Category Archives: Regulatory

Outsourcing: FINMA Publishes a New Circular 2018/3 on Outsourcing for Banks and Insurance Companies

On 5 December 2017, the Swiss Financial Market Supervisory Authority FINMA published its new circular 2018/3 Outsourcing – Banks and Insurance Companies. In contrast to the current rules, the new circular not only covers banks and securities dealers but is also applicable to insurance companies. The main changes are a more flexible definition what constitutes outsourcing based on a case-by-case analysis factoring in the business model and risk profile of each institution, a more differentiated approach to intra-group outsourcing, and a focus on supervisory issues, leaving data protection and banking secrecy out of the scope of the FINMA circular. The new rules entered into force on 1 April 2018.

By Rashid Bahar / Martin Peyer (Reference: CapLaw-2018-16)

A Brief Overview of the LIBOR Reform

The London Interbank Offered Rate (LIBOR) reform has been an ongoing project for the past several years, proceeding in fits and starts. It seems, however, that the global regulatory community has now finally begun in earnest to plan for a future without LIBOR. Reforming LIBOR is a complicated undertaking, since LIBOR acts as a reference rate to several hundred trillion dollars in both notional value of derivatives and in bonds, loans and securitizations and thus plays a very important role in the global financial market. LIBOR has attained such a unique role because it is calculated for five currencies (USD, GBP, EUR, CHF and JPY) which come in seven maturities (from overnight to 12 months).

By Thomas Werlen / Jascha Trubowitz (Reference: CapLaw-2018-17)

Basel III Implementation in Switzerland: Leverage Ratio and Liquidity

As of 1 January 2018, further elements of the Basel III international regulatory framework for banks on capital and liquidity entered into effect in Switzerland. Notably, the unweighted capital adequacy requirement (leverage ratio) was extended from systemically relevant banks to all banks by requiring a minimum core capital (Tier 1 capital) to total exposure ratio of 3%. As of the same date, the liquidity coverage ratio (LCR) requirement were adjusted to provide for certain simplifications, which will primarily benefit smaller financial institutions. The risk diversification requirements of Basel III measured against Tier 1 capital will enter into effect in Switzerland in 2019. The introduction of the net stable funding ratio (NSFR), which was originally planned for 1 January 2018, has been postponed.

By René Bösch / Benjamin Leisinger / Lee Saladino (Reference: CapLaw-2018-03)

New Swiss financial market regulation: Consequences on pension funds, investment foundations, their asset managers and advisors

The new Swiss financial market regulation will take effect in the second half of 2019 or in 2020. The new acts, namely the Financial Services Act and the Financial Institutions Act are particularly relevant to external asset managers of pension funds and investment foundations. The pension funds and investment foundations themselves will not be directly impacted, but will indirectly benefit from increased conduct and transparency rules and the fact that their external asset managers henceforth will be subject to supervision by FINMA or a FINMA-authorized supervisory organization.

By Sandro Abegglen / Evelyn Schilter (Reference: CapLaw-2018-04)

New Rules for Organized Trading Facilities

While the concept of organized trading facilities has been introduced into Swiss law more than one and a half year ago, many of the rules applying to organized trading facilities will only be phased in by the beginning of 2018. Similarly, the Swiss regulator, the Swiss Financial Market Supervisory Authority FINMA, has only recently published regulatory guidance on the rules applicable to organized trading facilities. Such rules and regulatory guidance will start applying from January 1, 2018.

By Patrick Schleiffer / Patrick Schärli (Reference: CapLaw-2017-44)

The Financial Stability Board published its Guiding Principles on iTLAC

On 6 July 2017, the Financial Stability Board published its guiding principles on the loss-absorbing resources to be committed to subsidiaries or sub-groups that are located in host jurisdictions and deemed material for the resolution of a G-SIB as a whole (iTLAC). The guiding principles support the implementation of the iTLAC requirement in each host jurisdiction and provide guidance on the size and composition of the iTLAC requirement, cooperation and coordination between home and host authorities and the trigger mechanism for iTLAC.

By René Bösch / Benjamin Leisinger / Lee Saladino (Reference: CapLaw-2017-45)

New Regulatory Guidelines on Operational Risks and Remuneration Schemes for Banks, Securities Dealers and Financial Groups/Conglomerates

On 1 November 2016, FINMA published the revised circulars 2008/21 on “Operational risks – banks” and 2010/1 on “Remuneration schemes” which both have been revised in the context of the new FINMA circular 2017/1 “Corporate governance – banks”. The most significant changes pertain to i) the adoption of minimum requirements for the regulation of IT and cyber risks in the revised circular 2008/21 as well as ii) a narrowed scope of application and the prohibition of hedge transactions in the revised circular 2010/1. Both revised circulars will enter into force on 1 July 2017.

By Peter Ch. Hsu / Sandro Fehlmann (Reference: CapLaw-2017-26)

PRIIPs: Potential Impact on Plain Vanilla Bond Market

Most Swiss financial service providers have been aware of, and have been preparing for, the effect the new EU regulation on key information documents for packaged retail and insurance-based investment products or “PRIIPs” will have on the offering of structured products and other complex financial products. However, recent attention in connection with the medium term note program update season in Europe has been paid to potential effects that the regulation may have on the offering of plain vanilla bonds and the corporate bond market generally. This article discusses these potential effects, including those that may be of particular importance to the Swiss financial market.

By Lee Saladino / Andreas Josuran (Reference: CapLaw-2017-27)

SIX Swiss Exchange adapts new Regulations regarding Sustainability Reporting and further Disclosure Obligations

In response to the growing trend of sustainability reporting as an additional component of annual reporting, the Regulatory Board of the SIX Swiss Exchange has decided to issue new regulations regarding sustainability reporting. In addition, new disclosure rules have been adapted for publicly disclosed buyback programmes, redemption of own units by real estate funds and net asset value disclosure by collective investment schemes. The changes will enter into force on 1 July 2017.

By Adam El-Hakim (Reference: CapLaw-2017-28)

New Regulatory Guidelines on Corporate Governance for Banks, Securities Dealers and Financial Groups/Conglomerates (FINMA Circular 2017/1)

On 1 November 2016, FINMA published its new circular 2017/1 on “Corporate governance – banks” streamlining the regulatory framework on corporate governance for banks, securities dealers, financial groups and conglomerates by defining partially revised minimum requirements and underlying principles. The new circular consolidates and replaces three former FINMA circulars and addresses the experiences made in the financial crisis as well as the revised international standards. The most significant changes pertain to i) FINMA’s commitment to a more principle based approach and consistent application of the principle of proportionality, ii) the introduction of provisions for the audit and risk committee of the governing body as well as iii) the possibility to delegate the internal audit function to another unregulated group company, provided such group company fulfills certain minimum requirements regarding capabilities and resources. The new circular will enter into force on 1 July 2017.

By Peter Ch. Hsu / Sandro Fehlmann (Reference: CapLaw-2017-17)