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Until recently, Swiss regulations had no direct impact on the country's corporate lending market or the documentation of corporate loans. However, the increased capital and liquidity requirements that apply to banks in Switzerland have led to an increased focus on the collateral aspects of lending transactions to ensure that particular transactions can be treated as secured for regulatory purposes. This article provides an overview of the forms of security interest that can be taken over assets in Switzerland.
This article provides a short overview of the Financial Services Act's (FinSA's) new cross-sectoral client segmentation. The classification of clients under FinSA plays a significant role in the application of its rules of conduct, product documentation requirements and other provisions. The article also explains the main differences between client segmentation under the EU Markets in Financial Instruments Directive and FinSA.
The Swiss Financial Market Supervisory Authority (FINMA) has published a supplement to its Guidelines on Initial Coin Offerings which outlines how it plans to apply provisions of Swiss supervisory law to projects involving so-called 'stablecoins'. The supplement was prompted by a steady increase in the number of stablecoin projects submitted to FINMA since 2018, including a submission from the Geneva-based Libra Association for an assessment of its Libra project under Swiss supervisory law.
The Federal Department of Finance has proposed changes to the draft Financial Services Ordinance (FinSO) and Financial Institutions Ordinance. A significant and welcome change in the draft FinSO is that key information documents for collective investment schemes can be written in English. The Federal Council will make the final decision on the wording of the ordinances and their entry into force in November 2019.
The Banking Act currently regulates only the main features of the restructuring procedure for banks, while more detailed provisions are given in the Swiss Financial Market Supervisory Authority Banking Insolvency Ordinance. To strengthen legal certainty, the Federal Council has initiated a consultation on a partial revision of the Banking Act, meaning that the rights of bank owners and creditors will now be regulated on the legislative level.
The Federal Council recently released a comprehensive report on the inclusion of blockchain technology within the Swiss legal framework – in particular, the Swiss banking regulations. With this comprehensive report, the Swiss government has confirmed its established approach of applying Switzerland's existing and principle-based laws in a technology-neutral way. However, it also acknowledges that the existing legal framework will require punctual amendments to solve specific issues.
From 1 January 2019 companies that operate beyond the core activities characteristic for banks will be able to accept public funds of up to Sfr100 million on a professional basis subject to simplified requirements. During its recent meeting, the Federal Council set into force an amendment to the Banking Act to promote innovation in the fintech area and to remove barriers to market entry for fintech firms.
Parliament recently passed the bills of the new Financial Services Act and Financial Institution Act. These laws will have a significant impact on the Swiss banking and financial market landscape, as well as the applicable rules for providing banking and financial services both within and on a cross-border basis into Switzerland. This article provides a short overview of the new concept of 'client advisers' and the foreseeable implications of the new rules for banks and other financial service providers.
The Swiss Bankers Association recently published new guidelines for its member banks, including recommendations on how to treat and onboard blockchain companies for ordinary corporate bank accounts. As Switzerland has strict laws and due diligence requirements in place governing financial transactions, banks must carry out careful checks when opening an account, particularly for companies with links to blockchain and initial coin offerings.
Swiss authorities are building a financial regulatory regime which considers the most important recommendations from the Financial Action Task Force's mutual evaluation report on Switzerland. To this end, the Federal Council has initiated a consultation on amendments to the Anti-money Laundering Act and the Swiss Banking Association has published its revised agreement on Swiss banks' code of conduct regarding the exercise of due diligence.
The European Parliament and the European Council recently expanded the scope of the EU anti-money laundering and combating the financing of terrorism regulations to cover cryptocurrencies and virtual currencies. While the directive will not apply directly to Switzerland, Swiss financial regulators remain ahead of the curve. Since 2016, the Financial Market Supervisory Authority has widened the scope of certain banking regulations relating to money transmitting and remitting services to cover virtual currencies.
The SIX Swiss Exchange recently announced that it is building a fully end-to-end and fully integrated trading, settlement and custody infrastructure for digital assets. The planned 'digital asset ecosystem' – the SIX Digital Exchange (SDX) – will put banks at the heart of transactions in the digital space and offer them a solid foundation to pursue their business strategies for digital and tokenised assets; however, their role in the future SDX remain unclear.
The Swiss Financial Market Supervisory Authority (FINMA) recently published a supervisory notification on token sales and initial coin offerings (ICOs). It also announced that it was examining whether several ICOs or their corresponding business models violate supervisory provisions. A FINMA press release cited the marked increase in ICOs carried out in Switzerland in recent months as a reason for its action.
The revised Banking Ordinance of April 30 2014 regarding new financial technology (fintech) regulations recently entered into force. The purpose of the proposed revisions is to enhance the competitiveness of Switzerland as a major fintech hub and to create an appropriate regulatory framework for fintech companies providing services outside traditional banking business by taking into account the specific risk-profile of their business models and service offering.
The Federal Council recently adopted an amendment to the Banking Ordinance scheduled to enter into force on August 1 2017. Following the announcement of the revised rules, the Swiss Financial Market Supervisory Authority published a guidance note regarding the new rules on public deposits. The revision will reduce some of the barriers to market entry for financial technology firms.
The Federal Council recently announced its intention to strengthen the existing deposit protection scheme through a series of different measures. The council also intends to strengthen the regulations on the protection of securities and other assets deposited by clients with a bank or securities dealer by introducing a new obligation to keep those assets segregated from other clients' assets on a sub-custodian level, to the extent that the chain of custody is in Switzerland.
The Federal Council recently initiated a consultation procedure on new financial technology (fintech) regulations. The revised provisions ensure that barriers to market entry for fintech firms are reduced and that Switzerland's competitiveness as a financial centre is maintained. The consultation will end on May 8 2017. The proposed amendments to the Banking Act and the Banking Ordinance aim to ease the regulatory framework for innovative fintech companies, while taking into account potential risks.
The Appellate Court of the Canton of Geneva recently rendered three decisions ordering a bank to execute the clients' transfer and payment instructions. The latest decision leaves the door open for banks to argue that the legislation of the state where taxes ought to be paid on assets held for a foreign client's account have changed and that, as a result, they now incur the risk of criminal charges which would prevail over their obligation to execute their clients' payment or transfer instructions.
The Supreme Court recently upheld a bank's liability for damages caused to its client by an external asset manager. While this ruling has confirmed settled case law in considering that a bank is in principle not liable for the wrongdoing of an external asset manager, it also clarifies under which conditions a bank may have a duty of disclosure regarding its clients. It appears that banks must ensure a complete transmission to the client of all information that they possess.
When the Financial Market Infrastructure Act and the Financial Market Infrastructure Ordinance came into effect, specific transitional periods were granted to fulfil new duties, as well extended record-keeping duties for banks as participants on trading venues regarding securities transactions. As organised facilities that are not subject to authorisation may be operated only by banks, securities dealers, stock exchanges or multilateral trading venues, these changes will affect banks significantly.
According to the Banking Act, several financial technology business models carry out some sort of banking business where a full banking licence would be too expensive and would not reflect the business model properly. As a result, the Financial Market Supervisory Authority supports a new licensing category for financial innovators carrying out some banking activities, but with limited acceptance of client assets and no lending activity.
According to the Federal Act on the Swiss Financial Market Supervisory Authority (FINMA), if FINMA detects a serious violation of supervisory provisions it may prohibit the individual responsible from acting in a management capacity over any person or entity subject to its supervision. FINMA has announced that it will use enforcement action as a visible means of achieving its supervisory objectives.
The Swiss Financial Market Supervisory Authority recently issued a factsheet on crowdfunding, in which it examined when crowdfunding platform operators and project developers must obtain a licence before commencing activities. It has also proposed to introduce into law a new category of banking licence that will formally place crowdfunding platform operators under its supervision while alleviating constraints.
A recent amendment to the Federal Act on Banks and Saving Banks has increased criminal liability for the violation of banking secrecy. Previously, although the theft, sale or transfer of bank data was prohibited, third parties benefiting from stolen data were not penalised. Under the amended act, intentional disclosure of data covered by banking secrecy will be subject to a penalty of up to three years' imprisonment or a monetary fine.
The federal government has published the results of the consultation on the Financial Services Act and the Financial Institutions Act. It instructed the Federal Department of Finance to carry out various adjustments regarding enforcement and draw up a dispatch by the end of the year. It has also taken initial decisions on the direction to be taken regarding the controversial topics in the consultation procedure.
The Federal Supreme Court recently confirmed the possibility of freezing the assets of a debtor at the registered seat of a Swiss bank where the debtor is a client of the bank's foreign branch. While banks are often not allowed to control the bank accounts of their foreign branches because of regulatory prohibitions, the head office is regularly informed of certain activities taking place abroad, including the seizure of assets.
The Federal Financial Services Act aims to enhance customer protection while providing additional means in case of disputes. The Federal Financial Institutions Act aims to regulate the supervision of financial service providers offering asset management services. In principle, the rules for financial institutions that already require a licence will be taken over from applicable legislation, but will be harmonised according to activity.
The Swiss Bankers Association recently amended guidelines for the examination, evaluation and treatment of loans guaranteed by pledges on real estate and guidelines on minimum requirements for mortgages. The guidelines apply to both owner-occupied residential properties and investment property apartment buildings.
In a recent decision the Federal Supreme Court specified that a bank is not required to monitor transactions carried out by a client on its bank account, according to the Federal Anti-money Laundering Act. A bank must ensure that the agent's actions are covered by a valid proxy. It is the client's responsibility to control the agent's actions. The bank must intervene only if it is certain that the agent is clearly acting to the detriment of the principal.
The Swiss Bankers Association recently adopted revised Portfolio Management Guidelines. The new guidelines are self-regulatory trade regulations applicable to banks. The guidelines include specific mention of repurchase and reverse repurchase transactions, as well as securities lending and borrowing transactions. Provisions regarding the remuneration of the bank have also been amended.
The Swiss Financial Market Supervisory Authority (FINMA) recently published a position paper regarding the resolution of global systemically important banks. The paper explains FINMA's emergency strategy for the global systemically important banks in Switzerland and outlines ways in which salvage or break-up can be implemented operationally in cooperation with foreign supervisory and resolution authorities.
Swiss law has implemented a privately operated deposit protection system based on preferential treatment, accelerated pay-outs and a guarantee by the deposit protection scheme. The law does not provide a state guarantee for the deposit protection system. However, participating members must hold sufficient liquid assets to cover half of their maximum contribution obligations and the minimum level of liquidity prescribed by law.
The Swiss government adopted a draft bill (Lex USA) that aimed to put an end to the tax dispute between the United States and Swiss banks that have allegedly helped clients to avoid US taxes. In June 2013 the Federal Parliament rejected the Lex USA, mainly because it was based on a unilateral US programme that Parliament considered too far reaching.
The Federal Administrative Court recently ruled on the conditions that must be fulfilled in order for Switzerland to grant administrative assistance to the United States with regard to banking clients which have allegedly committed tax fraud with the help of a bank. Among other things, it emphasised that mutual assistance must be consistent with the principle of proportionality and fishing expeditions are therefore prohibited.
The Federal Supreme Court recently rendered two landmark decisions regarding the extension of banking clients' options to obtain information, including internal documents, from banks. The court specified and expanded the information that must be passed onto banking clients. It also showed that the Federal Act on Data Protection could help clients looking for information held by a bank upstream of judicial proceedings.
The Federal Supreme Court recently rendered a landmark decision regarding the restitution to banking clients of commission received from funds or producers of financial products by banks acting as asset managers for their distribution services. In reaction, the Swiss Financial Market Supervisory Authority issued a newsletter on supervisory measures addressed to banks.
The Federal Supreme Court recently rendered two decisions regarding banks' duties of care and fidelity in the distribution of financial products. The court confirmed its established case law, but provided interesting insights into particular issues linked to the distribution of capital-protected structured products within the framework of an advisory relationship.
The Swiss Financial Market Supervisory Authority recently circulated a complete draft revision of the Ordinance on the Bankruptcy of Banks and Securities Dealers. The review was deemed necessary as a result of a series of amendments to the Federal Banking Act regarding the protection of depositors. However, the amendments to the act do not completely achieve the government's objective of full protection for depositors.
Switzerland and the United Kingdom have signed a cooperation agreement on taxation and financial markets. The agreement aims to regularise untaxed assets while preserving Swiss banking secrecy, and to curb the extent to which information is exchanged in relation to tax matters.
Switzerland and Germany have signed a cooperation agreement regarding the area of taxation and financial markets. The agreement aims to regularise untaxed assets while preserving Swiss banking secrecy, and to curb the extent to which information is exchanged in relation to tax matters. The agreement covers assets held by the clients at banks, brokers, PostFinance and asset managers in Switzerland. However, the agreement will mainly concern banks.
The Zurich district court recently issued a decision on the liability of a major Swiss bank in relation to securities sale orders. The court found the bank liable for damages which occurred when the bank refused to execute an order to sell the securities of a US-owned client company because its assets had been frozen by the US tax administration. The court considered the bank to be in breach of contract and imposed a considerable penalty.
The Federal Supreme Court recently published a decision regarding the issue of a bank's liability where its client transacts on derivatives markets. The court confirmed its established case law on the subject, but the case serves to remind banks of the importance of drafting general and specific terms and conditions in an adequate way, so as to avoid liability issues in particular cases.
The Financial Market Supervisory Authority (FINMA) has issued a position paper on legal and reputational risks in cross-border financial services. The paper could indicate a significant change in FINMA's traditionally liberal attitude towards cross-border transactions out of Switzerland.
SwissBanking – the Swiss bankers' association – has adopted a revised version of its Portfolio Management Guidelines. The revised guidelines, which were previously approved by the Financial Market Supervisory Authority, introduce major amendments regarding conflicts of interest and remuneration.
The Federal Supreme Court recently ruled on the issue of a bank's liability where it acts as a de facto body of one of its clients. It confirmed the established case law on the subject in a decision which will allow banks to continue to advise companies which are in difficulty without incurring the liability of a de facto body.
The Financial Market Supervisory Authority has issued a new circular stipulating minimum standards for financial institutions' remuneration schemes, thereby meeting the requirements of the Financial Stability Board and other international bodies. This update defines the scope of the circular's application and presents the main principles set out therein.
The agreement between Switzerland and the United States settling the UBS Case has entered into force. The settlement ensures compliance with the tax convention with the United States by applying a broad interpretation of the term 'tax fraud or the like' found in the two countries' agreement on double taxation.
In February 2009 the identities and account details of around 300 clients of UBS were transmitted to the US authorities following a decision of the Financial Market Supervisory Authority. The legality of this decision is being challenged before the Federal Administrative Supreme Court. Taxpayers with bank accounts in Switzerland would be well advised to monitor these developments closely.
The Financial Market Supervisory Authority has released a report on the issues raised by 'distribution compensation', the term used to describe practices whereby banks or independent asset managers receive benefits from originators of financial products in exchange for their distribution services. Where the distribution partners also have loyalty duties towards their clients, conflicts of interest can arise.
Due to the ongoing financial crisis, the federal government has announced a set of measures intended to strengthen the Swiss financial system. The government plans to increase the protection offered by the rules on privileged deposits by increasing the amount privileged in the event of bankruptcy. A complete revision of the privileged deposits system is also planned.
The Agreement on the Code of Conduct for Swiss Banks on the Exercise of Due Diligence sets out principles regarding the fight against money laundering and the prohibitions on active assistance in the flight of capital and tax evasion and similar acts. The latest version of the agreement, which is revised every five years, will come into force on July 1 2008.
Under applicable law, the activities of foreign exchange (forex) dealers are not regulated. One reason for this is that currency trading is, in principle, not considered as securities dealing. The Swiss Federal Banking Commission proposes to delete the term 'currency dealers' from Article 3a(3)(c) of the Banking Ordinance; thereby funds deposited with currency dealers will be considered as deposits.
The Swiss Federal Banking Commission appointed a working group composed of representatives from banks and from the Money Laundering Reporting Office to examine whether further regulation to combat money laundering and terrorist financing was required. The working group proposed changes to the Money Laundering Ordinance and put forward recommendations for amendments to the Swiss Banking Code of Conduct.
A new Swiss Federal Banking Commission circular, entitled "Supervision and Internal Control", will enter into force on January 1 2007. The circular reflects the growing trend towards enhanced corporate governance in all major industries. It provides a comprehensive but flexible set of rules that will apply to various finance and banking entities in Switzerland.
The Swiss Federal Tribunal has rendered an important decision according to which any finders' fees and commissions received by an independent asset manager in connection with a wealth management agreement belong to the client, unless expressly agreed otherwise by the client in full knowledge of the relevant facts. The decision will result in greater transparency.
When a bank client dies, his or her heirs acquire in particular all rights resulting from the banking relations. In theory, the heirs are to be informed about the status of the account at the time of death. The account holder may further provide that a power of attorney granted to a third party to operate the bank account is to remain in force after his or her death.
On September 30 2005 the Swiss Federal Banking Commission launched a public consultation on the draft ordinance and circulars implementing the new Basel Capital Adequacy Framework (Basel II) in Switzerland. Switzerland has decided to incorporate the three pillars and all the various approaches of Basel II into domestic law.
The Swiss Federal Banking Commission is consulting on two draft regulations. The first concerns the bankruptcy of banks, while the second amends the existing Implementing Ordinance on Banks and Saving Banks, which implements the provisions of the Swiss Banking Act relating to banks' obligation to secure so-called 'privileged' deposits.
Next year, Switzerland will take a new step towards the application of global performance presentation standards by transferring its local Swiss Performance Presentation Standards into the international Global Investment Performance Standards (GIPS). The GIPS must be treated as a code of best practice which will set the minimum standard requirements in the banking field.
The implementation of the Basel II Accord will have significant consequences for the financial world in general, and for commodity finance in particular. It is thus unsurprising that the leading players in the field - a large number of which are based in Switzerland - are already preparing themselves for the new capital requirements regime due to take effect in 2007.
The transmission of information by a Swiss bank to its overseas parent is often a delicate issue, as the subsidiaries of foreign banks are subject to Swiss banking rules, including banking secrecy. Where client information is not needed for consolidated supervision, its transmission abroad will be considered as a breach of Swiss banking secrecy.
The Swiss Federal Supreme Court has ruled that where a client withdraws money with a debit card from a bank counter, the bank may be obliged to require that the client provide a signature in addition to his personal identification number. Banks should ensure that their general terms and conditions are sufficiently clear as to when additional identification will be required.
The Swiss Federal Council has mandated the Federal Department of Finance to set up a working group to prepare a draft message on the implementation of the Financial Action Task Force's 40 Recommendations. The working group will recommend changes to the Money Laundering Act and the Swiss Criminal Code in order to ensure full compliance with the revised recommendations.
The Swiss Banking Association recently issued new directives with a view towards ensuring the independence of financial research and thus preventing potential conflicts of interest. The directives also aim to ensure appropriate transparency and equal treatment of the recipients of financial research.
The Swiss Bankers Association's Due Diligence Agreement forms part of the guidelines for self-regulation drafted by the Swiss banking industry. The latest version of the agreement was issued on January 17 2003 and provides for stricter 'know-your-customer' rules, such as requesting and recording more personal data about customers.
The Swiss Federal Banking Commission recently issued its new Money Laundering Ordinance, which will take effect in July 2003. Among other things, financial intermediaries are required to ensure that their branch offices or subsidiaries outside Switzerland comply with its provisions. They must also adopt a risk-based approach to the prevention of money laundering.
In a recent circular the Swiss Federal Banking Commission summarizes its practice regarding the advertisement of investment funds. The circular also sets out regulations on the distribution of funds via the Internet.
The Swiss Federal Banking Commission recently presented two new drafts for consultation. One relates to the revision of its guidelines concerning the preparation of financial statements, while the other proposes more stringent anti-money laundering provisions.
The Swiss Federal Banking Commission (FBC) recently presented its annual management report. The report suggests that supervision of bank auditors be increased and that the scope of the FBC's control be extended to all players on the stock market. It also wants to make the provision of international assistance easier.
A Swiss Federal Court decision has left the Swiss Federal Banking Commission (SFBC) unable to grant administrative assistance to the US Securities and Exchange Commission. The decision is proof of the inadequacy of existing legislation on the provision of international administrative assistance.
Three new decisions, relating to criminal investigations brought in Pakistan against former prime minister Benazir Bhutto and her family, show that a bank account holder's opportunities to challenge international assistance in Switzerland are limited, particularly where the holder is an offshore company.
The Swiss Banking Association has rejected the Bill on Electronic Commerce because of its inclusion of certain legal issues which are obviously not relevant to electronic commerce.
Eleven leading international private banks, including Credit Suisse and United Bank of Switzerland, have adopted the Wolfsberg Anti-Money Laundering Principles as global guidance for preventing the use of a bank's worldwide operations for criminal purposes.
The Federal Supreme Court recently had to decide whether the Swiss Federal Banking Commission could grant administrative assistance to the French commission for stock exchange activities. On the basis of this case the court defined the conditions under which Swiss authorities may submit confidential information to foreign authorities.
Parliament has moved to ease the tax burden on Swiss securities dealers engaged in securities transactions. Subject to certain conditions, Swiss dealers no longer owe one-half of the transfer stamp tax for certain parties which are also involved in a transaction.
A new revision of the Swiss stamp duty regulation is one of a series of measures intended to increase the competitiveness of the Swiss financial market. Parliament is expected to adopt it quickly due to pressure from the Swiss Stock Exchange and the Swiss banks.
On July 24 2000 the Swiss Bankers Association's board of directors approved a revision of the association's Portfolio Management Guidelines of April 1996. The amended guidelines came into force on August 1 2000. This update describes the main modifications.
The Swiss Bankers' Association (SBA) is satisfied with the content of a report on improving access to bank information for tax purposes. Since the Swiss legal system conforms entirely with the report’s recommendations, the SBA sees no need to make any changes that would affect the protection of the individual privacy of bank customers in Switzerland.
Pension fund investments in Switzerland are governed by the Ordinance on Occupational Retirement, Survivors' and Disability Pension Plans. Its provisions concerning security and spreading of risks, indirect placements and permissible investments have recently been modified to account for the development of the financial markets.
Over the last two years the Independent Committee of Eminent Persons has searched Swiss banks for the unclaimed assets of Holocaust victims. The Swiss Federal Banking Commission which supervised the process, has recently commented on its findings.
The Swiss Federal Banking Commission has issued new regulations which deal with the outsourcing of banking activity and the requirements of Swiss banking secrecy and data protection rules.
1998 Annual Report of the Swiss Federal Banking Commission - Liquidation of Financial IntermediariesSwitzerland | 27 October 1999
The Federal Council recently agreed to push back the effective date for derivative transaction reporting duties for small non-financial counterparties to 1 January 2024 and extend the corresponding transitional period. The corresponding amendment to the Financial Market Infrastructure Ordinance will enter into force on 1 January 2019. The reporting duties already in force for other market participants are unaffected.