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FINMA Requires Banks to Meet Strict Qualifications and Conduct Standards

New Requirements for Banks Operating in Switzerland

The Swiss Financial Market Supervisory Authority (FINMA) has outlined new requirements for banks operating in Switzerland, emphasizing the importance of proper business conduct, qualified participation, and good reputation. These requirements aim to ensure that banks maintain high standards of corporate governance, risk management, and reputation.

Qualified Participation Requirements

  • Any individual or entity seeking to hold a qualified participation in a bank must ensure that their influence will not be used in a way that is detrimental to the prudent and proper management of the bank.
  • Banks are required to provide certain information and documents to FINMA to assess compliance with this requirement.

Additional License Requirements for Foreign-Controlled Banks

  • Banks under foreign control must obtain an additional license from FINMA if foreigners holding qualified participations directly or indirectly hold more than half of the voting rights, or if the bank is controlled in any other way by foreigners.
  • The granting of this license is subject to several conditions, including reciprocity guarantees and requirements for the bank’s corporate name.

Corporate Governance Requirements

Board of Directors

  • Banks must have a board of directors comprising at least three members, with a third being independent and not part of the executive management.
  • Systemically important institutions must also establish a compensation and nomination committee.

Responsibilities

  • The board of directors is responsible for guiding and supervising the bank’s business activities.
  • The executive management is responsible for conducting operational activities in accordance with the strategy and targets set by the board.

Risk Management Framework

  • Banks must adopt an institution-wide risk management framework.
  • They must also maintain an internal control system.

Registration and Oversight of Senior Management

Requirements

  • The board of directors must have adequate management expertise and specialist knowledge.
  • Executive management members must have adequate management expertise and experience in banking and financial services.
  • Each member of the board of directors and executive management must maintain a good reputation and fulfill the requirement of proper business conduct.

Notification and Approval

  • Any change to the board of directors or executive management must be notified to and approved by FINMA prior to implementation.

Remuneration Requirements

Compensation System

  • The compensation system must be designed to align with the bank’s risk tolerance and strategy.
  • A compensation system for independent control bodies is also required.

Conclusion

FINMA will closely monitor compliance with these requirements and take action against any banks that fail to meet them. These new requirements are aimed at ensuring that banks operating in Switzerland maintain high standards of corporate governance, risk management, and good reputation.