Regulatory framework

Regulatory authorities

What national authorities regulate the provision of financial products and services?

The Swiss Financial Market Supervisory Authority (FINMA) is the primary regulator in Switzerland for all types of financial services. With respect to financial markets infrastructures (eg, securities settlement systems, central counterparties and exchanges, among others), the Swiss National Bank (SNB) also has certain supervisory powers, although they are limited with respect to systemically important institutions. In addition, Swiss financial services rules and regulations rely to a large extent on rules set by the various self-regulatory organisations (SROs) and industry organisations (eg, the Swiss Banking Association (SBA) and the Asset Management Association Switzerland (previously the Swiss Funds and Asset Management Association)), the rules of which FINMA may recognise as binding minimum standards.

Furthermore, in connection with the Financial Institutions Act (FinIA), which entered into force on 1 January 2020, several private supervisory organisations (SOs) have been established and authorised by FINMA. The SOs are responsible for the day-to-day supervision of portfolio managers and trustees.

What activities does each national financial services authority regulate?

FINMA is the primary regulator in Switzerland. As such, it regulates all types of activities in the financial sector, including banking, securities trading, fund services and financial market infrastructures. In contrast, the SNB’s role is much more limited and its regulatory powers primarily cover systemically important financial market infrastructures and macro-level oversight of the financial system.

The SOs are responsible for the day-to-day supervision of portfolio managers and trustees, including compliance with anti-money laundering (AML) laws.

SROs are solely responsible for supervising non-FINMA- and non-SO-supervised financial intermediaries (eg, financial advisers and money transmitting businesses) for the purposes of compliance with AML laws.

The SBA is active in the area of banking, securities trading (eg, brokerage) and AML laws. It has issued a comprehensive set of self-regulatory rules, most of which have been recognised by FINMA as binding minimum standards. The Asset Management Association Switzerland is the industry and self-regulatory organisation for the fund and asset management industries.

What products does each national financial services authority regulate?

Until 1 January 2020, Swiss legislation did not regulate the offering of financial products, with the exception of collective investment schemes. FINMA is responsible for supervising products that fall within the scope of the Collective Investment Schemes Act (CISA). FINMA monitors whether Swiss collective investment schemes comply with the specifications set out in their fund contract and prospectus. FINMA’s assessment is based on a regular audit of the company’s financial statements and prospectus by an audit company.

As of 1 January 2020, subject to the transitional provisions that, with a few exceptions, expired on 31 December 2021, the Financial Services Act (FinSA) has introduced uniform cross-sector regulations for the offering of financial instruments. The term ‘financial instrument’ encompasses equity securities, debt instruments, units in collective investment schemes, structured products and derivatives, as well as certain deposits and bonds. The FinSA provides for a regulatory obligation to prepare a prospectus in connection with public offerings of securities (subject to broad range of exemptions) or the admission of securities to trading on a trading venue. The prospectuses must be reviewed and approved by an independent reviewing body (authorised by FINMA). Collective investment schemes are, however, not in the scope of the harmonised FinSA prospectus rules. Swiss collective investment schemes continue to be authorised and supervised directly by FINMA (including with respect to any prospectus requirements).

Authorisation regime

What is the registration or authorisation regime applicable to financial services firms and authorised individuals associated with those firms? When is registration or authorisation necessary, and how is it effected?

FINMA grants four types of authorisation: licensing, approval, recognition and registration. The degree of supervisory monitoring varies depending on the type of authorisation concerned. Companies or individuals wishing to engage in financial market activity shall file an application to FINMA. They must obtain authorisation from FINMA that attests that they meet the relevant regulatory requirements prior to starting the supervised financial activity. Only those satisfying the financial, personnel and organisational requirements qualify for authorisation. With regard to legal entities, FINMA grants the licence to the legal entity pursuing supervised activities and not to the managers or the shareholders of such an entity. If, at a later stage, any of the licence requirements are no longer satisfied, FINMA may take administrative measures including, in extreme cases, the withdrawal of the licence.

With the entry into force of the FinIA on 1 January 2020, subject to the transitional provisions that, with a few exceptions, expired on 31 December 2021, all financial institutions are required to obtain a licence from FINMA. The term ‘financial institutions’ encompasses portfolio managers, trustees, managers of collective assets, fund management companies and securities firms. The various criteria to be complied with to obtain a licence are set out in each relevant section of the FinIA and its implementing ordinances (known as FinIO and FinIO-FINMA). By contrast, the FinIA abolishes the authorisation requirement for distributors of collective investment schemes and does not set an authorisation requirement for investment advisers.

In addition, pursuant to the FinSA, individuals performing financial services on behalf of a Swiss or foreign financial services provider are characterised as client advisers. Client advisers of Swiss financial services providers, which are not subject to FINMA supervision, and client advisers of foreign financial services providers are under the obligation to register in a Client Advisor Register. However, client advisers of a foreign financial services provider that is subject to prudential supervision in its home jurisdiction do not have to register, provided that they render their services exclusively to per se professional and institutional clients.

Legislation

What statute or other legal basis is the source of each regulatory authority’s jurisdiction?

FINMA takes actions based on the legal provisions set out in financial market law and relevant implementing ordinances. The regulations defined in the Financial Market Supervision Act lay the legal foundations upon which FINMA was established. The following acts also govern financial market regulation:

 

Statutory provisions are also detailed in ordinances issued by the Federal Council and FINMA for almost every financial market regulation. Lastly, FINMA issues a series of circulars setting out its interpretation of the regulatory framework.

With regard to the supervision activities of the SNB, the National Bank Act and its implementing ordinance, the National Bank Ordinance, circumscribe its jurisdiction.

With the entry into force of the FinSA and the FinIA in 2020, the Stock Exchanges and Securities Act (SESTA) was abolished. In addition, the provisions regarding the authorisation and supervision of fund management companies and asset managers of collective investment schemes, formerly regulated in the CISA, were transferred largely unchanged in substance to the FinIA. Under the current financial market law architecture, the CISA mainly covers the product licensing requirements for collective investment schemes.

What principal laws and financial service authority rules apply to the activities of financial services firms and their associated persons?

In the past, Switzerland did not have a unified set of rules that applied to financial services firms. Rather, Swiss law provided for institution-specific sets of rules, such as the Banking Act, the SESTA or the CISA, each with a set of implementing ordinances and regulatory guidance. In recent years, Swiss legislation has started moving away from institution- or product-specific legislation and towards regulations that apply to all industry players, regardless of the type of licence they hold. The 2016-enacted Financial Market Infrastructure Act that governs, among other things, derivative trading and market conduct rules is an example of such industry-wide rules. Similarly, with the FinSA and the FinIA, financial services rules have been harmonised across the financial services industry.

The above-mentioned legislative acts are in line with the traditional Swiss approach to legislation, drafted with a principle-based approach, and leaving room for regulatory guidance and self-regulation. Thus, on a practical level, the circulars issued by FINMA and self-regulatory rules enacted by industry organisations and SROs play an important role in financial services compliance. Examples of such self-regulatory rules are FINMA’s circulars on market conduct (Circular 2013/08), outsourcing (Circular 2018/3) and guidelines on asset management (Circular 2009/1). On the level of industry organisations, the following are examples of noteworthy self-regulatory rules: the SBA Code of Conduct with regard to the exercise of due diligence and the Code of Conduct of the Asset Management Association Switzerland.

With the FinIA and the FinSA, the regulatory guidance on collective investment schemes, structured products and related financial institutions established by industry organisations and SROs over the past few years have been partly integrated into new laws and ordinances, rendering the respective circulars, codes of conduct and regulatory guidance redundant.

Scope of regulation

What are the main areas of regulation for each type of regulated financial services provider and product?

All regulated financial services providers have to obtain authorisation from FINMA prior to starting a supervised financial activity. The main areas of regulation for all types of regulated financial services providers relate, in particular, to their organisation and their minimum capital requirement. They must establish appropriate corporate management rules and be organised in such a way that they can fulfil their statutory duties. They must also identify, measure, control and monitor their risks, including legal and reputational risks, and organise an effective internal control system. Moreover, the regulatory framework requires that the financial services providers are effectively managed from Switzerland, which implies that the persons entrusted with management must be resident in a place from which they may effectively exercise such management. The persons responsible for the administration and management of financial institutions and their qualified participants (ie, any individual or legal entity that directly or indirectly owns at least 10 per cent of the capital or voting rights of a licensed institution, or that can otherwise influence its business activities in a significant manner) must provide the guarantee of irreproachable business conduct.

In particular, banks and securities firms are required to keep sufficient capital available for the business that they conduct pursuant to the Capital Adequacy Ordinance. Banks shall further comply with qualitative and quantitative liquidity requirements enshrined in the Liquidity Ordinance.

The FinIA has introduced uniform authorisation and supervisory requirements for financial institutions, extending its scope to portfolio managers, trustees and managers of occupational pension schemes. The main areas of regulation concerning organisational and minimum capital requirements have been transferred largely unchanged in substance from the CISA and the SESTA into the FinIA. On a product and services level, the FinSA provides for a comprehensive and cross-sectoral set of rules for the provision of financial services and the offering of financial instruments, regardless of whether the respective service provider qualifies as a financial institution under the FinIA or not. The FinSA has introduced, among other things, a new client classification regime, a comprehensive set of rules of conduct, and new rules on prospectus and key information documentation.

Additional requirements

What additional requirements apply to financial services firms and authorised persons, such as those imposed by self-regulatory bodies, designated professional bodies or other financial services organisations?

Swiss financial services rules and regulations rely to a large extent on the rules set by the various SROs. In this self-regulatory environment, the two most prominent organisations are the SBA with respect to the banking industry and the Asset Management Association Switzerland with respect to the fund and asset management industries.

Over the years, the SBA has drawn up binding codes of conduct in the form of guidelines and agreements, which define what constitutes good industry practice. One of the most prominent examples of a code of conduct is the due diligence agreement, which applies to all banks and securities firms. The agreement mainly focuses on the identification of a contracting partner as well as the beneficial owner of assets, and also includes provisions on the prohibition of active assistance in the light of capital and tax evasion.

The Asset Management Association Switzerland has taken a similar approach and issued, among other guidance, its Code of Conduct that constitutes the core element of the code of self-regulation. It is deliberately restricted to the essentials and specifies the minimum standards that are to be observed. It therefore takes into account the differences in the business operations of the licensees that must comply with its provisions. The Code of Conduct covers the main functions of the fund business and was recently amended following the entry into force of the FinSA and the FinIA in 2020.