Swiss Financial Market Regulators & Laws

Abstract

Swiss financial intermediaries are regulated by an assortment of interconnected federal and cantonal laws and authorities. The Financial Market Supervisory Authority (FINMA) is Switzerland's primary financial regulator, but it is supported by regulatory powers, such as the Swiss National Bank. The FINMA regulates banks, security exchanges, other financial market infrastructures, securities firms, collective investment schemes, insurance companies, mortgage issuance banks, fund management companies, asset managers and trustees, and trade assayers. Its responsibilities include fighting money laundering, ensuring financial transparency, resolving conflicts, and ensuring that financial institutions’ self-regulatory activities meet at least minimum standards. It also licenses banks operating in or from Switzerland. During the twenty-first century, the Swiss government passed significant legislation that laid the foundation and changed the competitive landscape for Swiss financial institutions.

Introduction

Swiss financial intermediaries are regulated by an assortment of interconnected federal and cantonal laws and authorities. This chapter focuses on the federal level. It starts by explaining the purpose of the Financial Markets Supervisory Authority, Switzerland's primary financial regulator, and goes on to explain supporting regulatory authorities, primary among which is the Swiss National Bank. It identifies and clarifies the major federal acts that have shaped Switzerland's financial system. This discussion reveals the concentration of federal acts passed in the twenty-first century, reflecting significant levels of economic and financial volatility. The main portion of this chapter highlights federal “acts” that are the legal foundation for Switzerland's financial system. The Appendix to this chapter, entitled Legal Basis for Switzerland's Financial System: Federal Ordinances and Regulations, explains the federal “ordinances ” and “regulations ” that help clarify Switzerland's major acts.

FINMA: Switzerland's Chief Financial Regulator

Switzerland's Financial Markets Supervisory Authority (FINMA) is the nation’s independent financial markets regulator.¹ Its mandate is to protect financial market clients by supervising and monitoring Swiss financial institutions ’ compliance with federal acts, ordinances , directives, regulations , and circulars. It imposes sanctions , assists other national and international regulators , helps draft statutes and ordinances, issues circulars, and supervises Switzerland's self-regulatory financial institutions , such as professional associations’ codes of conduct—voluntary, mandatory, and minimum standard.² If successful, Switzerland's financial markets will remain stable and function effectively.

Included under FINMA’s regulatory umbrella are Switzerland’s “banks, security exchanges and other financial market infrastructures, securities firms, collective investment schemes, insurance companies, mortgage issuance banks, fund management companies, asset managers and trustees, trade assayers, as defined in the Precious Metals Control Act (PMCA),” asset managers for occupational pension schemes, supervisory organizations for asset managers, and prospectus review bodies regulated under the Financial Services Act (FinSA).³

Among FINMA’s many responsibilities are fighting money laundering, ensuring financial transparency, resolving conflicts, and ensuring that financial institutions’ self-regulatory activities meet at least minimum standards. It also supervises quantitative regulations, such as capital and solvency requirements, and oversees qualitative factors, such as the corporate governance and risk management of prudentially supervised institutions.

The FINMA is the creation of the Swiss Parliament’s Federal Act on Swiss Financial Market Supervisory Authority (FINMASA), which was passed on June 22, 2007. Fewer than six months later, on January 1, 2008, the FINMA commenced operations. The FINMASA merged into the FINMA responsibilities of three former regulators,⁴ thereby putting into one regulator’s hands the power to supervise virtually all of Switzerland's financial intermediaries. In addition to concentrating the FINMA’s regulatory authority beyond those of three previous regulators , the FINMASA also increased the FINMA’s institutional, functional, and financial independence . Nevertheless, despite its relatively high level of autonomy, the FINMA is a political creation that is accountable (albeit quite limited) to the federal government . Furthermore, the FINMA is subject to a Code of Conduct, which lays out how its management and employees are expected to behave.⁵

Article 7, paragraph 3 of the FINMASA allows Swiss financial institutions to regulate themselves in certain areas, as long as the FINMA enforces minimum standards for each self-regulatory organization (SRO).⁶ An example of self-regulation is the Swiss banks’ Code of Conduct regarding the exercise of due diligence for know-your-customer (KYC) rules. The 2020 Agreement on the Swiss Banks’ Code of Conduct with Regard to the Exercise of Due Diligence (commonly abbreviated CDB 20) defines these obligatory rules for banks and security dealers.⁷

The FINMA assists financial intermediaries in need of help and can impose penalties and sanctions on those that do not obey the rules. It is the bankruptcy agency for most Swiss financial intermediaries, responsible for ensuring an orderly market exit via insolvency or compulsory liquidation. If an intermediary is over-indebted or illiquid, the FINMA must determine if restructuring is possible and, if not, place it into bankruptcy.⁸

One of the FINMA’s primary responsibilities is licensing banks that operate in or from Switzerland. Foreign banks and foreign-controlled banks operating in Switzerland are also required to obtain licenses from the FINMA. Institutions that offer only financial services in Switzerland and have no physical presence do not need licenses, but they are subject to the FINMA’s oversight, particularly concerning rules of conduct.⁹

The FINMA grants three broad types of licenses:

• 1. Banking, for firms with deposit liabilities more than CHF 100 million;

• 2. FinTech, for firms with deposit liabilities less than CHF 100 million, and

• 3. Securities, for securities trading and underwriting.

Because Switzerland has universal banking, the financial activities of a “bank” can vary, obliging the FINMA to evaluate the firm’s organization and operational ability to manage potential risks. Licensed financial institutions must have paid-in share capital of at least CHF 10 million,¹⁰ but the FINMA may require additional equity -linked support in the form of subordinated debt to back the mix of proposed financial activities.¹¹

FINMA’s Organizational Structure

Figure 5.1 shows the FINMA’s organizational structure, with a Board of Directors (BoD), Chief Executive Officer (CEO), and eight divisions, four of which perform supervisory activities. The remaining four carry out cross-divisional functions.

Fig. 5.1

(Source FINMA, eight divisions, https://www.finma.ch/en/finma/organisation/finma-s-divisions/ [Accessed on August 3, 2022])

FINMA structure

Board of Directors (BoD)

An independent Board of Directors (BoD) manages the FINMA, with seven-to-nine expert members and a support staff consisting of the Secretariat and Internal Audit Departments. The BoD is responsible for making strategic management decisions, issuing ordinances and circulars, approving the FINMA’s budget, and overseeing the CEO. The Board makes personnel, remuneration, and risk management decisions and works cooperatively with key domestic and foreign regulators. Among its domestic counterparts are the Swiss Bankers Association (SBA), Swiss Insurance Association, Swiss Funds Association, SIX Swiss Exchange, Swiss Takeover Board, and Federal Audit Oversight Authority. The BoD’s international associates include the Financial Stability Board, Basel Committee on Banking Supervision of the Bank for International Settlements, Financial International Organization of Securities Commissions, International Association of Insurance Supervisors, International Organization of Securities Commissions, Financial Action Task Force, Organization for Economic Cooperation and Development, and International Monetary Fund.

Chief Executive Officer (CEO)

The FINMA’s Chief Executive Officer (CEO) reports to the BoD and is responsible for preparing the material necessary for the BoD to make well-informed decisions. The CEO controls the FINMA’s operations, implementing BoD rulings and supervising financial intermediaries, including banks, insurers, stock exchanges, and securities dealers.

Divisions

The FINMA has four supervisory divisions and four cross-divisional units. Supervisory functions are conducted by the Banks, Insurance, Markets, and Asset Management divisions. The Banks Division licenses and supervises banks and security firms. The Insurance Division licenses insurance companies. The FINMA’s Markets Division oversees FinTech companies and para-banking activities.¹² It also monitors banks’ SROs to ensure they comply with Switzerland's Anti-Money Laundering Act (AMLA) regulations.¹³ Finally, the Asset Management Division authorizes and supervises asset managers (of funds ) and collective investment schemes. It also licenses portfolio managers (trustees) that are covered by the Financial Institutions Act (FinIA ) and conducts case-based supervision.¹⁴

The cross-divisional responsibilities of the FINMA’s Enforcement Division are to execute supervisory laws and conduct market supervision. The Strategic Services Division is responsible for international cooperation, legal frameworks, and communication across the FINMA’s divisions. The Recovery and Resolution Division ensures that the FINMA’s units operate efficiently and effectively in crises. Finally, the Operations Division ensures that the FINMA staff is well-equipped with the needed working tools. It is also responsible for performing internal service and control functions.

Audit Firms

FINMA delegates a significant portion of its direct supervisory work to independent audit firms but retains the right to conduct its own targeted, on-sight assessments. The primary purpose of these auditing satellites is to assess financial institutions’ compliance with supervisory requirements and their ability to continue doing so in the foreseeable future. The only auditing exceptions are for UBS Inc., UBS Switzerland AG, Credit Suisse Group Ltd., and Credit Suisse (Switzerland) Ltd., the nation’s largest banking groups. For them, the FINMA has its own dedicated supervisory team.¹⁵

Supporting Regulatory Authorities

FINMA is Switzerland's primary financial regulator, but various organizations support it, such as:

• External auditors, who ensure compliance with Switzerland’s financial legislation and FINMA rules;

• Self-regulatory bodies that supervise mandated Swiss statutes;

• The Swiss Bankers Association, which issues directives, circulars, and guidelines that the FINMA recognizes as minimum regulatory standards, and the

• Swiss National Bank.

Swiss National Bank

The SNB’s primary responsibilities are the proper management of Switzerland's money supply growth rate, exchange rate, interest rates (both real and nominal), creation of Swiss banknotes and coins, and providing liquidity to Switzerland's financial system.¹⁶ It is also charged with ensuring that Switzerland stays abreast of the most efficient payment systems . The SNB is Switzerland's principal connection to global authorities, such as the Bank for International Settlements , Financial Stability Board , International Monetary Fund, Organization for Economic Cooperation , and World Bank.

While they pale compared to the FINMA, the SNB has meaningful regulatory authority and functional responsibilities relative to Switzerland's financial institutions. Among them are:

• Systemically Important Financial Institutions (“Too Big to Fail”)

  • The financial crisis of 2007–2009 caused Swiss authorities to consider the implications that a failure of one or more large, systemically important domestic financial institutions might have on the nation’s financial system, economy, and foreign countries. In March 2012, Switzerland's Parliament passed an amendment to the Banking Act of 1934, giving the SNB power to impose special requirements on systemically important financial institutions (SIFIs). In particular, the special requirements apply to these banks’ capital, liquidity, exposures, and organization. Currently, the SNB identifies two Swiss banks (UBS and Credit Suisse) as global systemically important banks (G-SIBs) and three banks (Zürcher Kantonal Bank, Raiffeisen, and PostFinance) as domestic systemically important banks (D-SIBs).

• Countercyclical Buffer

  • If the Swiss economy overheats or slows unexpectedly, the SNB has the power to change the nation’s countercyclical buffer, which was introduced in 2013. This buffer adjusts banks’ equity requirements to economic changes associated with the nation’s business cycle. SIFIs face stricter capital requirements than other banks, in terms of both the percent of equity that must be held relative to risk-weighted assets and the assets that qualify as reserves (e.g., common equity Tier 1 versus other forms of equity).

• Liquidity and Reserve Requirements

  • Swiss banks have liquidity requirements relative to their short-term liabilities and reserve requirements relative to their deposit liabilities. Assets that qualify as liquid assets and reserves are cash and sight deposits at the SNB. SIBs must meet higher standards to absorb significant exogenous shocks that drain liquidity from the banking system.

• SIX x-clear

  • SIX x-clear is a central counterparty (CCP) that intermediates between trading parties on the SIX Swiss Exchange. Upon settlement, it initiates delivery and payment and tracks, values, and offsets trading positions.¹⁷ SIX x-clear is supervised by the FINMA and the SNB for services of systemic importance.¹⁸

• SIX Repo

  • The SIX Repo operates two repurchase agreement bodies, CH Repo and OTC Spot. CH Repo facilitates the SNB’s open market operations, and OTC Spot manages the SNB’s auctions for Treasury Bills, Federal Bond Issues, and SNB Bills. The SNB also uses SIX Repo’s Special-Rate Repo facility (aka, “Liquidity Shortage Financing Facility”) to provide banks with very short-term (i.e., overnight) liquidity.¹⁹

• SIX Interbank Clearing

  • Swiss Interbank Clearing (SIC) is Switzerland's nationwide electronic payment network, clearing domestic transactions, such as fund transfers, security payments, cash management services, and borrowed/lent securities. The SIC uses its SNB deposits for payments and receipts, which integrate its actions with the SNB’s monetary policies. Due to its crucial position in Switzerland's financial system, the SNB classifies the SIC system as a “systemically important financial market infrastructure” (SIFI).²⁰ Therefore, it is subject to the central bank’s supervision.²¹

• Settlement Communication System (SECOM)

SECOM is Switzerland's custody and securities settlement platform for on- and off-exchange transactions. Payments are made via commercial banks or the SNB.

Legal Basis for Switzerland’s Financial System: Federal Acts

Switzerland's reputation as a credible, safe, and stable harbor for financial investments—domestic and foreign—depends on having fair, transparent, and effective financial laws, which is why ordinances, circulars, and regulations are crucial to the nation’s reputation as a credible, safe, and stable harbor for financial investments—domestic and foreign. This section begins by discussing the main federal acts on which Switzerland’s financial system has been built. The Appendix to this chapter, entitled Legal Basis for Switzerland's Financial System: Federal Ordinances and Regulations, discusses how ordinances help clarify the nation's federal financial acts.

Financial acts are passed by Switzerland's Parliament and carry the full weight of the law. By contrast, ordinances help interpret financial acts. Ordinances can be created by either the Swiss Federal Council or the FINMA. They are a means by which the FINMA helps promulgate Swiss financial laws and illuminate how it conducts financial supervision.

Table 5.1 shows the federal acts on which Switzerland's financial system has been built and the years they were created by Switzerland’s political process. Acts typically come into force one-to-two years after their creation.

Table 5.1 Swiss financial market legislation: 1930–2022

As Table 5.1 shows, the 15 year period from 2007 to 2022 were particularly active for Swiss lawmakers, caused by a substantial increase in global volatility and complexity. Among the most significant events amplifying financial market instability were the following:

• Great Recession (2007–2009), which started in the US’ subprime real estate sector, spread to virtually every other real and financial segment of the US economy, and then infected the rest of the world;

• European Debt Crisis (2008–2016), which began in 2008, when Iceland’s banking system collapsed, and was followed by sovereign debt crises in Greece (starting in 2010), Ireland (2010), Portugal (2011), Spain (2012), Cyprus (2012), and Italy (2016);

• Brexit (2016), which was UK’s decision to leave the European Union (EU);

• COVID-19 Pandemic (2020–2022+), which began in China in 2020 and spread (with its many variants) to the rest of the world; and

• Other Events, such as terrorist attacks, mass shootings, natural disasters (e.g., hurricanes and earthquakes), political upheavals (e.g., impeachments), and wars (e.g., Russia’s invasion of Ukraine in 2014 and 2022).

Together, these events demonstrated how strongly interconnected global markets (e.g., financial, real, and foreign exchange) have become and how a significant change in one of them impacts others. Swiss regulators’ first concern has been ensuring its domestic and global customers that Switzerland's financial system would remain stable. At the same time, Swiss financial rules and regulations needed to be changed so that they were equivalent, at least, to those in the EU and large countries, such as the US. Otherwise, Swiss financial intermediaries could be denied access to some of their largest customers.²²

Mortgage Bond Act

Switzerland's Mortgage Bond Act (Pfandbriefgesetz, PfG, June 25, 1930) was based on Article 64, paragraph 2 of the Federal Constitution. Its purpose is to govern the duties and issuing rights of the central mortgage bond institutions, so they provide property owners with long-term mortgage loans at the cheapest possible interest rates.

Banking Act

At the foundation of Switzerland's current financial system is the Federal Act on Banks and Savings Banks (Banking Act, BA, November 8, 1934), which governs banks, private bankers, and savings banks, as well as financial intermediaries that accept deposits up to CHF 100 million but neither invest nor give interest on deposits. The BA provides rules for obtaining operating licenses and requirements for bank capital, liquidity, and accounting. For systemically important banks (SIBs), the BA imposes additional liquidity and capital requirements, such as buffer capital and conversion capital. This Act has supervisory powers over savings and sight deposits and covers cases of impending bank insolvency and liquidation. Furthermore, it oversees Switzerland's depositor protection scheme, dormant assets, and liability and penal provisions.

Of all the federal financial acts passed during the past hundred years, the BA stands out as one of Switzerland's landmarks. Passed in 1934, the BA and its revisions have helped mold Switzerland's financial market into its current shape. Among the BA’s requirements is Swiss banks’ responsibility to have a functional and personal separation between their supervision and management. Therefore, the banks’ boards of directors and management staff must have two separate corporate bodies with no overlapping members. While day-to-day operating decisions are the responsibility of banks’ management teams, the BA holds its three-member (at least) board of directors accountable for major strategic decisions, bank supervision, and control.²³

Anti-Money Laundering Act

The Federal Act on Combating Money Laundering and Terrorist Financing (Anti-Money Laundering Act, AMLA, October 10, 1997) is based on Articles 95 and 98 of Switzerland’s Federal Constitution. It addresses Swiss efforts to:

• 1. Fight money laundering, defined in Article 305^bis of the Swiss Criminal Code (SCC)²⁴;

• 2. Combat terrorist financing, defined in Article 260^quinquies paragraph 1 of the SCC; and

• 3. Ensure necessary due diligence for financial transactions.

This Act applies to financial intermediaries, natural persons, and legal entities that accept cash for commercial purposes.

Consumer Credit Act (FLCC)

The Consumer Credit Act (Federal Law on Consumer Credit, FLCC, 2001) defines the rights and responsibilities of parties to a consumer loan agreement. It protects borrowers from usury by limiting the nominal interest rate on consumer loans, “as a general rule,”²⁵ to a maximum of 15%.²⁶ In addition, borrowers are protected by requiring lenders to provide sufficient information to make these transactions clear and transparent.

The FLCC protects lenders by creating a credit information office, which serves as a centralized database of customer loan details. Lenders must report consumer loan details to the Credit Information Office and, before new loans are made, use it to check the financial status of potential borrowers. Consumer loans are granted only if borrowers’ incomes permit repayment within three years. The act of granting or brokering commercial loans requires a cantonal license.²⁷

Insurance Supervision Act (ISA)

The Federal Law Regarding the Supervision of Insurance Companies (Insurance Supervision Act, ISA, December 17, 2004) defines how the Swiss Confederation supervises insurance companies and insurance intermediaries, particularly concerning their solvency and liquidity.

Collective Investment Schemes Act (CISA)

The Federal Act on Collective Investment Schemes (Collective Investment Schemes Act, CISA, June 23, 2006) protects investors, ensures transparency, and provides a properly functioning market for collective investment schemes. The CISA’s regulatory powers include those over:

• Individuals responsible for safekeeping assets trusted to them;

• Foreign collective investment schemes offered in Switzerland; and

• Individuals who represent foreign collective investment schemes in Switzerland.

Until its revision, all Swiss collective investment schemes required FINMA approval.²⁸

CISA was partially revised and expected to come into force in late 2022 or 2023. When it does, this Act will create a new type of fund in the category of Collective Investment Schemes for Qualified Investors, called the “Limited Qualified Investor Fund” (L-QIF), which is free from FINMA authorization, regulation, and approval.²⁹ While the fund is not regulated by the FINMA , customers must be qualified,³⁰ and the firm and asset managers in each fund are under FINMA supervision.

Financial Market Supervision Act (FINMASA)

The Federal Act on the Swiss Financial Market Supervisory Authority (Financial Market Supervision Act, FINMASA, June 22, 2007)³¹ regulates the FINMA, portfolio managers (trustees), and supervisory organizations . At its legal foundation are Articles 95 and 98 of the Federal Constitution .

The FINMASA merged the powers of three former financial regulators (i.e., the Swiss Federal Banking Commission [SFBC], Federal Office of Private Insurance [FOPI], and Anti-Money Laundering Control Authority [AMLCA]) into one and increased its institutional, functional, and financial independence relative to the three previous regulators.

This Act charges the Swiss Confederation with creating a supervisory authority that acts as an umbrella for other financial regulations, which is why it is often referred to as a financial “umbrella law.”³² The FINMASA has given the FINMA a broad mandate to supervise Swiss banks, insurance companies (e.g., life and non-life insurance , such as health, property, accident, risk of loss, liability , and reinsurance ), stock exchanges , securities dealers, collective investment schemes, mortgage -issuance banks, fund-management companies (e.g., occupational pension plans), asset managers (trustees), trade assayers,³³ and prospectus review bodies. A commonality among all these financial institutions is they are regulated by the Financial Market Services Act (FinSA), passed in 2018.³⁴ In its regulatory capacity, the FINMASA also gave the FINMA responsibility to protect creditors, investors, and policyholders, and it specified the FINMA’s organizational framework, principles governing financial market regulation , and liability rules. Furthermore, it harmonized Switzerland's supervisory instruments and sanctions .

Supporting and reinforcing the FINMASA are the FINMA Organizational Regulations, FINMA Code of Conduct,³⁵ and the FINMA Ordinance on the Financial Market Supervision Act .³⁶ The FINMA Organizational Regulations define the FINMA’s structural framework and the tasks and powers of its BoD, Executive Board, and Internal Audit Committee.³⁷ The FINMA Code of Conduct defines how the FINMA’s Board of Directors and employees are expected to behave—particularly avoiding conflicts of interest.³⁸ Finally, the FINMA Ordinance on the Financial Market Supervision Act (December 13, 2019) describes the FINMA’s international regulatory responsibilities and those related to the FINMA’s information exchanges with the FDF.

Financial Market Infrastructure Act (FinMIA)

The Federal Act on Financial Market Infrastructures and Market Conduct in Securities and Derivatives Trading (Financial Market Infrastructure Act, FinMIA, June 19, 2015) governs the organization and operation of Switzerland’s Financial Market Infrastructures and Markets Division by regulating the conduct of participants in securities and derivatives trading. The FinMIA establishes license requirements for stock exchanges, multilateral trading facilities, organized trading facilities, central securities depositories, DLT trading platforms, trade repositories, and payment systems. It also regulates disclosure rules for public takeover offers, including derivative transactions, such as puts, calls, and conversion rights, regardless of whether they are settled by delivering the underlying instruments or cash.³⁹

Financial Institutions Act (FinIA)

The Federal Act on Financial Institutions (Financial Institutions Act, FinIA, June 15, 2018) is based on Articles 95 and 98 of the Swiss Federal Constitution. It entered into force in January 2020 and was subject to a two-year phase-in period. The FinIA regulates and standardizes the rules for financial institutions engaged in asset management and collective asset management. It aims to protect investors and clients of financial institutions by ensuring financial markets function properly. In general, the FinIA governs the organization and operation of Switzerland's financial institutions (e.g., banks, insurance companies, financial institutions, collective investment schemes, and their asset managers, as well as fund management companies and insurance intermediaries) and regulates the conduct of participants in securities and derivatives trading.

The FinIA regulates the license requirements for financial institutions in virtually every area, including Securities Firms, Financial Market Infrastructures and Markets, Collective Investment Schemes, Portfolio Managers (Trustees), and Supervisory Organizations.⁴⁰ Its standardized authorization rules empower the FINMA to supervise and authorize independent portfolio managers (trustees) and administrators of occupational pension funds . Formal regulation is carried out by FINMA -authorized supervisory organizations (SOs ), with oversight by the FINMA .⁴¹ These SOs are also responsible for ensuring compliance with AMLA rules, a charge previously in the hands of the SROs.

The FinIA has made substantial regulatory changes for independent asset managers (IAMs). Each must appoint a board of directors with at least two qualified directors (i.e., individuals with proof of adequate training and professional experience), most of whom are non-operating members, and an independent internal auditor to measure and monitor company risks with an external auditor. Furthermore, this legislation requires IAMs to have internal risk management and control systems with sufficient independence and compliance capabilities.

The FinIA requires IAMs to have paid-in capital of at least CHF 100,000 and an internal way of considering the tax implications of their operations, including the possible use of insurance to protect against professional liability.⁴² This Act subjected IAMs to FINMA licensing requirements and supervision, which are more stringent than their previous obligations as SROs. Because the FinIA clarifies the allowable range of asset management activities for all financial intermediaries, additional approval for managing funds of occupational pension schemes has no longer been required.

Financial Market Services Act (FinSA)

The Federal Act on Financial Services (Financial Market Services Act, FinSA—June 15, 2018) entered into force in January 2020 and was subject to a two-year phase-in period. It enhances Switzerland’s financial services reputation and competitiveness by protecting customers and harmonizing the conditions under which Swiss intermediaries provide their services—particularly concerning “honesty, diligence, and transparency.”

FinSA casts a vast regulatory net, covering client advisers, producers, providers of financial instruments, and financial service products offered by all Swiss financial intermediaries, such as banks and independent asset managers.⁴³ The Act moved regulation away from its historical roots, which focused on investor protection rules regulating the “distribution” of funds . Instead, FinSA focuses on protecting new financial offerings at their points of sale, relying on the Collective Investment Schemes Act (CISA) to safeguard customers once financial products are sold.

The FinSA imposed new reporting requirements and tests to increase openness and reduce abuses. Its rules also addressed high-frequency trading and required automated trading algorithms to be registered, tested, and equipped with circuit breakers.

By bringing all Swiss financial offerings under a common regulatory umbrella, the FinSA reduces barriers confronting customers who wish to enforce their legal claims against financial service providers. To settle legal customer disputes, each financial institution must choose an independent ombudsman approved by the Federal Department of Finance (FDF).

FinSA includes rules of conduct that apply to all financial service providers. It focuses on information sufficiency, assessment and adequacy tests, documentation requirements, accountability, transparency, and due diligence. The Act requires financial service providers to furnish customers with:

• Clear business information;

• Lists of services and products offered and their potential risks and returns;

• Accurate recordkeeping;

• Reports and tests that increase transparency and reduce abuses, such as the use of “darknet pools”⁴⁴;

• Assessment and adequacy tests;

• Documentation requirements; and

• Rules of conduct, including accountability and due diligence.

The FinSA empowers the FINMA to approve adviser registration and provides a reviewing body for prospectuses. Customers are classified as either “retail” (non-professional), “professional,” or “institutional” investors, with protection varying by the classification level. Retail customers receive the highest level of protection (e.g., documentation, reporting, and assessments of investment suitability) due to their relatively low levels of experience and training. Professional customers, such as pension funds, large companies, and mutual funds, receive the second level of protection because they are assumed to have expertise in assessing risk-return tradeoffs among investment opportunities. Finally, institutional customers, such as banks and insurance companies, are judged to be highly sophisticated investors and receive only moderate, prudential supervision.⁴⁵

To move Swiss financial regulations closer to those in the EU, the FinSA contains conduct provisions modeled on the EU’s Markets in Financial Instruments Directive (MiFID) and its successor regulation, Markets in Financial Instruments Directive II (MiFID II). The FinSA has requirements for prospectuses and easily understandable key-information documents for financial instruments. Essentially, it seeks to harmonize the authorization rules for financial service providers other than banks and (for the first time) subjects asset managers (trustees) and independent wealth managers to licensing and prudential supervision requirements.

Swiss Banking Ombudsman

The Swiss Banking Ombudsman (SBO) is an independent organization that was created by the SBA in 1993.⁴⁶ It has self-regulatory responsibilities and an obligation to provide free, impartial mediation services to customers bringing complaints against member financial institutions . The SBO has no jurisdictional authority. Its decisions are non-binding but intended to reduce costly and lengthy legal battles via mediation. In contrast to the FINMA , which takes responsibility for collectively protecting the customers of Swiss financial institutions , the SBO takes responsibility at the individual level. Banks also share this responsibility by having their own internal conflict resolution policies, procedures, and personnel for their customers. The FinSA requires financial service providers that are not members of the SBA but provide FINSA-regulated activities to become members of an ombudsman organization.⁴⁷ Bank customers can turn to Switzerland's courts for last-resort conflict resolution.

As part of the SBO’s self-regulatory responsibilities, it has set up a Central Claims Office to assist individuals who have or suspect they have dormant accounts. Appendix 3: Switzerland's Dormant Account Controversy: 1947–2022 in Chapter 4: Swiss Bank (Customer) Secrecy & the International Exchange on Information provides a detailed account of the “dormant account” controversy.

New Insurance Contract Act (nICA)

The Insurance Contract Act (ICA—April 2, 1908) has been part of Switzerland's financial regulatory system since 1908. It controls the content of Swiss insurance contracts. On June 19, 2020, a revised ICA (New Insurance Contract Act, nICA, June 19, 2020) was approved by Switzerland's Council of States and National Council, with implementation in 2022. It focuses on insurance operations, products, and technology by:

• 1. Protecting policyholders in a digital age, such as providing termination and withdrawal rights;

• 2. Increasing the transparency of insurance contracts and the ease with which they can be read; and

• 3. Increasing the ability of customers to use mobile devices in their insurance contracts.⁴⁸

Federal Act on Data Protection (nFADP)

In 2020, Switzerland's Parliament revised the Federal Act on Data Protection (nFADP, September 25, 2020) to define the legal basis for FINMA’s control over data processing for the financial institutions. It supervises and describes their general data-protection obligations. The revised Act was expected to be enacted during the second half of 2022. Its purpose is to align Switzerland’s data protection rules and regulations with the EU’s General Data Protection Regulation No 2016/679. Revision of this Act should ignite a full review and updating of the FINMA Ordinance on Data Processing.⁴⁹

Conclusion

Switzerland's financial laws and ordinances must continuously evolve or lose their relevance. The challenges confronting Swiss financial institutions are sure to ignite more changes. Among the critical issues facing Switzerland’s financial system in future are digitalization, gaining and maintaining access to foreign markets, disclosures of bank customer information, controlling SIFIs, and ensuring that financial intermediaries have the liquidity and capital needed to remain going concerns.

Appendix: Legal Basis for Switzerland’s Financial System: Federal Ordinances and Regulations

This appendix is based on FINMA, Legal Basis, https://www.finma.ch/en/documentation/legal-basis/laws-and-ordinances/ (Accessed on August 3, 2022).

Switzerland separates its financial regulators and institutions into 12 areas: (1) the FINMA, (2) Financial Services, (3) Banks, (4) Securities Firms, (5) Insurers, (6) Financial Market Infrastructures, (7) Collective Investment Schemes, (8) Portfolio Managers (Trustees), (9) Supervisory Organizations, (10) Anti-Money Laundering Act (AMLA), (11) Mortgage Bonds, and (12) Auditing. Table 5.2 shows the legal basis for these regulators and institutions. The acts that control Switzerland’s financial system were explained in the body of this chapter (see Table 5.1: Swiss Financial Market Legislation: 1930–2022). This appendix briefly explains the Federal Council’s and the FINMA’s ordinances and regulations, which give life and body to these legal acts.

Table 5.2 Legal basis for Switzerland’s financial regulators and financial institutions

Legal Basis for FINMA

Federal Constitution

Article 98 of Switzerland's Federal Constitution (revised April 18, 1999) gives the Confederation power to “legislate the nation’s banking and stock exchange systems” while taking account of the “special function and role of the cantonal banks.”⁵⁰

Federal Act

• Financial Market Supervision Act (FINMASA)⁵¹ (Explained in the body of this chapter).

Federal Ordinance

• FINMA Ordinance on the Financial Market Supervision Act ⁵²

The Ordinance on the Financial Market Supervision Act (December 13, 2019) explains the FINMA’s international regulatory responsibilities. It also describes the role of the FINMA in information exchanges with the FDF.

FINMA Ordinances

• FINMA Ordinance on the Levying of Supervisory Fees and Levies ⁵³

The FINMA Ordinance on the Levying of Supervisory Fees and Levies (FINMA-GebV—October 15, 2008) controls the fees and duties that can be imposed on financial intermediaries by the FINMA. The rationale for charging these fees is to pass financial supervision costs to those being supervised, applying the “user pays” principle. It also regulates the FINMA’s reserve formation.

• FINMA Ordinance on Data Processing⁵⁴

The FINMA Ordinance on Data Processing (October 1, 2011) “governs the collection of data that may be relevant for assessing an individual’s guarantee of irreproachable business conduct (data collection to monitor proper business conduct, previously also referred to as the watch list) and data processing by third parties within the scope of supervision.”⁵⁵ It empowers the FINMA to ensure the management of supervised financial intermediaries is done by qualified individuals and specifies how personal information should be handled. Since 2011, this Ordinance has been supplemented and details added to clarify its meaning. The September 25, 2020, revision of the Federal Act on Data Protection (FADP) should ignite a full review and update of the FINMA Ordinance on Data Processing .⁵⁶

• FINMA Personnel Ordinance⁵⁷

The FINMA Personnel Ordinance (August 11, 2008) governs employment conditions for all the FINMA staff members.

• FINMA Personnel Data Ordinance⁵⁸

The FINMA Personnel Data Ordinance (August 25, 2021) explains how the FINMA should process personnel data.⁵⁹

Legal Basis for Swiss Financial Services

Federal Act

• Financial Services Act⁶⁰ (Explained in the body of this chapter).

Federal Council Ordinance

• Financial Services Ordinance ⁶¹

The Financial Services Ordinance (FinSO—November 6, 2019) created requirements for honesty, diligence, and transparency in delivering financial services. Furthermore, it created a formal structure for overseeing financial instrument offerings. (See “Legal Basis for Portfolio Managers”).

Legal Basis for Swiss Banks

Federal Act

• Banking Act⁶² (Explained in the body of this chapter).

Federal Council Ordinances

• Ordinance on Banks and Savings Banks ⁶³

The Ordinance on Banks and Savings Banks (BankO, April 30, 2014) entered into force on August 1, 2017. It amended the BA by addressing banks’ and individuals’ license requirements and the conduct of their financial business. The BankO also includes organizational requirements and has accounting rules for banks, deposit insurance, the transfer and liquidation of dormant assets, and emergency planning, including restructuring and liquidating SIBs.⁶⁴

• Capital Adequacy Ordinance⁶⁵

The Capital Adequacy Ordinance (CAO—June 1, 2012) protects creditors, depositors, and the stability of Switzerland's financial system by requiring banks and account-keeping securities firms to hold risk-weighted capital sufficient to safeguard themselves against insolvency. Capital is also needed to shield the banking system from financial contagion, which happens when the losses of one financial institution or more spill over and cause liquidity or solvency problems for other financial intermediaries. The CAO forces financial institutions to moderate risks by holding capital appropriate for their business activities. By implementing the CAO and FINMA’s complementary circulars, Switzerland complied with the Basel III capital adequacy rules.⁶⁶ (See “Legal Basis for Financial Market Infrastructures”).

• Liquidity Ordinance⁶⁷

The Liquidity Ordinance (LiqO—November 30, 2012) seeks to ensure that banks have sufficient liquidity in the form of easy-to-access funds to support current payment obligations. The LiqO addresses both the quantity and quality of liquid assets a bank must hold.

FINMA Ordinances

• FINMA Foreign Banks Ordinance ⁶⁸

The Ordinance of the Swiss Financial Market Supervisory Authority on Foreign Banks (FINMA Foreign Banks Ordinance, FBO-FINMA—October 21, 1996) is based on Article 2, paragraph 2 of the BA. It specifies the rules that banks controlled by (1) foreign persons and branches and (2) representative offices of banks incorporated abroad must follow when they wish to set up a branch in Switzerland.

• FINMA Banking Insolvency Ordinance⁶⁹

FINMA’s Banking Insolvency Ordinance (BIO-FINMA, August 30, 2012) defines restructuring and liquidation proceedings for insolvent banks under Articles 28-37 g of the BA. It controls operating licenses and rules for business conduct and further establishes the restructuring and bankruptcy procedures set out in the BA. The BIO-FINMA covers banks, securities firms, fund management companies, and central mortgage bond institutions.

If restructuring is impossible or has failed, the FINMA must withdraw the weakened bank’s license and publicly announce its liquidation. After that, the FINMA must appoint a liquidator for the proceedings (e.g., selling and distribution) or take over liquidator responsibilities. In liquidation proceedings for bank and securities dealers, the claims of privileged customers up to CHF100,000 are paid out immediately and rank above general creditors. (See “Legal Basis for Financial Market Infrastructures”).

• FINMA Accounting Ordinance⁷⁰

The FINMA Accounting Ordinance (FINMA-AO, October 31, 2019) regulates the preparation of financial statements and the publication of annual reports and interim financial statements under the BA. It defines the scope, terms, and standards to which banks, security firms, financial groups, and financial conglomerates are subject. This accounting Ordinance is based on:

• The BA (i.e., Article 3g and Article 6b, paragraphs 3 and 4),

• The Ordinance on Banks and Savings Banks Banking Ordinance (BankO) (i.e., (1) Article 27 paragraph 1, (2) Article 31 paragraph 2, (3) Article 32 paragraph 2, (4) Article 35 paragraph 4, (5) Article 36 paragraph 3, and (6) Articles 37 and 42),

• The Financial Institutions Act (FinIA) (i.e., Article 48).

Legal Basis for Securities Firms

Federal Act

• Financial Institutions Act⁷¹ (Explained in the body of this chapter).

Federal Council Ordinance

• Financial Institutions Ordinance ⁷²

The Financial Institutions Ordinance (FinIO, November 6, 2019) governs the authorization, organizational requirements, duties, and supervision of portfolio managers (trustees), managers of collective assets, fund management companies, and securities firms. Among the critical provider–client relationships it governs are the:

• Delegation of tasks (Article 15),

• Commerciality (Article 19),

• Additional authorization needed to be a trustee—as opposed to strictly a portfolio manager (Article 20),

• Right to be subject to supervision by a supervisory authority (Article 21),

• Organization (Article 23),

• Tasks of a portfolio manager or trustee (Article 24),

• Qualifications (Article 25),

• Risk management and internal control (Article 26),

• Minimum capital, adequate capital, and qualifying capital (Articles 27, 28, and 29),

• Accounting (Article 32), and

• Supervision (Articles 83 to 85).

(See “Legal Basis for Financial Market Infrastructures,” “Legal Basis for Collective Investment Schemes,” and “Legal Basis for Portfolio Managers”).

FINMA Ordinances

• FINMA Financial Institutions Ordinance ⁷³

The FINMA Financial Institutions Ordinance (FinIO-FINMA—November 4, 2020) regulates supervised financial institutions’ authorization and organizational requirements and lays out the conditions under which asset managers (trustees) can count professional liability insurance against their own funds. In 2021, the FinIO-FINMA was revised to help control professional indemnity insurance (e.g., negligence) for portfolio managers (trustees) and managers of collective assets, including minimum insurance levels needed for authorization as a portfolio manager. FinIO-FINMA also sets out the requirements for calculating the minimum standards for portfolio managers’ authorization and addresses risk management and internal control systems for managers of collective assets.⁷⁴

Legal Basis for Insurers

Federal Acts

• Insurance Supervision Act⁷⁵ (Explained in the body of this chapter).

• Insurance Contract Act⁷⁶ (Explained in the body of this chapter).

Federal Council Ordinances

• Insurance Supervision Ordinance ⁷⁷

The Swiss Federal Ordinance on the Supervision of Private Insurance Companies (Insurance Supervision Ordinance, ISO, November 9, 2005) sets disclosure rules for private insurance companies and other insurance endeavors in Switzerland. It requires registration in a centralized register.⁷⁸ The ISO gives the FINMA authority to issue minimum standards on insurance companies ’ annual financial statements and, in doing so, to diverge from specific provisions in Switzerland’s Code of Obligations . On July 1, 2015, the ISO was partially revised to include regulations on insurance company accounting standards.⁷⁹

• Ordinance on the Lifting of Restrictions on the Freedom of Contract in Insurance Contracts⁸⁰

The Ordinance on the Lifting of Restrictions on the Freedom of Contract in Insurance Contracts (March 1, 1966) allows differences in the standard provisions of life insurance contracts so long as the policies’ benefits meet specific criteria.

FINMA Ordinances

• FINMA Insurance Supervision Ordinance ⁸¹

The FINMA Insurance Supervision Ordinance (ISO-FINMA—November 9, 2005) further clarifies the Insurance Supervision Act and the Insurance Supervision Ordinance. On December 15, 2015, the ISO-FINMA was revised, implementing new (i.e., as of July 1, 2015) ISO accounting regulations on insurance companies.⁸²

• FINMA Insurance Bankruptcy Ordinance⁸³

The FINMA Insurance Bankruptcy Ordinance (IBO-FINMA—October 17, 2012) clarifies provisions of the Insurance Supervision Act regarding bankruptcy proceedings for insurance companies. It guides the courses of action and procedural steps that the FINMA should take during bankruptcy proceedings so that the process is transparent. The IBO-FINMA was put into effect on January 1, 2013.⁸⁴

Legal Basis for Swiss Financial Market Infrastructures

Federal Acts

• Financial Market Infrastructure Act⁸⁵ (Explained in the body of this chapter).

• Financial Institutions Act⁸⁶ (Explained in the body of this chapter).

Federal Council Ordinances

• Financial Market Infrastructure Ordinance ⁸⁷

The Financial Market Infrastructure Ordinance (FinMIO—November 25, 2015) regulates the authorization conditions and duties for financial market infrastructures, as well as the responsibilities of derivative trading participants, shareholding disclosures, public takeover offers, and exceptions to Switzerland's ban on insider trading and market manipulation rules.

• Financial Institutions Ordinance⁸⁸

The Financial Institutions Ordinance (FinIO, November 6, 2019) governs the authorization, organizational requirements, duties, and supervision of portfolio managers (trustees), managers of collective assets, fund management companies, and securities firms. Among the critical provider–client relationships it governs are the:

• Delegation of tasks (Article 15),

• Commerciality (Article 19),

• Additional authorization needed to be a trustee—as opposed to strictly a portfolio manager (Article 20),

• Right to be subject to supervision by a supervisory authority (Article 21),

• Organization (Article 23),

• Tasks of a portfolio manager or trustee (Article 24),

• Qualifications (Article 25),

• Risk management and internal control (Article 26),

• Minimum capital, adequate capital, and qualifying capital (Articles 27, 28, and 29),

• Accounting (Article 32), and

• Supervision (Articles 83 to 85).

(See “Legal Basis for Securities Firms,” “Legal Basis for Collective Investment Schemes,” and “Legal Basis for Portfolio Managers”).

• Capital Adequacy Ordinance⁸⁹

The Capital Adequacy Ordinance (CAO—June 1, 2012) protects creditors, depositors, and the stability of Switzerland's financial system by requiring banks and account-keeping securities firms to hold risk-weighted capital sufficient to safeguard themselves against insolvency. Capital is also needed to shield the banking system from financial contagion, which happens when the losses of one financial institution or more spill over and cause liquidity or solvency problems for other financial intermediaries. The CAO forces financial institutions to moderate risks by holding capital appropriate for their business activities. By implementing the CAO and FINMA’s complementary circulars, Switzerland complied with the Basel III capital adequacy rules.⁹⁰ (See “Legal Basis for Swiss Banks”).

• Takeover Ordinance⁹¹

The Takeover Ordinance (TOO—August 21, 2008) governs the fairness and transparency of public purchase offers and ensures that investors are treated equally. It establishes the content rules of an offering prospectus and counterparties’ obligations.⁹²

FINMA Ordinances

• FINMA Financial Market Infrastructure Ordinance ⁹³

The FINMA Financial Market Infrastructure Ordinance (FinMIO-FINMA—December 3, 2015) regulates record-keeping and documentation requirements for security firms governed by the FinIA and those admitted to a Swiss trading venue. The FinMIO-FINMA requires these firms to record, in a standardized format, trades completed both on- and off-exchange.

• FINMA Banking Insolvency Ordinance ⁹⁴

  FINMA’s Banking Insolvency Ordinance (BIO-FINMA, August 30, 2012) defines restructuring and liquidation proceedings for insolvent banks under Articles 28–37 g of the BA. It controls operating licenses and rules for business conduct and further establishes the restructuring and bankruptcy procedures set out in the BA. The BIO-FINMA covers banks, securities firms, fund management companies, and central mortgage bond institutions.

  If restructuring is impossible or has failed, the FINMA must withdraw the weakened bank’s license and publicly announce its liquidation. After that, the FINMA must appoint a liquidator for the proceedings (e.g., selling and distribution) or take over liquidator responsibilities. In liquidation proceedings for bank and securities dealers, the claims of privileged customers up to CHF100,000 are paid out immediately and rank above general creditors. (See “Legal Basis for Swiss Banks”).

Regulations

• Regulations of the Takeover Board ⁹⁵

The Regulations of the Takeover Board (R-TOB, August 21, 2008) defines the organization of Switzerland's Takeover Board. The Board’s purpose is to ensure compliance with takeover regulations, which require fairness, equal treatment, and tender-offer transparency so that equity security holders of a targeted company can make informed decisions.

Legal Basis for Collective Investment Schemes

Federal Acts

• Collective Investment Schemes Act (Explained in the body of this chapter).

• Financial Institutions Act (Explained in the body of this chapter).

Federal Council Ordinances

• Collective Investment Schemes Ordinance ⁹⁶

The Ordinance on Collective Investment Schemes (Collective Investment Schemes Ordinance, CISO—November 22, 2006) requires investment clubs of 20 participants or fewer to state membership rights and regularly inform members of their investment status. The CISO helps describe the provisions of the CISA and is applicable regardless of a financial institution’s legal status.⁹⁷

• Financial Institutions Ordinance⁹⁸

• The Financial Institutions Ordinance (FinIO, November 6, 2019) governs the authorization, organizational requirements, duties, and supervision of portfolio managers (trustees), managers of collective assets, fund management companies, and securities firms. Among the critical provider–client relationships it governs are the:

  • Delegation of tasks (Article 15),

  • Commerciality (Article 19),

  • Additional authorization needed to be a trustee—as opposed to strictly a portfolio manager (Article 20),

  • Right to be subject to supervision by a supervisory authority (Article 21),

  • Organization (Article 23),

  • Tasks of a portfolio manager or trustee (Article 24),

  • Qualifications (Article 25),

  • Risk management and internal control (Article 26),

  • Minimum capital, adequate capital, and qualifying capital (Articles 27, 28, and 29),

  • Accounting (Article 32), and

  • Supervision (Articles 83 to 85).

(See “Legal Basis for Securities Firms,” “Legal Basis for Financial Market Infrastructures,” and “Legal Basis for Portfolio Managers”).

FINMA Ordinances

• FINMA Collective Investment Schemes Ordinance ⁹⁹

The Ordinance of the Swiss Financial Market Supervisory Authority on Collective Investment Schemes (FINMA Collective Investment Schemes Ordinance, CISO-FINMA—August 27, 2014) defines provisions in the CISA. It also addresses the terms and obligations of security lending transactions for individuals and businesses that borrow and lend securities. The CISO-FINMA applies to fund management companies, investment companies with variable capital (SICAV),¹⁰⁰ and their customers.

• FINMA Collective Investment Schemes Bankruptcy Ordinance¹⁰¹

The FINMA Collective Investment Schemes Bankruptcy Ordinance (CISBO-FINMA—December 6, 2012) specifies the bankruptcy proceedings for CISA license holders.

• FINMA Financial Institutions Ordinance¹⁰²

Refer to “Legal Basis for Securities Firms” for further details.

Legal Basis for Portfolio Managers (Trustees)

Federal Acts

• Financial Institutions Act¹⁰³ (Explained in the body of this chapter).

• Financial Market Supervision Act¹⁰⁴ (Explained in the body of this chapter).

• Financial Services Act¹⁰⁵ (Explained in the body of this chapter).

Federal Council Ordinances

• Financial Institutions Ordinance ¹⁰⁶

The Financial Institutions Ordinance (FinIO, November 6, 2019) governs the authorization, organizational requirements, duties, and supervision of portfolio managers (trustees), managers of collective assets, fund management companies, and securities firms. Among the critical provider–client relationships it governs are the:

• Delegation of tasks (Article 15),

• Commerciality (Article 19),

• Additional authorization needed to be a trustee—as opposed to strictly a portfolio manager (Article 20),

• Right to be subject to supervision by a supervisory authority (Article 21),

• Organization (Article 23),

• Tasks of a portfolio manager or trustee (Article 24),

• Qualifications (Article 25),

• Risk management and internal control (Article 26),

• Minimum capital, adequate capital, and qualifying capital (Articles 27, 28, and 29),

• Accounting (Article 32), and

• Supervision (Articles 83 to 85).

(See “Legal Basis for Securities Firms,” “Legal Basis for Financial Market Infrastructures,” and “Legal Basis for Collective Investment Schemes”).

• Financial Services Ordinance¹⁰⁷

The Financial Services Ordinance (FinSO—November 6, 2019) created requirements for honesty, diligence, and transparency in delivering financial services. Furthermore, it created a formal structure for overseeing financial instrument offerings. (See “Legal Basis for Financial Services”).

FINMA Ordinance

• FINMA Financial Institutions Ordinance ¹⁰⁸

Refer to “Legal Basis for Securities Firms” for further details.

Legal Basis for Supervisory Organizations

Federal Acts

• Financial Market Supervision Act¹⁰⁹ (Explained in the body of this chapter).

• Financial Institutions Act¹¹⁰ (Explained in the body of this chapter).

• Financial Services Act¹¹¹ (Explained in the body of this chapter).

• Anti-Money Laundering Act¹¹² (Explained in the body of this chapter).

Federal Council Ordinance

• Supervisory Organizations Ordinance ¹¹³

The Supervisory Organizations Ordinance (SOO, November 6, 2019) controls authorization conditions and the activities of newly created SOs. It covers portfolio managers (trustees) and trade assayers under the Precious Metals Control Act. SOO explains how independent portfolio managers (trustees) should be regulated by SOs authorized and governed by the FINMA. An SO must submit its license application to the FINMA. These applications contain information on the organization, location of the leadership, viable and sustainable sources of business activity financing, guarantees of sound business practices, and their possible transfer. License applications must also include granular personal information on the administrators, such as nationality, residence, other qualified supervisory participants, pending court and administrative proceedings, curriculum vitae, references, and criminal record.

Legal Basis for Combating Money Laundering

Federal Act

• Anti-Money Laundering Act¹¹⁴ (Explained in the body of this chapter).

Federal Council Ordinance

• Anti-Money Laundering and Terrorist-Financing Ordinance ¹¹⁵

The Anti-Money Laundering Ordinance (November 11, 2015) is based on Article 8a, paragraphs 5 and 41 of the Anti-Money Laundering Act. It regulates:

• 1. Requirements for financial intermediaries’ professional activities,

• 2. Due diligence and reporting obligations of traders, and

• 3. SRO’s supervision of financial intermediaries.

FINMA Ordinance

• Anti-Money Laundering Ordinance ¹¹⁶

The FINMA Anti-Money Laundering Ordinance (AMLO-FINMA, June 3, 2015) is based on the AMLA. It explains and provides benchmarks for practices that the SROs of regulated financial intermediaries should follow in fighting money laundering and terrorist financing, with Article 17 of the AMLA providing a minimum standard.

Legal Basis for Mortgage Bonds

Federal Act

• Mortgage Bond Act¹¹⁷ (Explained in the body of this chapter).

Federal Council Ordinance

• Mortgage Bond Ordinance ¹¹⁸

The Mortgage Bond Ordinance (PfV, January 23, 1931) explains how the Mortgage Bond Act should be implemented.

Legal Basis for Auditing

FINMA Ordinance

• Financial Market Auditing Ordinance ¹¹⁹

The Financial Market Auditing Ordinance (FINMA-PV, November 5, 2014) is based on Articles 4 and 55 of the FINMASA. It regulates the auditing of supervised financial institutions, particularly regarding the audit’s content and conduct, the form of reporting, responsibilities of the supervised entities, and the audit firm’s connection to the audit.