Ownership restrictions and implications

Controlling interest

Describe the legal and regulatory limitations regarding the types of entities and individuals that may own a controlling interest in a bank (or non-bank). What constitutes ‘control’ for this purpose?

For the purposes of the Swiss Federal Act on Banks and Savings Banks (Banking Act), a participation is deemed to be a qualified participation if it amounts to 10 per cent or more of the capital or voting rights of the bank or if the holder of the participation is otherwise in a position to significantly influence the business activities of the bank (a ‘qualified participation’). In addition, the Swiss Financial Market Supervisory Authority (FINMA) typically requires the disclosure of participations of 5 per cent or more for its assessment of whether or not the requirements of a banking licence are continuously met.

The Banking Act does not set any restrictions on the type of entities or individuals holding a controlling interest in a bank. However, one of the general requirements for a bank to obtain a licence is that individuals or legal entities holding, be it directly or indirectly, a qualified participation in a bank must ensure that their influence has no negative impact on the prudent and reliable business activities of the bank. Therefore, the bank’s shareholders and their activities can be relevant for the granting and the maintenance of a banking licence.

Examples of circumstances where shareholders with a qualified participation may have a negative influence on the bank are a lack of transparency, unclear organisation or financial difficulties of financial conglomerates, as well as an influence of a criminal organisation on the shareholder. Should FINMA be of the view that the requirements for the banking licence are no longer met because of a shareholder with a qualified participation, it may suspend the voting rights in relation to such qualified participation or, if appropriate and as a measure of last resort, withdraw the licence, which would trigger a liquidation proceeding.

Foreign ownership

Are there any restrictions on foreign ownership of banks (or non-banks)?

If foreign nationals with qualified participations directly or indirectly hold more than half of the voting rights of, or otherwise a controlling influence on, a bank incorporated under Swiss law, the granting of the banking licence is subject to additional requirements. In particular, the corporate name of a foreign-controlled Swiss bank must not indicate or suggest that the bank is controlled by Swiss persons and the jurisdictions where the owners of the qualified participation have their registered office or domicile must grant ‘reciprocity’, which is:

  • Swiss residents and Swiss entities must have the possibility to operate a bank in the respective country; and
  • such banks operated by Swiss residents are not subject to more restrictive provisions compared to foreign banks in Switzerland.

 

The reciprocity requirement is subject to any obligations to the contrary in governmental treaties and is, therefore, not applicable to World Trade Organization member states. Furthermore, FINMA may request that the bank is subject to adequate consolidated supervision by a foreign supervisory authority if the bank forms part of a group active in the financial sector.

If a bank incorporated under Swiss law becomes foreign controlled as described above or if, in the case of a foreign-controlled bank, the foreign holders of a direct or indirect qualified participation in the Swiss bank change, a new special licence for foreign-controlled banks must be obtained prior to such event. For the purposes of the Banking Act, a ‘foreigner’ is:

  • an individual who is not a Swiss citizen and has no permanent residence permit for Switzerland; or
  • a legal entity or partnership that has its registered office outside Switzerland or, if its registered office is in Switzerland, is controlled by individuals as defined above.
Implications and responsibilities

What are the legal and regulatory implications for entities that control banks?

There are no restrictions as to the business activities of the entities holding qualified participations in a bank, provided the conditions for the granting and maintenance of the licence are complied with. Generally, transactions between the (controlling) shareholders of a bank and the bank itself may be subject to specific requirements (eg, the granting of loans to significant shareholders must be in compliance with generally recognised banking principles).

What are the legal and regulatory duties and responsibilities of an entity or individual that controls a bank?

Each controlling shareholder has the duty to give notification of the acquisition or disposal of a qualified participation, as well as its participation reaching, exceeding or falling below certain thresholds. Further, the holder of a qualified participation must not negatively influence the prudent and reliable business activities of the bank, otherwise the bank may lose its licence.

In cases where justified concerns exist that a bank is over-indebted, no longer complies with the capital adequacy rules or has serious liquidity problems, FINMA may order certain protective measures and the establishment of a recapitalisation plan. Under a recapitalisation plan, the rights of creditors and shareholders may be impaired.

What are the implications for a controlling entity or individual in the event that a bank becomes insolvent?

There are no specific implications for a controlling shareholder of a bank if the bank becomes insolvent. However, if a bank becomes insolvent, FINMA has broad authority to intervene and to take protective or reorganisation measures to protect the bank's creditors. Such measures may have indirect implications for the shareholders.

Changes in control

Required approvals

Describe the regulatory approvals needed to acquire control of a bank (or non-bank). How is ‘control’ defined for this purpose?

The acquisition of a qualified participation in a bank by a Swiss individual or a Swiss entity triggers a reporting requirement to the Swiss Financial Market Supervisory Authority (FINMA). All individuals and legal entities must report to FINMA before directly or indirectly buying or selling a qualified participation in a bank. FINMA will examine whether the influence of the new shareholder with a qualified participation would be detrimental to the prudent and reliable business activities of the bank and will intervene if necessary.

Foreign-controlled banks must apply to FINMA for a further additional licence when foreign holders of qualified participations change.

Foreign acquirers

Are the regulatory authorities receptive to foreign acquirers? How is the regulatory process different for a foreign acquirer?

The bank must apply to FINMA for an additional licence, provided that foreign nationals directly or indirectly hold more than half of the votes of, or otherwise a dominant influence on, the bank. If the transfer to foreign control causes the bank to become part of a financial group, FINMA requires the foreign supervisory to give its consent and be in a position to ensure consolidated supervision of the group as a whole (including the Swiss institution).

Under what circumstances can a foreign bank (or non-bank) establish an office and engage in business? For example, can it establish a branch or must it form or acquire a locally chartered bank?

A foreign bank needs to be authorised by FINMA as a branch if it employs staff in Switzerland who, on a professional basis, permanently carry out transactions or manage client accounts on its behalf in or from Switzerland that give rise to legal obligations. Likewise, a foreign bank is to obtain an authorisation from the Swiss regulator if it employs people who, permanently and on a professional basis, carry out activities in or from Switzerland that are not sufficient to indicate a branch, such as, for example, representation activities (eg, advertising).

The licensing requirements for a branch and a representative office (to a lesser extent) are similar to the ones applicable to a domestic Swiss bank, with the exception of the capital requirements (although financial collateral for a branch may be required by FINMA). It is also required that the foreign bank be subject to appropriate supervision which includes the Swiss branch or the representative office. Further, with respect to Swiss branches, if the foreign banks form part of a group active in the financial sector, appropriate consolidated supervision of the group by foreign supervisory authorities is required.

Alternatively, a foreign bank may also choose to acquire a locally chartered bank. An additional licence will be required for this purpose as well.

Factors considered by authorities

What factors are considered by the relevant regulatory authorities in an acquisition of control of a bank (or non-bank)?

FINMA generally considers whether the requirements for the banking licence are still met and, in particular, whether the new shareholders with a qualified participation will not negatively influence the bank’s prudent and reliable business activities.

Filing requirements

Describe the required filings for an acquisition of control of a bank.

Each individual or legal entity must notify FINMA prior to acquiring or selling a direct or indirect qualified participation in a bank organised under Swiss law. This notification duty also applies if a qualified shareholder increases or reduces its qualified participation and attains, falls below or exceeds 10, 20, 33 or 50 per cent of the capital or voting rights in the bank. The notification must include a declaration whether the participation is held for its own account and whether any option or similar rights have been granted over the participation.

The bank itself is also required to notify FINMA of any changes triggering the notification duty of the shareholders once it becomes aware of such change, in any case, at least once a year.

In the case of a foreign-controlled bank, prior to any change of a foreign holder of a qualified participation, the bank must apply to FINMA for a special licence. In its application, the bank has to demonstrate all the facts based on which FINMA may assess whether the conditions for the special permit are satisfied.

Time frame for approval

What is the typical time frame for regulatory approval for both a domestic and a foreign acquirer?

Generally, the timing of the approvals or statements by FINMA largely depends on its workload. The process for a special banking licence in the case of a foreign-controlled bank may take three months. However, if the country of domicile or residence of the foreigner is not a World Trade Organization member, the process may take significantly longer. FINMA will have to assess whether that country grants the right of reciprocity.

If the acquirer is not a foreigner, there is no formal approval or licence required and, thus, a statement of FINMA is generally available within a shorter time frame.

Law stated date

Correct on

Give the date on which the information above is accurate.

 

1 January 2021.