Swiss Financial Institutions Brace for Strict KYC Regulations: An Overview of AML Compliance in Switzerland
The Swiss financial sector, known for its robustness and commitment to combating financial crimes, enforces strict Know Your Customer (KYC) guidelines. These regulations aim to verify the identity, suitability, and risks involved in maintaining business relationships, forming the backbone of Switzerland’s anti-money laundering (AML) framework.
Background and Effective Dates
Switzerland’s stance against cross-border financial crimes and adherence to international standards, such as those set by the Financial Action Task Force (FATF), initiated in 1977 with the Agreement on the Swiss banks’ code of conduct (CDB 20). Since 1st August 1990, AML is a criminal offense under Article 305bis of the Swiss Criminal Code. The Swiss legislator enacted the AMLA on 1st April 1998, requiring financial intermediaries to adhere to due diligence and disclosure requirements for client transactions. Reinforced by the Anti-Money Laundering Ordinance (AMLO), effective since 1st January 2016, and the Anti-Money Laundering Ordinance of FINMA (AMLO-FINMA), also effective since 1st January 2016.
Regulatory Bodies and Reporting Mechanisms
Switzerland’s Money Laundering Reporting Office (MROS) at the Federal Office of Police serves as the central money laundering office and liaisons between financial intermediaries and law enforcement agencies. Financial intermediaries register reports of suspicious activity related to money laundering or terrorist financing with the MROS, which forwards them to the prosecution authorities if warranted. FINMA and the Federal Gaming Board monitor and enforce compliance with due diligence obligations among financial intermediaries under their supervision.
- FINMA: Responsible for overseeing the compliance of financial service providers like banks, securities firms, insurers, and institutions governed by the Collective Investment Schemes Act. Insurers may opt to join the Swiss Insurance Association’s self-regulatory organization for monitoring adherence to the AMLA. Supervisory organizations (SO) authorized by FINMA oversee independent portfolio managers and trustees to ensure AML compliance.
- Entities in para-banking sector: Credit card companies, trustees, or payment service providers are subject to AML legislation. They need to affiliate with a self-regulatory organization authorized and supervised by FINMA to comply with due diligence and disclosure requirements under the AMLA.
Customer Due Diligence: A Comprehensive Process
The KYC identification process begins with the commencement of a business relationship, which can be formal or informal. To prove a legitimate business relationship, financial intermediaries must be able to demonstrate KYC procedures have been followed.
Bullet points:
- Onset of a business relationship triggers the KYC identification process.
- Financial intermediaries must demonstrate compliance with KYC procedures.
- KYC procedures can start with the conclusion of a contract, formal or informal.