The regulatory regime applicable to banksi Main statutes
The main statutes governing the Swiss financial markets are:
- the Federal Financial Market Supervision Act of 2007 (FINMASA);
- the Federal Banking Act of 1934 (BA);
- the Federal Stock Exchanges and Securities Trading Act of 1995 (SESTA);
- the Federal Act on Financial Market Infrastructures and Market Conduct in Securities and Derivatives Trading of 2015 (FMIA);
- the Federal Collective Investment Schemes Act of 2006 (CISA); and
- the Federal Act on Combating Money Laundering and Terrorist Financing in the Financial Sector of 1997 (AMLA).
These statutes are supplemented by a number of ordinances enacted either by the government (i.e., the Swiss Federal Council (Federal Council)) or, as regards more technical aspects, by FINMA; their practical application is further regulated by FINMA circulars.
These regulations are complemented by the Federal Act on the Swiss Financial Market Supervisory Authority, which is a framework law governing the supervisory activities and instruments of FINMA.
As from 1 January 2020, two other statutes will supplement this framework: the Federal Financial Institutions Act (FinIA) and the Federal Financial Services Act (FinSA) (see Section VII.ii).ii Banking and securities dealing activities
Under Swiss banking laws, a business entity that solicits or takes deposits from the public (or refinances itself with substantial amounts from other unrelated banks) to provide financing to a large number of persons or entities is considered a bank. The conduct of banking activities in or from Switzerland is subject to a licensing requirement and to supervision by FINMA.
Swiss financial markets law makes no distinction between commercial and investment banks, and banks are not limited in the scope of their activities. As a result, banks may act as broker-dealers in securities, in addition to pursuing deposit-taking and lending activities (i.e., interest operations). However, banks need to apply for an additional authorisation as a securities dealer to conduct securities trading activities. The main statutes governing the securities business of both banking and non-banking intermediaries in Switzerland are the SESTA, the FMIA and their respective implementing ordinances.
Under Swiss securities laws, securities dealing activities are defined broadly. They encompass the activities of securities dealers, issuing houses, market makers, derivative houses, and brokers maintaining accounts in their books or holding securities deposits for more than 20 clients.
Although banking and securities dealing licences are two separate authorisations, most requirements in terms of minimum substance and documentation overlap. From a practical perspective, both banking and securities dealing licensing requirements are thus usually assessed within the same FINMA process. Broadly speaking, the conditions for the granting of a licence to conduct banking or securities dealing activities encompass financial and organisational requirements (see Sections III and IV), as well as fit and proper tests imposed on managers and qualified shareholders (see Sections III, IV and VI.i). FINMA grants a licence to the legal entity pursuing the banking activities, not to its managers or shareholders. It then continually monitors compliance with licensing criteria (and other regulatory obligations). If, at a later stage, any of the licence requirements cease to be fulfilled, FINMA may take administrative measures, including, in extreme cases, withdrawal of the licence.
This regime will change with the entry into force, on 1 January 2020, of the new FinIA, which will repeal and replace SESTA (see also Section VII.ii). First, from a formal perspective, FinIA will bring Swiss terminology closer to EU regulations, and refer to securities firms instead of securities dealers). Second, from a substantive point of view, FinIA will introduce a 'licence cascade', in which the banking licence will be considered as the highest ranking licence encompassing the authorisation to operate as a securities firm, asset manager, fund asset manager or trustee without the need to apply for a separate authorisation. In turn, a licence as a securities firm will encompass the authorisation to operate as an asset manager, a fund asset manager or a trustee. This formal simplification, however, will not exempt a licensed bank or securities firm from adapting, as the case may be, its capital, liquidity, organisation or internal policies to comply with the specific requirements applicable to the conduct of another category of regulated activities.
As regards cross-border banking and securities activities, the Swiss regime has been rather liberal to date: foreign-regulated entities that operate on a strict cross-border basis (i.e., by offering banking or securities services to Swiss investors without having a business presence in Switzerland) do not need to be authorised by FINMA. If, however, the activities of a foreign bank or securities dealer involve a permanent physical presence in Switzerland, this cross-border exemption is not available. In practice, FINMA considers a foreign entity to have a Swiss presence as soon as employees are hired in Switzerland. That said, FINMA may also look at further criteria to determine whether a foreign bank has a Swiss presence, such as the business volume of that bank in Switzerland or the use of teams specifically targeting the Swiss market. This liberal stance will change with the entry into force of the new FinSA on 1 January 2020 (see also Section VII.ii).
The granting of a licence to a foreign bank to establish a Swiss branch, representative office or agency is conditional upon the principle of reciprocity being satisfied in the country in which the foreign bank has its registered office, and if a Swiss bank or securities dealer is permitted to establish a representative branch, office or agency in the relevant foreign country without being subject to substantially more restrictive provisions than those imposed in Switzerland, FINMA will deem the reciprocity test met.
The granting of a licence to a Swiss bank or securities dealer controlled by foreign shareholders is also made dependent upon the reciprocity requirement by the relevant foreign country of domicile or incorporation of the foreign shareholders (see Section VI.i).iii Other regulated activities
A Swiss bank may also serve as a custodian for collective investment schemes. This type of activity is subject to the CISA and its implementing ordinances.
Financial intermediaries are further supervised for the purpose of combating money laundering and the financing of terrorism according to the AMLA and its various implementing ordinances.iv FINMA
The single integrated financial market supervisory authority, FINMA, is responsible for the supervision of banks, securities dealers, stock exchanges and collective investment schemes,
as well as the private insurance sector. FINMA also monitors financial intermediaries with a view to preventing money laundering and the financing of terrorism.
FINMA is a public institution with separate legal personality. Although it carries out its supervisory activity independently, FINMA has a reporting duty towards the Federal Council, which approves its strategic objectives, as well as its annual report prior to publication, and appoints FINMA's Chief Executive Officer. Parliament is responsible for overseeing FINMA's activities.
FINMA employs approximately 500 full-time equivalent staff. Its operating expenses are covered by fees and duties levied from the supervised entities. FINMA is able to carry out its tasks within a relatively modest organisation mainly as a result of the Swiss financial markets supervision system's strong reliance on external auditors and self-regulatory organisations. Indeed, external auditors carry out direct supervision and on-site audits, whereas FINMA retains responsibility for the overall supervision and enforcement measures (see Section III).
Regulatory duties are delegated to self-regulatory organisations: the Swiss Bankers Association (SBA), for instance, issues self-regulatory guidelines to its members, which FINMA recognises as minimum standards that need to be complied with by all Swiss banks. In particular, the SBA's guidelines governing banks' duty of due diligence in identifying the contracting party and the beneficial owner of accounts, the rules of conduct in securities dealing and portfolio management play an important role in practice.