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Switzerland’s Financial Regulatory Framework: A Balancing Act

In an effort to strike a balance between financial stability and innovation, Switzerland has implemented a comprehensive regulatory framework for its financial sector. The framework, which was revised in 2020, aims to strengthen the competitiveness of Switzerland as a jurisdiction for investment funds while also ensuring the stability of the country’s banking system.

Regulation of Investment Funds

The Swiss Financial Market Supervisory Authority (FINMA) has introduced a new fund category specifically designed for qualified investors. The Limited Qualified Investor Fund (L-QIF) is exempt from FINMA authorization and approval requirements, allowing it to take various legal forms, including contractual funds or corporate forms such as a SICAV. However, the asset manager or fund management company responsible for an L-QIF must be an eligible institution supervised by FINMA.

Regulation of Systemically Important Banks

Switzerland has implemented a policy mix of stringent capital requirements and liquidity ratios to ensure the stability of its banking system. The country’s banks are required to hold a minimum level of capital and meet certain liquidity standards. In addition, FINMA has been granted powers to bail in or write off unsecured claims in connection with the approval of a resolution plan.

Fintech Regulation

Switzerland has also introduced measures to ease its regulatory regime for providers of innovative Fintech solutions. For example:

  • Firms accepting deposits from the public or publicly offering the acceptance of deposits are exempted from the banking licence requirement as long as they meet certain conditions.
  • The country has introduced a new Fintech licence with more lenient requirements compared to the fully fledged banking licence.

Conclusion

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Switzerland’s financial regulatory framework is designed to balance the need for financial stability and innovation. The country’s regulators have implemented a range of measures to ensure the stability of its banking system while also creating an environment that supports the growth of Fintech and other innovative financial services.