Financial Crime World

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Switzerland Takes a Tough Stance on Fintech and Financial Crime Risks

The Swiss government has implemented a robust framework to combat money laundering and terrorist financing, making it a challenging environment for fintech companies to navigate. The country’s regulatory body, FINMA, plays a crucial role in monitoring compliance with anti-money laundering (AML) laws.

Two Pillars of Regulation

Switzerland’s AML regime is based on two pillars: the Criminal Code and the Anti-Money Laundering Act (AMLA). The former makes money laundering a criminal offense, while the latter requires financial intermediaries to adhere to due diligence and disclosure requirements.

FINMA’s Supervisory Role

As part of its prudential supervision responsibilities, FINMA monitors compliance with AML regulations by financial service providers, including:

  • Banks
  • Securities firms
  • Insurers
  • Institutions under the Collective Investment Schemes Act

Insurers may choose to join the self-regulatory organization of the Swiss Insurance Association (SRO-SIA), which oversees their compliance.

Due Diligence Requirements

All financial intermediaries must comply with stringent due diligence requirements, including:

  • Verifying the identity of contracting partners and identifying beneficial owners
  • Clarifying unusual business relationships or transactions
  • Recording high-risk business relationships and transactions
  • Implementing organizational measures to prevent money laundering and financing terrorism

FINMA’s Enforcement Tools

If FINMA discovers breaches of the law or irregularities, it takes corrective measures and may impose sanctions. The authority engages recognized audit firms to assist in monitoring compliance and performs on-site inspections.

Industry-Specific Regulations

Banks and securities firms are subject to special provisions governed by the Swiss Bankers Association’s code of conduct. Insurers may choose to be supervised by FINMA or join the SRO-SIA, which oversees their compliance with AML requirements. Institutions under the Collective Investment Schemes Act must comply with the CDB 20 rules.

The Money Laundering Cycle

The money laundering cycle consists of three phases:

  • Placement: introducing cash into the financial system
  • Layering: moving funds through multiple transactions to obscure their origin
  • Integration: incorporating the laundered funds into the legitimate economy

Financial intermediaries must be aware of these phases to prevent money laundering and ensure compliance with AML regulations.

Concluding Remarks

Switzerland’s robust AML framework makes it an attractive environment for fintech companies that prioritize compliance and risk management. By understanding the regulatory landscape and due diligence requirements, fintech companies can navigate this challenging environment and maintain a strong reputation in the financial sector.