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05 April 2019
On 8 March 2019 the Federal Council initiated a consultation on a partial revision of the Banking Act, in particular regarding the:
The Banking Act currently regulates only the main features of the restructuring procedure for banks, while the more detailed provisions are given in the Swiss Financial Market Supervisory Authority Banking Insolvency Ordinance. To strengthen legal certainty, instruments such as capital measures (eg, a bail-in) interfering with the rights of bank owners and creditors will now be regulated on the legislative level (ie, in the Banking Act itself). Moreover, the banks are no longer allowed to secure half of their contribution obligations to deposit insurance in the form of additional liquidity, but now must deposit securities or Swiss francs in cash with a custodian. If a bank liable to pay contributions does not meet its payment obligations, deposit insurance will use these deposited values. The pay-out deadline for the funds from deposit insurance to the bankruptcy liquidator will be reduced from 20 to seven days. On receipt of the bank client's payment instructions, the secured deposits will be paid to the client within a further seven days.
The proposed amendments in the Intermediated Securities Act will require that custodians of intermediated securities separate their own holdings from their clients' portfolios. If assets are held by a custodian abroad, the Swiss custodian that has a direct relation to the foreign custodian must take measures to protect the intermediated securities booked with the foreign custodian. In addition, the information provided to clients in this context will need to be improved.
According to the current legal framework (in particular, Articles 37a and 37b and 37h-37k of the Banking Act), in the event of the bankruptcy of a bank (or a securities dealer), deposits of up to Sfr100,000 per customer are privileged. Insofar as the institution in bankruptcy has sufficient liquid funds, the privileged deposits up to the maximum amount are paid out immediately and outside of the ordinary procedure. If these funds are not sufficient, the deposit guarantee is applied to deposits of up to Sfr100,000 at Swiss branches (Article 37h Paragraph 1 of the Banking Act) (ie, secured deposits). This is financed by the other banks through contributions levied in the event of an incident by the self-regulation body (esisuisse), which ensures that the amount can be paid out as quickly as possible in the form of advance payments. To the extent that the deposit guarantee makes payments, the secured claims of depositors are transferred to them.
The current system of deposit protection has generally proved its worth in principle and is not therefore under review as a whole. The Federal Council considers that there is a need for reform in three specific areas:
In contrast to deposits, securities account values (eg, stocks, shares and fund units) are considered to be owned by customers even if in custody of the bank. Therefore the customers of an affected bank have the right to request the segregation and delivery of these assets in the bankruptcy proceedings of a failing bank. This rule applies to both custody account assets and physical assets held at the affected bank (eg, precious metals deposited by customers). In order to allow such segregation and delivery in the event of bankruptcy, the holdings of customers must be separated from the bank's own holdings (ie, via segregation). In order to strengthen this procedure, the rules for segregation (in particular for book-entry securities) will be improved throughout the entire domestic custody chain and the first foreign depository, if any.
For further information on this topic please contact Alexander Vogel or Reto Luthiger at Meyerlustenberger Lachenal by telephone (+41 44 396 91 91) or email (email@example.com or firstname.lastname@example.org). The Meyerlustenberger Lachenal website can be accessed at www.mll-legal.com.
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