Switzerland’s Financial Regulatory Framework Under Review Amid Banking Crisis
In the wake of the recent banking crisis that threatened the stability of Credit Suisse Group AG and led to its merger with UBS Group AG, Switzerland’s financial regulatory framework is facing scrutiny.
New Powers for FINMA
The country’s financial regulator, FINMA, has been granted new powers to ensure the resolution of systemically important banks (SIBs) without compromising their systemically relevant functions. This includes the ability to bail in or write off unsecured and unprivileged claims in connection with the approval of a resolution plan.
Regulatory Overhaul
As part of the regulatory overhaul, FINMA has adopted the Ordinance on Financial Institutions, which entered into force on January 1, 2021. The revised framework aims to strengthen the competitiveness of Switzerland as a jurisdiction for investment funds by introducing a new fund category specifically designed for qualified investors, known as Limited Qualified Investor Funds (L-QIFs).
L-QIFs
L-QIFs are exempt from FINMA authorization and approval requirements but require the asset manager or fund management company responsible for the fund to be supervised by FINMA. This move is expected to attract more foreign investment funds to Switzerland.
- Benefits of L-QIFs:
- Exemption from FINMA authorization and approval requirements
- Supervision by FINMA for asset managers and fund management companies
- Attraction of more foreign investment funds to Switzerland
Relaxation of Regulatory Framework for Fintech Solutions
The regulatory framework has been relaxed for providers of innovative fintech solutions, including:
- Crowdfunding and crowdlending
- Electronic payment services
- Robo-advice
- Cryptocurrencies
Firms accepting deposits from the public or publicly offering the acceptance of deposits are exempted from the banking licence requirement as long as certain conditions are met.
Fintech Licence
The new Fintech licence, introduced in 2019, has more lenient requirements compared to a fully fledged banking licence and applies to institutions that hold deposits of less than CHF 100 million. Holders of this licence are not subject to the depositor protection regime and are required to meet minimum capital requirements under the BankO.
Public Lender Backstop (PLB) Toolkit
The Swiss Federal Council has defined parameters for introducing a PLB toolkit, which was later implemented in an emergency ordinance to address the Credit Suisse group crisis. The PLB would introduce provisions similar to those of the emergency ordinance into ordinary law, creating a statutory framework for the granting of extraordinary liquidity support as a subsidiary measure in a restructuring scenario of a systemically important Swiss bank.
Review and Future Developments
The review of Switzerland’s financial regulatory framework is expected to continue in the coming months as the country seeks to strike a balance between maintaining financial stability and promoting innovation in the fintech sector.