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03 June 2005
On April 15 2005 the Swiss Federal Banking Commission launched a consultation relating to two draft regulations which affect not only Swiss banks, but also Swiss branches of foreign banks.
The first draft, the Federal Banking Commission Ordinance on Bank Bankruptcy, concerns the bankruptcy of banks. The second draft amends the existing Implementing Ordinance on Banks and Saving Banks of May 17 1972, which implements the provisions of the Banking Act in relation to the obligation for banks to secure so-called 'privileged' deposits by ensuring that a certain amount of liquid funds is always held (in addition to other requirements).
The domestic Banking Act was amended as of July 1 2004 to implement new provisions on bank bankruptcy, among other things. The act provides that bank bankruptcy proceedings will be conducted in accordance with the Federal Debt Collection and Bankruptcy Act, unless the commission decides otherwise.
The commission has opted to make extensive use of its competence in this respect and has laid down a set of tailor-made rules on bank bankruptcy, which take precedence over the Debt Collection and Bankruptcy Act.
The commission has issued a draft Ordinance on Bank Bankruptcy, which sets out the bankruptcy procedure from the opening of bankruptcy proceedings by the commission to the realization of a bank's assets and the distribution of its proceeds. The draft ordinance is set to enter into force on August 1 2005.
The commission plays a major role in bank bankruptcy proceedings. It is the competent authority for declarations of bankruptcy (which, according to standard procedure under the Debt Collection and Bankruptcy Act, is the sole domain of judges). The commission is also empowered to designate one or more liquidators and acts as their supervisory authority.
As a consequence of the powers granted to it, the commission is competent to pronounce any bank bankrupt regardless of the bank's location within Switzerland. As far as appeals and ordinary procedures under the Debt Collection and Bankruptcy Act are concerned (eg, third-party claims), the competent authorities remain those designated at the seat of the bankrupt entity.
The draft Ordinance on Bank Bankruptcy has a broad scope of application. It applies to:
In such cases, the bankruptcy will cover all Swiss and foreign assets of the bankrupt entity, according to the principle of universality. Further, the draft ordinance also applies whenever the commission recognizes bankruptcy decisions pronounced by a foreign authority. However, in this case the Swiss procedure will apply only to those assets that are located in Switzerland.
Bank bankruptcy proceedings, as set out in the Banking Act and the draft ordinance, consist of three main stages as follows:
The commission has launched a consultation on a draft amendment to the Implementing Ordinance on Banks and Saving Banks, concerning the obligations for Swiss banks and Swiss branches of foreign banks to secure privileged deposits. These are defined in the draft amendment to the Implementing Ordinance on Banks and Saving Banks by reference to the Banking Act and to the draft Ordinance on Bank Bankruptcy. Thus, privileged deposits as referred to in the draft amendment to the Implementing Ordinance on Banks and Saving Banks include all non-bearer amounts due to customers in form of savings or deposits, other amounts due to customers and medium-term bonds up to a maximum of Sfr30,000.
Before the amended Banking Act took effect on July 1 2004, the securing of certain deposits was regulated only by the Agreement on the Protection of Depositors in the Event of Bank Bankruptcy of July 1 1993 promulgated by the Swiss Banking Association. Although the 1993 agreement appears to have been signed by all banks accepting deposits from clients, the signing of the agreement is not compulsory and the signatories may call for its termination. The 1993 agreement sets out a self-regulatory system under which the parties provide the Swiss Banking Association with monies enabling it to reimburse swiftly the secured deposits of clients of a bankrupted bank.
This voluntary self-regulatory system was considered to be insufficient. Accordingly, on July 1 2004 the Banking Act was amended to incorporate new provisions specifically relating to the securing of privileged deposits.
According to these new provisions, banks and securities dealers must ensure that privileged deposits are secured by adhering to a self-regulatory system, which must be approved by the commission. The Banking Act further provides that the commission will approve such a self-regulatory system provided that it:
As per the draft amendment to the Implementing Ordinance on Banks and Saving Banks, each bank must provide the Swiss Banking Commission with information about the sum of privileged deposits it holds, including those that amount to a maximum of Sfr5,000. This information will then be used by the Swiss Banking Commission to calculate the contributions that would be due by each bank and the additional liquidity required.
According to the draft amendment to the Implementing Ordinance on Banks and Saving Banks, the trigger for the execution of the secured deposits system is the commencement of a bank's bankruptcy (among other things). In such case the commission will announce the decision to submit the bankruptcy to the secured deposits body (likely the Swiss Banking Association). The three-month deadline for the repayment of secured privileged deposits begins to run from this announcement. In the event of a bank's bankruptcy, the appointed liquidator then draws up a repayment schedule of privileged deposits and submits it to the secured deposits body, whose task is to ensure that sufficient monies are handed to the liquidator to enable him to repay the secured privileged deposits.
Between them, the Banking Act and the draft amendment to the Implementing Ordinance on Banks and Saving Banks comprise an extensive set of rules and leave little room for the self-regulatory system. Accordingly, the future self-regulatory system will mostly establish procedures for ensuring that banks will pay the necessary contributions in due time to enable the repayment of secured deposits within three months of notification of the commencement of bankruptcy.
Pursuant to the draft amendment to the Implementing Ordinance on Banks and Saving Banks, banks must disclose the above information to the commission from 2006 onwards. As from 2007, the auditors of banks and securities dealers must verify the information provided.
For further information on this topic please contact Emmanuel Genequand or Olivier Blanc at Pestalozzi Lachenal Patry by telephone (+41 22 737 1000) or by fax (+41 22 737 1001) or by email (email@example.com or firstname.lastname@example.org).
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