by regulatory auditors (ie, audit firms appointed by each supervised institutions). These regulatory auditors review the supervised institutions on a regular basis and will prepare a regulatory audit report that is shared with FINMA. Based on these reports, FINMA may decide to issue recommendations, order follow-up audits or take other enforcement measures (see question 10).
FINMA will also follow-up and investigate any information it receives about potentially unauthorised activities. Such information may be brought to FINMA’s attention by other market participants, investors or other third parties. Where there are grounds to suspect unauthorised activity, FINMA will open formal investigative proceedings to decide whether enforcement actions are warranted.Disciplinary powers
What are the powers of national financial services authorities to discipline or punish infractions? Which other bodies are responsible for criminal enforcement relating to compliance violations?
FINMA has a wide set of enforcement tools, which are, however, all of an administrative nature. FINMA does not have the power to impose civil or criminal liability. Rather, where FINMA is of the view that non-compliance with financial services regulations also constitutes a criminal offence, it will notify the relevant prosecutors (eg, the Swiss Department of Finance or the Swiss Attorney General’s Office).
FINMA’s administrative law enforcement tools include the following: preliminary injunctions; ordering a supervised institution to restore compliance with the law; declaratory rulings; prohibiting individuals from exercising a professional activity; cease-and-desist orders and bans on trading; publication of rulings (‘naming and shaming’); disgorgement of profits; withdrawal of licences; and ordering the liquidation of financial institutions. As mentioned above, FINMA does not have the power to impose criminal liability and as a result, FINMA may not impose monetary penalties on supervised institutions.
When deciding which enforcement tools to apply in a particular case, FINMA has to take into account the goals of the relevant financial services legislation (eg, protection of investors, fair competition or the stability of the financial system as a whole) and the general principles of constitutional and administrative law (such as proportionality).Tribunals
What tribunals adjudicate criminal and civil financial services infractions?
Where criminal infractions are found and when the facts are clear, FINMA files a criminal complaint pursuant to the administrative criminal law directly with the Federal Department of Finance (FDF). In some cases, an appeal could be brought against the decision rendered by the FDF to the Federal Criminal Court and then to the Federal Supreme Court.
With regard to civil infractions, civil proceedings take place in two instances, usually within the state where the parties are domiciled. It is also possible to appeal to a third court, the Federal Supreme Court.Penalties
What are typical sanctions imposed against firms and individuals for violations? Are settlements common?
FINMA has a broad range of enforcement tools to uphold supervisory law. Typical enforcement tools at FINMA’s disposal include:
- Precautionary measures: FINMA takes appropriate precautionary measures where there is a risk to investors, policyholders, creditors or the financial market as a whole. A typical example is appointing an investigating agent.
- Ordering action to restore compliance with the law: pursuant to article 31 of the FINMASA, FINMA shall take action when supervised institutions violate financial market laws or other irregularities arise. It empowers FINMA to issue a ruling ordering proportionate measures to address the problem. In contrast to the enforcement instruments set out in articles 32-37 of the FINMASA, article 31 only applies if no serious violation of supervisory law has occurred.
- Declaratory rulings: pursuant to article 32 of the FINMASA, declaratory rulings or reprimands are the mildest official measure FINMA can use to sanction licence holders and individuals found to have committed market abuse.
- Industry bans: pursuant to article 33 of the FINMASA, FINMA can ban individuals responsible for serious violations of supervisory law from acting in a senior function at a supervised institution for up to five years.
- Cease-and-desist orders and bans on trading: where FINMA identifies financial market participants operating without the requisite authorisation, it can issue a ruling expressly banning those responsible from continuing to operate. It also has the power to ban securities dealers’ employees who have committed serious violations of stock exchange law from trading.
- Publication of rulings: pursuant to article 34 of the FINMASA, FINMA can publish its final rulings and name those involved, once a ruling becomes legally binding.
- Ordering the disgorgement of profits: pursuant to article 35 of the FINMASA, FINMA can confiscate profits generated or losses avoided through serious violations of supervisory law by supervised institutions or individuals in senior functions. Any confiscated assets that do not have to be paid out to injured parties are passed to the federal government.
- Withdrawal of authorisation, liquidation and bankruptcy: pursuant to article 37 of the FINMASA, FINMA can withdraw its authorisation of individuals and legal entities that no longer meet the authorisation requirements or have committed serious violations of supervisory law. The law requires certain licence holders to be liquidated when this happens. FINMA also applies these rules to financial market participants operating without the requisite authorisation.
The Swiss regulatory framework does not provide for a proper settlement procedure. This being said, the supervised entity under investigation by FINMA usually makes every reasonable effort to restore compliance with the law during the enforcement proceeding in order to mitigate the effect of the supervisory violation and diminish the risk of incisive measures rendered by FINMA.