Swiss Banks Must Ensure Good Reputation and Proper Business Conduct

The Swiss Financial Market Supervisory Authority (FINMA) has outlined strict requirements for banks to ensure good reputation and proper business conduct.

Background

Banks under foreign control are also subject to additional licensing requirements from FINMA. A bank is considered to be under foreign control 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.

Corporate Governance Requirements

Swiss banks must comply with specific corporate governance requirements defined in the banking legislation and various FINMA circulars. These include:

• The board of directors must be comprised of at least three members, including one-third independent members who are not part of the executive management.
• Banks must establish an audit committee and a risk committee, which must be comprised of a majority of independent board members.
• Systemically important institutions must establish a compensation and nomination committee, at least at group level.

Registration and Oversight of Senior Management

The board of directors of a bank must have adequate management expertise and specialist knowledge and experience of the banking and financial services sector. The executive management must also have adequate management expertise and specialist knowledge and experience required to ensure compliance with licensing requirements in the context of the bank’s operational activities.

• Each member of the board of directors and executive management must maintain a good reputation and fulfill the requirement of proper business conduct (“fit and proper” requirements).
• Any change in the board of directors or executive management must be notified to and approved by FINMA prior to such change occurring.

Remuneration Requirements

Swiss banks are also subject to remuneration requirements. These include:

• The compensation system for independent control bodies, such as auditors and internal audit staff, must be designed in a way that is consistent with the bank’s risk management strategy and does not encourage excessive risk-taking.
• FINMA has emphasized the importance of good reputation and proper business conduct in the banking sector, stating that any person acquiring a qualified participation in a bank must guarantee that the influence acquired will not be used in a way that is detrimental to the prudent and proper management of the bank.

By following these requirements, Swiss banks can ensure they maintain a good reputation and engage in proper business conduct, ultimately benefiting the financial stability of Switzerland.