ISFB Insight

Review of regulatory changes as we enter autumn 2024

26.09.2024, Enrico Giacoletto

The aim of this post is to provide a succinct overview of the main Swiss regulatory news and announcements impacting banks and financial institutions at the start of autumn 2024.

On September 2, FINMA launched a public hearing on the new circular FINMA 2025/XX on "Consolidated supervision under the BL and LEFin". With this public hearing, FINMA sets out its practice with regard to consolidated supervision. Until now, the content of this practice has been reserved exclusively for institutions targeted by individual decisions.

The AMF also provides more details and useful clarifications for taxable persons wishing to know, for example, the conditions under which one or more companies in a financial group should or should not be included in consolidated supervision.

With this new circular, FINMA intends to formalize its established practice with regard to the consolidated supervision of financial groups under the BL and LEFin.

Note that this is the 3rd new circular put out to consultation by FINMA this year, and that the year is not yet over!

We continue this post with two regulatory developments of importance to cryptoasset professionals in Switzerland:

  • The first development concerns stablecoins: in its communication 06/2024 of July 26, FINMA addresses various regulatory issues concerning them. FINMA describes the legal treatment of cryptoactives, which are either to be considered as a deposit under banking law, or as a collective investment, depending on who bears the management costs and risks.

The AMF points out that, in most cases, stablecoins offer payment options and are therefore subject to the AMLA. It also reminds us of the applicable MLA requirements, in particular with regard to the identification and verification of beneficial owners. Finally, the AMF reminds us of the 5 minimum conditions applicable to institutions processing or depositing stablecoins, in terms of guaranteeing against the risk of default.

  • The Federal Council has opened a consultation on the designation of partner states for theautomatic exchange of information relating to cryptoassets (EAR relating to cryptoassets).

Another important recent development is the integration of greenwashing prevention measures into self-regulation. This is part of the drive to adapt regulations to the new realities of sustainability.

  • Three Swiss self-regulatory bodies (the SBA - Swiss Bankers Association, the AMAS - Asset Management Association Switzerland and the SIA - Swiss Insurance Association) have jointly revised and strengthened their self-regulatory guidelines on preventing the risk of money laundering. The SBA has significantly expanded its self-regulatory provisions in a completely new version of the "Guidelines for financial services providers on the integration of ESG preferences and ESG risks as well as the prevention of greenwashing in investment advice and asset management" of May 2024. This revision responds directly to the expectations of the Federal Council, thus avoiding the need for an ordinance on the prevention of greenwashing.
  • In particular, we note the following changes from the previous version of the SBA Guidelines:
    • Addition to article 7 of the requirement for appropriate measures to prevent greenwashing in investment solutions.
    • Definitions of a number of key concepts: art. 8 sets out the framework, defining ESG risks, ESG investment solutions and so-called sustainable investments.
  • In terms of expectations and obligations :
    • Self-regulation requirements are now subject to external audit (art. 16) as part of the prudential audit.
    • The duty to disclose ESG solutions is reinforced in art. 10.
    • Minimum thresholds have been introduced to specify the minimum proportion of investments subject to sustainability requirements for the investment to be considered compliant.

The implementation of Basel III Final is entering its home stretch: on June 26, 2024, the Federal Council confirmed that Basel III Final will indeed come into force on January 1, 2025, despite delays in some countries. This is a major regulatory undertaking. Six(!) FINMA circulars will be repealed, and the provisions relating to capital requirements will be set out in detail in 5 new FINMA ordinances coming into force on January 1, 2025:

  • OCré-FINMA - the FINMA Ordinance on Credit Risks of Banks and Securities Dealers will replace FINMA Circular 17/7 "Credit Risks - Banks";
  • OMar-FINMA - the FINMA Ordinance on Market Risks for Banks and Securities Dealers will replace FINMA Circular 08/20 "Market Risks - Banks";
  • OLRO-FINMA - FINMA's ordinance on the leverage ratio and operational risks of banks and securities firms will replace FINMA circular 15/3 on the leverage ratio and part of FINMA circular 08/21 on operational risks;
  • OPFP-FINMA - FINMA's ordinance on the trading book and the bank's book as well as the capital taken into account by banks and securities firms will replace FINMA circular 13/1 "Capital taken into account - banks"; and
  • OPub-FINMA - FINMA's Ordinance on the Disclosure Obligations of Banks and Securities Dealers will replace Circular FINMA. 16/1 "Disclosure - Banks".

Basel III Final and the ordinances implementing Basel III Final bring with them a significant number of regulatory changes of varying degrees of impact, depending on the activity or key exposures of the banking establishment concerned. The changes are of 3 types:

  • The introduction of new concepts (e.g. the concept of unused credit limits weighted at 10%, whereas previously they did not require capital; or the inclusion of historical losses above a certain threshold).
  • The application of stricter weightings (e.g. for certain exposures secured by real estate, or the application of scalar multipliers on market risk exposures ranging from x1.2 to x3.5 depending on the underlying exposure).
  • Changes in methods (e.g. the new method for calculating operational risk).

easyReg has produced the table below summarizing the key changes in Basel 3 final by nature of risk, which will be kept up to date on the easy-Reg website.

On the basis of our analyses, the impact in terms of required capital is highly variable, depending on the institution's activities and particular exposures. If you haven't already done so, it's a good idea to identify the most significant changes and assess whether any measures are required.

Enrico Giacoletto, CFA, FRM

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