Nowadays, Switzerland is synonymous of reliable banking and strict financial supervision. That is why brokers based in Switzerland are well-regarded by many Forex traders. And rightly so, because opening a Swiss FX brokerage is no easy feat.
The FINMA was created by a merger of the SFBC (Swiss Federal Banking Commission), FOPI (Federal Office of Private Insurance), and AMLCA (Anti-Money Laundering Control Authority) on January 1, 2009. The principal aim of the merger was to create an integrated authority to supervise the activities of the financial market. As an institution serving the public interest, FINMA is financially and functionally independent from the government.
The role of FINMA
Any individual or entity interested in doing business in the financial sector need a license from the FINMA. The organization provides a variety of licenses, depending on the nature of business. Furthermore, considering the quantum of financial risk involved, varying degree of strictness is applied while processing an application for the license.
The intensity or supervision increases in areas where there is a considerable risk to creditors, investors and policy holders. If the risk profile is low, then the FINMA would monitor the activities of the entity or organization in a superficial manner.
The process involves judging whether there is a genuine violation of law. If so, the FINMA will use its powers to penalize the concerned individual or authority and ensure that such a happening does not repeat again. Individuals or entities who are not satisfied with the actions of the FINMA can challenge the decision in court.
The FINMA employs principle-based regulation with as little market interference as possible. The FINMA follows domestic and international laws in regulating the financial industry of Switzerland.
The FINMA cooperates with foreign regulators and international standard setting institutions to enhance the regime in Switzerland and to provide help to its colleagues abroad.
Who should get authorized by FINMA?
The FINMA provides fives types of authorization — licensing, recognition, authorization, approval, and registration. Of these five, only the first one, licensing, is of interest to retail traders. The following entities should be licensed by the FINMA in Switzerland:
Licensing and compliance requirements
- To set up a Forex broking business in Switzerland, an entity should have a banking license as per Swiss Federal Act on Banks and Savings Banks.
- To offer trading in other securities (futures, options, bonds, CFDs, etc.), a Forex broker should additionally apply for a securities dealer license.
- An entity should have at least 10 million CHF as net capital to apply for a banking license. Furthermore, as a bank, the institution should maintain a total capital ratio of between 10.5% and 12.8% (depending on the bank's tier).
- A detailed business plan showing that the firm can maintain capital adequacy and risk management rules at all times.
- The Forex broker should manage business from an office in Switzerland.
- An internal audit function, independent of the Forex broker’s management, should be established.
- A recognized audit firm for regular supervision should be appointed.
- It will take about six months to receive a securities dealer license. The time period does not include the response time from the concerned authorities.
- Clients' funds cannot be used for operating expenses.
- The organization responsible for protecting the clients' deposits is esisuisse. In case a Forex broker goes bankrupt, the client can claim up to 100,000 CHF.
Powers at FINMA’s disposal
- Issue warnings. In July 2021, the FINMA added an unregulated Forex broker SwissFutureFX to its warning list as the company failed to get proper authorization from the regulator.
- Ensure compliance. In October 2020, the FINMA concluded its enforcement proceedings against Banca Credinvest, which have been opened in 2018 due to the found deficiencies in anti-money laundering processes in its handling of Venezuelan client relationships. FINMA ordered several measures for the affected company to restore its compliance with applicable laws.
- Reprimand a company. In September 2020, the FINMA reprimanded ank SYZ SA due to the company breaching the country's anti-money laundering regulations via a very important business relationship with a client from Angola.
- Ban a company or individual from exercising certain market activities. In February 2018, the FINMA banned Gazprombank (Switzerland) Ltd from accepting new retail clients until further notice because of serious shortcomings in anti-money laundering processes at this bank. The investigation was initiated following the Panama Papers release.
- Issue cease-and-desist orders to stop unlawful behavior. According to the organization's 2020 annual statistics report, the FINMA issued 1 cease-and-desist order against a company and 12 cease-and-desist orders against individuals that year.
- Publish final rulings. According to its 2020 Annual Report, the FINMA made 38 final rulings on enforcement cases in the year of 2020.
- Order disgorgement of unlawful profit. In February 2018, the FINMA concluded enforcement proceedings against PKB Privatbank SA Lugano and ordered it to disgorge 1.3 million CHF of illegally obtained profits.
- Withdraw authorization or liquidate a company. In September 2017, the FINMA announced a liquidation of three companies that offered a fake cryptocurrency called E-Coin to the public, accepting deposits, but have never obtained a Swiss banking license.
Switzerland remains one of the few countries where retail FX brokerage is permitted only via fully licensed banks. The FINMA's strict regulatory environment keeps tabs on the companies operating out of the country, and a Swiss Forex trading account is still one of the best choices that new and professional traders can make.
If you want to share your opinion, observations, conclusions, or to ask a question regarding Switzerland's Financial Market Supervisory Authority (FINMA), feel free to start a discussion on our Forex forum.
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