Financial Crime World

Switzerland Cracks Down on Money Laundering: Stricter Regulations in Place for Financial Intermediaries

The Swiss authorities have taken a tough stance against money laundering, introducing stricter regulations for financial intermediaries to prevent the illegal activity from tainting the country’s financial sector. The move aims to enhance the credibility and proper functioning of the financial system.

Regulatory Framework

According to the Federal Act on Combating Money Laundering and Terrorist Financing in the Financial Sector (Anti-Money Laundering Act, AMLA), financial intermediaries such as:

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

are required to comply with due diligence and disclosure requirements.

Compliance Requirements

Financial intermediaries must:

  • Verify the identity of their contracting partners
  • Identify the beneficial owner of assets brought into the transaction
  • Clarify the financial background and purpose of a business relationship if it appears unusual or there are indications that the funds stem from criminal activity or serve to finance terrorism

Organisational Measures

Financial intermediaries must:

  • Issue internal directives
  • Train staff
  • Perform inspections to prevent money laundering and financing of terrorism

Reporting Requirements

If a financial intermediary suspects money laundering in a business relationship, they must submit a report to the Money Laundering Reporting Office (MROS) of the Federal Department of Justice and Police.

Monitoring Compliance

FINMA engages recognised audit firms to assist it in monitoring compliance with these requirements among its supervised institutions. Supervisory organisations (SO) and self-regulatory organisations (SRO) also regularly monitor compliance with AMLA provisions through recognised audit firms or occasionally with their own auditors.

Industry-Specific Regulations

Institutions subject to prudential supervision are required to comply with industry-specific regulations, which differ from industry to industry. For example:

  • Banks and securities firms must comply with the “Agreement on the Swiss banks’ code of conduct with regard to the exercise of due diligence” (CDB 20)
  • Insurers may choose to be supervised by FINMA or affiliated to the self-regulatory organisation of the Swiss Insurance Association (SRO-SIA)

Penalties for Non-Compliance

The SBA appoints a supervisory committee to investigate and punish any violation of its code of conduct. In such cases, the offending bank must pay a penalty of up to CHF 10 million depending on the severity of the violation, the degree of culpability, and the bank’s financial situation.

What is Money Laundering?

Money laundering is defined as channelling funds from illegal activity into the legal economy. The money laundering cycle can be broken down into three phases:

  • Placement
  • Layering
  • Integration

Financial intermediaries must comply with stringent due diligence and reporting requirements to prevent money laundering.

Conclusion

The Swiss authorities’ efforts aim to enhance the credibility and proper functioning of the financial system by preventing money laundering. This move demonstrates Switzerland’s commitment to combating financial crime and maintaining a safe and stable financial environment for its citizens and institutions.