Financial regulation: definition and operation

 

What is meant by financial regulation or prudential regulation? Who oversees the texts that fall under this definition within Switzerland? What objectives does it pursue? Browse through this page of our glossary to gain a better understanding of how financial markets are regulated in Switzerland through the various regulations that apply.

What is financial or banking regulation?

Regulation ensures that something functions correctly and consistently. The principle of financial regulation is therefore to maintain an institutional framework that the players in the financial sector must respect. Financial regulation is carried out by various bodies in Switzerland (mainly FINMA), as well as by international bodies.

Regulations require compliance. Banking regulation is therefore accompanied by supervision by the supervisory authority. This is FINMA’s primary function.

What are the objectives of financial market regulation?

These rules are designed to ensure that the financial market operates smoothly. They seek to protect creditors, savers, investors and policyholders. Their aim is to guarantee maximum market stability. To achieve these objectives, regulation can act preventively. In this prudential form, it aims to contain the risks of any financial activity as far as possible. It can also act curatively to limit the negative impacts as much as possible.

What are the components of financial regulation in Switzerland?

Financial regulations, spanning thousands of pages, must be integrated into regulatory management.. Companies in the banking and finance sectors must comply with the numerous texts issued by the Financial Market Supervisory Authority, FINMA. But that’s not all, because the regulatory field is vast.

These include regulations such as :

  • the Banking Act ;
  • the act on financial institutions ;
  • the act on the supervision of financial markets ;
  • the act on market infrastructures ;
  • the financial services act ;
  • the respective ordinances of these different laws ;
  • FINMA ordinances which constitute rules of law ;
  • FINMA circulars, which specify how laws and ordinances are applied without adding new legal provisions ;
  • explanatory reports and comments by the Federal Department of Finance (FDF) or FINMA ;
  • texts and comments relating to self-regulation (SBA and AMAS in particular).

Does Swiss banking regulation depend on international standards?

Financial markets are dependent on the international system, not only because of cross-border financial flows. The amount of regulatory data to consider is constantly increasing.. Here are some examples of global regulatory developments that have an impact on regulatory obligations in Switzerland :

  • The BCBS is the Basel Committee on Banking Supervision. This international body aims to strengthen prudential supervision in order to stabilise the financial markets as much as possible. For Switzerland, final Basel III represents a recent development in financial regulation for the banking sector. New provisions (ordinances and circulars) will apply in Switzerland from the beginning of 2025.
  • Global ESG standards have an impact on the measures taken by the Federal Council and FINMA (e.g. nature-related financial risks and standards for sustainable finance).

What is the Financial Market Supervision Act (FINMASA)?

This act primarily governs FINMA’s supervisory powers over banking and insurance institutions. In fact, FINMA is founded on this act. Other financial market acts and ordinances supplement the Financial Market Supervision Act.

Article 1 of FINMASA lists the laws whose application it supervises:

  • the Act of 25 June 1930 on the issue of mortgage bonds ;
  • the Act of 2 April 1908 on insurance contracts ;
  • the Act of 23 June 2006 on collective investments ;
  • the Act of 8 November 1934 on banks ;
  • the Federal Act of 15 June 2018 on Financial Institutions ;
  • the Money Laundering Act of 10 October 1997 ;
  • the Act of 17 December 2004 on insurance supervision ;
  • the Financial Market Infrastructure Act of 19 June 2015 ;
  • i . the Federal Financial Services Act of 15 June 2018.

Financial Services Act (FinSA) and Financial Institutions Act (FinIA): the latest arrivals

FinSA and FinIA came into force on 1 January 2020. They are the latest major new laws in Swiss financial regulation. Their purpose is to:

  • create a level playing field for banks and financial institutions ;
  • increase the competitiveness of the Swiss financial centre ;
  • increase protection for banking customers.

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