Switzerland
Table of Statutes
This
is a non-exhaustive list of some of the main
Swiss statutes affecting low-tax status and
non-resident business. The statutes are listed
in alphabetical order – click on the statute
for a fuller description of the statute, the
legal regime it forms part of, or in some cases
the text of the law.
Banking Law 1934 (as amended) 1999
Federal
Act on International Mutual Assistance in Criminal
Matters 1997
Federal Act on the Swiss Financial Market Supervisory
Authority
Law On Investment Funds 1994
Money Laundering Act 1997
Stock Exchange Law
Swiss Civil Code 1907
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Switzerland's
new 'super regulator,' the Financial Market
Supervisory Authority (FINMA) commenced operations
on January 1, 2009.
On
that date, the Federal Act
on the Swiss Financial Market Supervisory Authority,
which the Swiss Parliament approved on June
22, 2007, went into full legal force. The effect
of the Act is to merge three bodies –
the Federal Office of Private Insurance (FOPI),
the Swiss Federal Banking Commission (SFBC)
and the Anti-Money Laundering Control Authority
– into a single supervisory authority.
Several
years in the making, FINMA now acts as an independent
supervisory authority overseeing the protection
of participants in the Swiss financial markets,
namely creditors, investors and insured persons.
The
Swiss government designed the new regulator
in response to criticism from international
bodies of the shortcomings in the country's
money laundering laws, and particularly the
low number of money laundering reports being
received by the MLCA compared with other major
financial centres.
Under
its director, Dr Patrick Raaflaub, FINMA employs
some 350 staff members, spread over seven areas
of activity, including: large banking groups;
banks and financial intermediaries; integrated
insurance supervision; insurance markets; legal,
enforcement and international relations; and
services. The strategic management of FINMA
is in the hands of its Board of Directors, chaired
by Prof. Anne Héritier Lachat . FINMA's
costs are financed in full via the fees and
supervisory duties levied on the institutions
it supervises.
At
the time, Dr. Haltiner, the then chairman, commented:
“Preparations have involved many months
of hard work, but integrated financial market
supervision is about to become a reality in
Switzerland. I am convinced that FINMA will
be a supervisory authority capable of taking
on the challenging functions at national and
international level that a financial centre
like Switzerland entails.”
Raaflaub
added: “FINMA will be starting its work
in a difficult market environment. Recent months
have shown just what supervision is all about,
but also highlighted what it can and cannot
do. FINMA is not going to make everything ‘different’,
nor is it going to make everything ‘better’,
but I believe it will give us a sound foundation
on which to face new challenges and further
develop our approach to supervision. We will
be doing everything we can to make our supervision
both effective and credible.”
Switzerland
Banking Law
Until
the advent of FINMA, the Swiss banking sector
was regulated by the Federal Banking Commission
(FBC) under the Banking Law of 1934, as amended
most recently in 2008. Banking is defined to
include all deposit-taking activity, in whatever
corporate format, but does not include the issuance
of bonds or securities trading. The offices,
branches, agencies and permanent representatives
of foreign banks are covered by the law.
Banks
are licensed by the FINMA. The main conditions
for the granting of a license are as follows:
- If the
banking activity is to be on any significant
scale, the management and supervisory functions
of the bank must be separated;
- The bank
must conform with currently applicable minimum
capital requirements, as set by the Federal
Council;
- Officers
must have good antecedents;
- Persons
having 10% or more of the bank's capital
(a 'qualified participation') must guarantee
that they will not influence the bank in
any negative way;
- The bank
(and the persons concerned) must notify
the FINMA of any change in a qualified participation;
- Corporate
documents (statutes etc) must be lodged
with FINMA, and any changes notified;
- Establishment
of a foreign subsidiary or branch must be
notified.
Banks
with a controlling foreign shareholding must
conform additionally to the following requirements:
- The home
country of the controlling shareholder must
guarantee reciprocity;
- The name
of the bank must not indicate Swiss control;
- If the
foreign owner is a group, it is likely that
FINMA will require consolidated supervision;
- The foreign
owner must keep the FINMA fully informed
about its activities; in particular, changes
in 'qualified participations' may lead to
a demand for a new license.
FINMA applies world-standard equity, capital
and liquidity rules to banks that it supervises.
There are compulsory reserve requirements for
banks which solicit deposits from the public,
but these do not apply to private banks which
avoid public solicitation of clients.
Banks
licensed by FINMA must report both to FINMA
and to the Swiss National Bank, and the latter
has considerable reserve powers under the Banking
Law. Reports submitted are however to be kept
secret.
The
Banking Law imposes strict secrecy on Swiss
banks, but the Money Laundering Law 1998 (MLL)
responded to increasing international concern
by clarifying the circumstances under which
banks should breach secrecy.
Under
the MLL financial intermediaries were placed
under a legal duty to report suspicious transactions
and to retain clients' funds for a period of
5 days so as to give the authorities time to
seize the assets should circumstances warrant
such a response. Banks can be fined up to US$7m
for non compliance with the money-laundering
regulations. Other regulations include the requirement
that customers be identified by way of adequate
documentation, that staff be trained in money
laundering detection techniques and that internal
money laundering units be set up within institutions.
Within 6 months of the law being passed USD124m
of assets were seized.
See
Other
International Agreements for details of
the regulations under which the Swiss authorities
grant administrative and judicial assistance
to foreign investigators.
In
April 2002 the Federal Banking Commission announced
that it wanted to introduce provisions to make
information exchange with foreign securities
regulators easier in order to prevent the misuse
of the Swiss banking sector.
The
banking watchdog made the announcement at a
press conference in Bern, explaining to reporters
that the recommendations had come about partly
as the result of international pressure from
the OECD, the EU, and the International Commission
of Securities Commissions. The federal regulator
revealed that it would be sending its proposals
to then Finance Minister Kaspar Villiger, the
government, and parliament for consideration.
Although
in various ways the Swiss authorities have attempted
to fall into line with the international campaign
against money-laundering, they have not seriously
dented the principle of banking secrecy. For
instance, they refused to sign the OECD's declaration
concerning 'Unfair Tax Competition' in late
1999, and in 2000, while they signed the OECD's
'Information Exchange' declaration, they stated
that they considered they already conformed
to its standards.
In
mid-2001 the Swiss parliament decided to form
a new central authority to combat financial
crime in the country. The decision arose from
concerns raised over just how efficient the
system is regarding money laundering controls.
The Money Laundering Control Authority (MLCA)
had been dogged by controversy with its director,
Niklaus Huber handing in his resignation after
bemoaning a lack of support from the Swiss finance
ministry. His departure did not help to quash
rumours, rife at the time, that the MLCA was
under-staffed and under-funded.
And
the MLCA branch, which is the first port of
call for the banking industry when reporting
suspicious transactions, the Money Laundering
Reporting Office (MLRO), had not been free from
difficulties either. In the previous year, four
employees had resigned including senior official,
Daniel Thelesklaf, who declared that he had
not been awarded the necessary authority to
deal effectively with financial criminal activities.
But
Judith Voney, Mr Thelesklaf's replacement, told
the local press that the office was indeed making
headway. She said: 'We are investigating suspicious
cases and the fact that we can forward them
to the investigating authorities is a success
in itself.'
Ultimately,
the inconsistency of the system across the cantons
is unhelpful to implementation of the law; so
parliament has decided to try a different tack
by removing the responsibility for prosecuting
cases from the cantons and giving it instead
to the new central authority which would also
be responsible for notifying and investigating
cases.
In
addition to the forming of the new body, in
2003 additional legislation further centralised
Switzerland's attempts to effectively tackle
money laundering, organised crime and corruption.
'Under the new law, the Federal Police Office
will receive the mandate to investigate cases
with an international dimension. This will allow
experts with specialist know-how to be more
efficient in their investigations,' said Judith
Voney.
The
number of reports of suspicious transactions
submitted to the Money Laundering Reporting
Office of Switzerland (MROS) decreased for the
second consecutive year in 2005. Most financial
intermediaries under duty to report seemed to
have less reason to suspect shady money transactions.
Similarly, the number of reports from banking
institutions decreased for the first time since
the duty to report was introduced. As in previous
years, the money transfer services accounted
for almost half of the reports submitted. In
its country assessment, the FATF evaluated MROS
favorably.
While
the number of reports received in 2004 had declined
by 4.9% to 821 compared to the previous year,
the number of reports further decreased by as
much 11.2% to 729 reports in 2005. In 2005 MROS
registered fewer reports filed by money transfer
services, the business sector that accounts
for the largest business volume, than in 2004.
In fact, most businesses under duty to report
suspicious money transactions contributed to
the decrease in the number of reports.
In
2005, the Financial Action Task Force (FATF)
assessed the Swiss financial centre and the
measures for combating money laundering and
terrorism financing for the third time. Also
assessed was the cooperation of MROS with financial
intelligence units of other nations. Taking
into account the particular circumstances under
which MROS operates, the FATF certified MROS
as efficient and professional, an assessment
that translates into 'largely compliant' with
FATF standards.
In
2008 MROS has announced that, after a three-year
slump, the volume of suspicious activity reports
(SARs) had regained momentum, with SARs from
the banking sector having reached a record high
in 2007.
In
2007, MROS received a total of 795 SARs (up
from 619 in 2006), which amounted to a 28.4%
increase over the previous year's figure, 850
reports were received in 2008. A rise of 5.3%
to 896 was recorded in 2009. 2010 saw a further
rise of 29.4% over 2009 with 1,159 SARs reported.
The total value of assets, however, fell to
CHF847mio (CHF2.23bn in 2009). The banking sector
accounted for 71% of all reports ( just over
66% in 2009).
The
high number of reports was mainly attributed
to two complex cases from the banking sector.
The number of business connections linked to
the two cases generated a large number of SARs.
Of
the SARs that MROS received in 2009, an average
89 percent was forwarded to the prosecuting
authorities. However, MROS point out that suspicion
reports were justified and well-substantiated.
There was a substantial increase in the number
of forwarded SARs from the payment services
sector. The proportion of SARs submitted by
providers and forwarded to the prosecuting authorities
increased by 10 percent to a total of 97 percent,
thus overtaking even the banking sector. The
proportion of forwarded SARs from money transmitters
remained much lower with around 63 percent,
but was still up by more than 20 percent over
2008.
In
December, 2002, the Swiss Bankers Association
issued new guidelines designed to separate research
and banking activities in the country's financial
institutions. The SBA said: 'The Board of Directors
of the Swiss Bankers Association (SBA) has passed
binding guidelines concerning the independence
of financial analysis with a view to further
strengthening the good reputation of Switzerland
as a banking and financial centre. In particular,
the SBA wants to ensure that financial analysis
in Switzerland continues to remain independent
and credible.'
The
rules stipulate the establishment of so-called
'Chinese Walls' between a financial institute's
research department and its other business areas,
prohibit analysts from investing in firms or
financial instruments which they assess or play
a part in assessing, and ensure that analysts
are not recompensed according to the success
of specific transactions, making the possibility
of biased analysis less likely.
In
January 2009, the Swiss Federal Council announced
the decision to bring into force the Federal
Act of October 3, 2008 on the Implementation
of the Revised Recommendations of the Financial
Action Task Force (FATF) on Money Laundering
with effect from February 1, 2009.
The
decision was taken subject to the deadline for
the petitioning of a referendum expiring unused
on January 22, 2009. The bill is a blanket framework
which will implement the 40 recommendations
revised in 2003 and the nine special recommendations
of the FATF in different laws, in particular
the Anti-Money Laundering Act.
According
to a statement from the Federal Finance Administration:
"the move is designed to correct existing
shortcomings in Switzerland’s defensive
measures to combat money laundering and terrorist
financing and improve compatibility with the
FATF recommendations".
The
Swiss government welcomed a new Stolen Assets
Recovery Initiative launched in September 2007,
by the United Nations Office on Drugs and Crime
(UNODC) and the World Bank.
The
Swiss Federal Department of Foreign Affairs
stated that the new initiative corresponds with
Switzerland's view that progress in the freezing,
restitution and use of stolen or embezzled assets
demands joint action at the international level.
"Switzerland
is willing to contribute its experience in this
area and to collaborate with the World Bank,"
the FDFA stated. "Switzerland has every
interest in preventing the abuse of its financial
centre as a result of the presence of assets
of criminal origin. It has taken effective measures
to prevent, uncover, freeze and return such
assets. It takes the view that assets of criminal
origin, especially those of politically exposed
persons, should be restored to their country
of origin whenever possible."The
Swiss government believes that it has taken
a leading position on restitution in comparison
with other financial centres, having returned
a total of USD1.6 billion in the context of
the Marcos, Montesinos, Abacha, Kazakhstan and
other cases.
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Switzerland
Investment Funds Law
Until
the advent of FINMA, Investment funds in Switzerland
were authorised and supervised by the Federal
Banking Commission (FBC) under the Federal Law
on Investment Funds 1994.
The
law applies only to Collective Investment Funds,
and to foreign investment funds whatever their
corporate basis; however, the FBC will only
authorise a foreign fund if it is licensed at
home under anacceptable regulatory regime (reciprocity
provisions).
Swiss funds formed as companies under the Swiss
Civil Code remain subject to pre-existing legislation,
but the previous fund management legislation
was repealed, so that they are very limited
in scope.
The
new Law contains rules governing the establishment
of a Collective Investment Fund, and recognises
three types of Fund:
- Securities
Funds, which may only invest in securities
issued on a large scale and which are publicly-traded
on a stock exchange or equivalent; there
are limitations on stock-lending, short-selling
etc; interestingly, the wording accommodates
any type of investment behaviour which the
EU may in future permit to Collective Investment
Funds;
- Real Estate
Funds, which may invest in real property
at home and abroad, and may own controlling
interests in real estate companies; there
are extensive prudential conditions in the
Law;
- 'Other'
Funds, which covers riskier types of investment
including commodity funds, derivative (hedge)
funds and funds of funds; managers are required
to draw the attention of investors to the
risks.
Funds
authorised under the Law are subject to extensive
reporting requirements both to FINMA and to
the Swiss National Bank. Annual audits are compulsory
for all categories of fund.
The
Law permits the formation of in-house, limited-membership
funds, which may not be marketed to the public
but which in other respects are covered by the
Law.
The
Law requires the separation of Fund Management
and Custody. The Fund Manager must be a limited
company exclusively devoted to fund management
with registered office and principal place of
administration in Switzerland; there are other
conditions dealing with professional qualifications
etc. The FINMA authorises Fund Managers and
exercises continuing supervision. They have
statutory duties towards investors.
Custody
must be exercised by a bank within the meaning
of the Federal Banking Law. The Custodian has
a statutory duty towards the investors, including
the exercise of a supervisory role in relation
to the Fund Manager.
It
is possible for Fund Manager and Custodian to
be separate ('independent') entities within
a group.
Sanctions
for misbehaviour under the Law are quite severe.
In
January 2009, the Swiss Financial Market Supervisory
Authority (FINMA) announced the publication
of a circular on the benchmarks for minimum
standards for self-regulation in the asset management
industry.
In
its circular “Benchmarks for Asset Management",
FINMA sets out minimum standards to guide industry
organisations in drawing up their own self-regulation
provisions. The FINMA circular defines minimum
requirements, in particular with respect to
duties of loyalty, due diligence and information
provision obligations, in addition to remuneration
for asset managers. Furthermore, it demands
binding processes for self-monitoring throughout
the industry.
FINMA
noted that asset managers in Switzerland consist
of various industry organisations, and in terms
of self-regulation, different approaches have
been standard practice hitherto. These FINMA
benchmarks now form a basis for recognising
different sets of regulations as a minimum standard
and achieving a certain degree of equivalence
in these standards.
FINMA
said that the publication of the circular addresses
a long-standing market requirement. The regulator's
announcement added:
"The
basic principles proposed by the Swiss Federal
Banking Commission in the hearing on the circular
(September 5, 2008) received a generally positive
response from the market. The changes are mainly
to the specific details. The circular will also
bring a change to the way the Swiss Bankers
Association (SBA) regulates itself. The SBA
will have to amend its provisions regarding
the remuneration of asset managers."
"Industry
organisations will have to adhere to these new
benchmarks in order for the FINMA, to recognise
their minimum asset management standards as
such. They should be considered a benchmark
for supervisory authorities, or a 'minimum standard
for minimum standards.' The aim is for all completed
applications from industry organisations submitted
by the end of February 2009, to be presented
to FINMA in April 2009 and then recognised where
appropriate."
In
February 2009, the Swiss Funds Association issued
a statement welcoming the Federal Council’s
decision to amend the Collective Investment
Schemes Ordinance to bring it into line with
EU law by adapting Article 31 of the Collective
Investment Schemes Ordinance (CISO).
Together with the planned changes in the Swiss
Financial Market Supervisory Authority’s
(FINMAs) practice with regard to the authorization
of foreign Undertakings for Collective Investment
in Transferable Securities (UCITS), Swiss regulation
now corresponds to European standards, thus
enhancing Switzerland’s attractiveness
as a distribution market.
Within
the framework of the Financial Sector Dialogue
Steering Committee (STAFI), FINMA in conjunction
with the SFA and the other bodies behind the
Masterplan highlighted the fact that Article
31 CISO deviated from the European standards,
resulting de facto in obstacles to trade. With
the amendment approved by the Federal Council
on January 28 and other measures planned by
FINMA, these formal impediments will be removed.
The changes entered into force on March 1, 2009.
“Regulation
in the financial sector must be coordinated
internationally if it is to bring its full effectiveness
to bear. Special regulations on a national level
lead to additional costs and obstacles to competition,
which are ultimately detrimental to investors.
The SFA is therefore actively committed to removing
mutual barriers to market access. The decision
by the Federal Council coupled with other measures
planned by FINMA represents a key element of
the Masterplan,” said Dr. Gérard
Fischer, President of the SFA.
“Investors
will also profit from Swiss funds being regulated
in an EU-compliant manner and from the authorization
of foreign UCITS not being made more difficult
by the imposition of special Swiss rules. In
future, investors will have a broader selection
of Swiss and foreign products at their disposal,”
said SFA CEO Dr. Matthäus Den Otter.
In
March, 2009, changes to article 31 of the Ordinance
on Collective Investment Schemes (CISO) came
into effect which removed national regulations
known as ‘Swiss Finish’ and brought
the Swiss regulatory regime more into step with
EU norms.
The
Financial Market Supervisory Authority (FINMA)
initiated the consultation process about the
suppression of the Swiss Finish with the approval
of the Federal Department of Finance on September
16, 2008. According to the government the suppression
of the Swiss Finish on March 1 should contribute
to repositioning the Swiss funds market and
promoting Swiss collective investment schemes,
making Switzerland an increasingly attractive
jurisdiction for hedge funds to domicile. The
Federal Council has also initiated changes to
the taxation regime to make Switzerland a more
attractive location for fund managers both on
a corporate and a personal level.
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