Swiss Financial Market Supervisory Authority (FINMA)

To address money laundering concerns and enhance Switzerland’s reputation as a global financial economy, the FINMA was established in 2007 by the collaboration of three bodies: The Federal Office of Private Insurance, AML Control Authority and the Swiss Banking Commission. The regulatory watchdog frequently cooperates with similar financial institutions to take down illicit crimes and terrorism financing activities.    

What is FINMA?

FINMA – Swiss Financial Market Supervisory Authority – is an autonomous regulatory body that governs how banking institutions, insurance companies, and currency exchange platforms operate in Switzerland. Headquartered in Bern, FINMA directly reports to the Federal Department of Finance (FDF) presided by an official board of directors designated by the Swiss government.    

The federal regulator’s obligations are not limited to regulating the legal financial system but also to protect investors and creditors that have a decent amount of stake in the market. In this regard, FINMA takes countermeasures to identify and mitigate potential criminal activities leading to financial crime. 

What is the Role of FINMA?

To create trust and confidence in the Swiss financial market, FINMA’s responsibilities are divided into the following four aspects:

Issuing and Revoking Permits 

FINMA authorizes financial organizations and grants them licenses to operate in the Swiss financial sector. A standard license provides business entities with the right to offer services and engage in different market activities. However, the type of authorization may depend upon the nature of services offered, for instance, for a bank, it is necessary to perform Customer Due Diligence of each onboarding user and ongoing AML checks in case the client comes from a high-risk country or is named under a sanction list.   

Enforcing Financial Regulations

FINMA has its own set of regulations when it comes to enforcing financial integrity and anti-money laundering standards. These guidelines issued by the supervisory authority are intended to regulate institutions in light of FINMA policies and procedures and present a technology-neutral approach for compliance. In this regard, the Financial Market Supervision Act (FINMASA) lists circulars and ordinances that the regulatory body issues to spell out technical details as well as highlighting the financial market laws.

Taking Action on Non-compliance

The Swiss regulator has the authority to impose fines and penalties if financial organizations are found guilty of wilful neglect. By investigating the violations in light of its legislation, FINMA can impose a good deal of enforcement actions which include:

• Restoring compliance in case supervisory obligations were infracted 
• Revoking of licenses and liquidation of a company depending on the violation
• Intermediaries working without FINMA’s consent are liable to a legal prosecution
• Filing complaints against the offending entities 
• Confiscation of ill-gained profits 

Supervising the Financial System

FINMA has the core responsibility to administer all financial entities operating in Switzerland. That being said, it develops a strategic approach by taking into account the potential risks that can affect policyholders, creditors, investors and the Swiss financial system. These risk-based parameters often include Anti Money Laundering requirements aimed at countering the financing of terrorism (CFT) and preventing other financial crime. 

With its effective supervision, FINMA makes sure that regulated entities comply with the laws of the financial market, satisfy license conditions, and ensure compliance through ongoing monitoring and due diligence practices.    

FINMA and the New Financial Acts 

In a press release, FINMA in 2020 decided to officially implement provisions for the following two financial Acts:

• The Financial Services Act (FinSA)
• The Financial Institutions Act (FinIA)

The FinSA includes a list of mandatory requirements that financial service providers must fulfill when carrying out business with their clients while the FinIA emphasises authorization guidelines for these institutions. 

Apart from this, FINMA also added a follow-up regulation the same year, according to which the threshold value for cryptocurrency exchanges was lowered from Swiss Franc (CHF) 5,000 to CHF 1,000. These amendments were published in the Anti Money Laundering Ordinance (AMLO-FINMA) aimed at mitigating the rise in money laundering and financial crime through virtual currency exchanges. 

Suggested Reads:

How FinTech can Leverage on FINMA Blockchain Initiative?

Effect of the Amendment to the FINMA Compliance on IDV Service Providers