## 1cheea2025009-source-pdf ## Source details **Canonical URL:** [1cheea2025009-source-pdf](https://www.imf.org/-/media/files/publications/cr/2025/english/1cheea2025009-source-pdf.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2025/english/1cheea2025009-source-pdf.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2025/english/1cheea2025009-source-pdf.pdf.json) --- ### Executive summary — key findings and high-level recommendations - Key findings: - Switzerland has a large securities market and one of the world’s largest asset and wealth management industries, where banks play a dominant role. - Swiss asset managers manage CHF 7.87 trillion in assets, among others CHF 1.3 trillion in collective assets and CHF 1.9 trillion in discretionary mandates. - The secondary market in Switzerland leads the market share of trading in Swiss equities globally, including in three of the top ten shares in Europe by market capitalization. - Securities trading is concentrated in one trading venue, under the SIX group, which manages practically the entire financial markets infrastructure in the country. Banks are dominant shareholders of the trading venue/group and the leading broker-dealers. - Major progress since the last FSAP: two new Acts in 2020 overhauled the asset management legal framework; new licensing regime for portfolio managers and trustees; improvements to the CIS framework (liquidity risk management, reporting, supervisory process); DLT trading facility licensing framework introduced in 2021; key trading system reforms underway (market abuse). - Significant remaining scope for improvements: organizational structure and resources within FINMA; plugging data gaps; enhancing the regulatory framework; filling supervisory perimeter gaps; improvements to FINMA’s supervisory regime; expanding FINMA’s investigation and enforcement powers. - Recommended supervisory and regulatory priorities (high-level): - FINMA organizational and supervisory improvements: - FINMA’s organization structure should reflect the cross-sectoral nature of asset management and trading activities to permit a holistic view and consistent approach. - Data gaps should be plugged on priority and related reporting frameworks strengthened. - Further strengthening of FINMA resources is required given the sheer size and scale of the industry, particularly for asset and wealth management activities of banks and for trading systems. - FINMA should improve supervisory efforts and limit reliance on regulatory auditors to compliance-based audits. - FINMA should enhance reporting requirements; disclose publicly supervisory expectations; improve focus on certain key risks in the risk-based supervision process; adopt an outcome-based periodic review of the entire process. - FINMA should improve market monitoring, particularly on trading outside venues and shifts in liquidity patterns. - Regulatory framework upgrades: - Priority implementation of FSB and IOSCO standards on liquidity risk management for open-ended funds. - Gaps in FINMA’s supervisory perimeter should be plugged: pure investment advisory and distribution services should be subject to supervision. - Legal basis for SRO-FINMA cooperation should be laid down and FINMA’s powers over SROs strengthened in line with IOSCO principles. - Remove legal impediments that may constrain FINMA from expressing supervisory expectations. - Analyze effectiveness of supervisory framework for portfolio managers, trustees, and prospectus review functions and reform legislative framework if necessary. - Implement ongoing reforms for FMIs and trading systems, particularly relating to market abuse. - Empower FINMA with adequate investigative and enforcement tools, particularly powers to fine individuals for market abuse. ### Main recommendations (as presented) - Selected entries from Table 1 — Switzerland: Main Recommendations: - 1. FINMA should undertake a cross-sectoral reorganization of its oversight of asset management activities and increase resourcing of supervision of asset and wealth management activities, particularly by banks. (¶47, 51) — Addressee: FINMA — Timing: MT — Priority: H - 2. Data gaps should be plugged on priority and related reporting requirements should be enhanced. (¶14, 46, 60, 91) — Addressee: FINMA — Timing: ST — Priority: H - 3. FINMA should improve its supervisory framework for asset management and trading systems through targeted improvements. (¶25, 48, 49, 50, 98, 99) — Addressee: FINMA — Timing: MT — Priority: H - 4. The regulatory framework for asset management should be further strengthened through priority implementation of FSB and IOSCO recommendations on liquidity risk management. (¶38) — Addressee: FDF — Timing: ST/MT — Priority: M - Note: “Work on FSB and IOSCO recommendations should start in the short term; implementation can be extended to medium term.” - 5. Gaps in the supervisory perimeter should be filled by providing necessary powers to FINMA; any legal impediments for FINMA to disclose its supervisory expectations should be removed. (¶24, 49, 77, 100) — Addressee: FDF — Timing: MT — Priority: M - 6. FINMA should improve market monitoring, particularly relating to off-venue trading, organized trading facilities (OTFs), aspects affecting market liquidity, and short-selling. (¶60, 61, 90, 91) — Addressee: FINMA — Timing: ST — Priority: H - 7. Mechanisms to prevent, detect, and enforce market abuse should be enhanced, including through implementation of proposed reforms, improvement in requirements for issuers and supervised entities, better ability to detect market manipulation, and enhancing FINMA’s investigative and enforcement powers. (¶78, 79, 80, 81) — Addressee: FDF, FINMA — Timing: MT — Priority: H ### Licensing cascade under FinIA and asset management licensing - FinIA licensing cascade: - Five categories in decreasing order of regulatory intensity: (i) securities firms (ii) fund management companies (iii) managers of collective assets (iv) portfolio managers and (v) trustees. - Permitted activities under the same license (summary): - Bank: Securities firm, manager of collective assets, portfolio manager, and trustee - Securities Firm: Manager of collective assets, portfolio manager, and trustee - Fund management company: Manager of collective assets, portfolio manager - Manager of collective assets: Portfolio Manager - A bank can manage collective assets as well as individual mandates under its banking license. - Holder of a dedicated fund management company license in a banking group must be a company separate from the bank. - Portfolio managers and trustees were not required to be licensed before FinIA; FinIA introduced new licensing requirements for them and brought managers of occupational pension schemes into scope. - Licensing exercise statistics: - By end of the transitional period (Dec 2022), FINMA had received 1699 license applications (1,534 from portfolio managers and 165 from trustees). - Based on data available end-October 2024, 90% of the applications submitted at the end of the transitional period had been processed; fewer than 160 applications were pending. ### Assets under management — aggregate figures and table data - Aggregate figures (verbatim): - Asset managers based in Switzerland manage approximately CHF 7. 87 trillion of assets, based on data received from FINMA. - This includes management of collective investment schemes (CIS) (~CHF 1.3 trillion) and discretionary client mandates of ~CHF 1.9 trillion. - Portfolio managers, recently brought under the licensing regime, manage ~CHF 250 billion. - Aggregated AUM figures in Table 3 (CHF bn): - 1 CIS: 1,264.21 — 324.19 — 4.97 - Domestic CIS: 544.43 — 307.96 — 0.24 - Foreign CIS: 719.78 — 16.23 — 4.73 - 2 Discretionary mandates: 649.88 — 1,000.48 — 244 - 3 Total AUM (incl. execution-only and advisory services, except for portfolio managers): 2,770.67 — 4,859.39 — 248.97 - TOTAL ASSETS UNDER MANAGEMENT: 7879,03 - Notes and caveats (verbatim): - 1 The table includes only figures on assets managed under the licenses mentioned thereunder. The table is compiled based on the domicile of the asset manager. - 2 If a bank has a separate fund management company / manager of collective assets license, it is included in the first column. - 3 This only includes foreign CIS with AuM > CHF 500 mn. and alternative investment strategy. - 4 Based on data "Assets under Management" delivered by banks according to FINMA Accounting Ordinance, FINMA-Circular 01/20 (Appendix 4, cm 216-229) and FINMA Circular 08/14. It covers only AuM from Swiss single banks, not from other entities of Swiss banking group. - 5 The assets under management are calculated based on the information provided in the licence application forms. - 6 Can include double counting. - The figures suffer from other data gaps; granular details of execution-only and advisory services are not available for all sectors. - The CHF 250 billion figure for portfolio managers is likely to be higher since data for foreign CIS managed by banks below CHF 500 million (with non-alternative strategy) is not available. ### Switzerland‑domiciled CIS — structure, composition, and L-QIFs - Switzerland-domiciled CIS: - Switzerland-domiciled CIS have an AUM of CHF 1.3 trillion; managers based in Switzerland mainly manage these CIS under licenses of fund management company and managers of collective assets. - Foreign managers manage ~CHF 150 billion (11%) of Swiss CIS assets. - Approximately one-third of the Swiss CIS AUM are single investor funds. - Single investor funds created primarily for institutional investors: pension funds (72%) and insurance companies (17%). - 99.6% of the Swiss domiciled CIS (by Net Fund Assets) are open-ended funds. - Asset composition by Net Fund Assets: - ~80% are equity funds, fixed income funds and mixed funds. - Alternative Funds: 0.67% of total net fund assets (NFA). - Money Market Funds (MMFs): 3.5% by NFA. - Real estate funds: 5.7% by NFA. - More than 8500 approved foreign CIS are marketed to Swiss retail investors; data gaps hinder full understanding of the size of these foreign CIS. - Limited Qualified Investor Fund (L-QIF): - Introduced in 2021, effective from March 1, 2024; can only be offered to qualified investors. - If open-ended, must be managed by a Swiss fund management company; if closed-ended, by a Swiss manager of collective assets. - 8 L-QIFs have been registered with the Federal Department of Finance as of 12 November 2024. - Requirements under CISA and CISO that relate to authorization and approval from FINMA do not apply to L-QIFs. - Leverage and exposure limits for open-ended L-QIFs (verbatim): - (i) borrow amounting to a maximum of 50 % of the net fund assets; - (ii) pledge or assign as security a maximum of 100 % of the net fund assets; - (iii) Overall exposure of no more than 600 % of the net fund assets. - Reporting: L-QIFs are notified to the FDF with information; FDF delegated reporting to the SNB; SNB collects data using the same template as for other funds. - Recommendation: FINMA should closely monitor risks from L-QIFs and substitute lower authorization checks with correspondingly higher supervisory intensity, particularly if such funds become a material business of the fund manager. ### Data gaps and recommendations on data collection - Observations: - Current data gaps are substantial and comprehensive monitoring of the asset management industry is absent given cross-divisional fragmentation within FINMA. - Gaps prevent FINMA from obtaining a holistic view of the asset management industry, which is large and highly interconnected with the banking sector. - Recommendations: - FINMA should prioritize plugging data gaps in the asset management sector. - FINMA should compile a clear set of data already available within FINMA across various divisions to identify gaps. - This compilation should lead to a review of the current reporting framework to plug necessary data gaps. - Specific data gaps for CIS sector are covered under supervision recommendations. ### FinSA and conduct framework - FinIA and FinSA impacts: - FinIA introduced the licensing cascade and new licensing requirements for portfolio managers and trustees; brought managers of occupational pension schemes and managers of sub-threshold CIS into licensing framework; every new service not authorized earlier needs prior approval of FINMA. - FinSA is a cross-sectoral law governing conduct of financial service providers and prospectus requirements; largely modelled on EU MiFID II. - FinSA standardized conduct requirements relating to transparency, conflicts of interest, due diligence obligations and applies differentiated client protections (private customers, professional, and institutional clients). - Distribution and investment advisory services are governed under a ‘client adviser’ regime under FinSA; distributors moved from licensing under CISA to registration under FinSA. ### Supervision model for portfolio managers and trustees; supervisory organizations (SOs) - FINMA licenses portfolio managers and trustees, but supervision is delegated to supervisory organizations (SOs); FINMA licenses and supervises SOs and remains responsible for enforcement and approval of changes to licensing facts. - Five SOs have been licensed by FINMA and commenced activities; applicants must select one authorized SO during licensing. - SOs are financed through fees on supervised institutions and mainly use regulatory auditors for supervisory functions. - Concerns and recommendations on SOs: - Potential for ‘SO shopping’, multiplicity leading to differences in supervisory practices and reporting, over-reliance on auditors, duplication with FINMA, conflicts of interest in SO governance. - Recommendation: review SO structure and effectiveness; include findings in FINMA’s report to FDF; consider strengthening conflict of interest rules, remove duplication, and if necessary consider direct supervision by FINMA. ### Liquidity risk management for Open‑Ended Funds (OEFs) and MMFs - International context and Swiss updates: - Referenced international work: FSB recommendations for OEFs (2017), IOSCO recommendations (2018), FSB MMF recommendations (2021), FSB OEF framework review and IOSCO guidance on anti-dilution LMTs (2023), IOSCO consultation (2024). - Swiss regulatory enhancements: amendments to CISA and CISO (effect from 2024); enhancements in authorization, supervision, and reporting. - CISO liquidity management duties and tools: - Duties include: early identification process for liquidity risks; ongoing monitoring and assessment; stress tests at least a year based on normal and extraordinary market conditions (Waived for funds with AUM < CHF 25 million); crisis plan for every CIS including LMTs and regular review. - CISO provisions on LMTs: appropriate LMTs required; legal basis for side pockets in exceptional cases; legal basis for gating introduced in CISO in 2020; open-ended real estate funds subject to a 12 month notice period LMT effective at end of accounting year. - Common LMTs: deferred repayment (almost universal), longer redemption/notice periods, redemption gates, redemption fees, swing pricing, anti-dilution levy, temporary borrowing, redemption in kind, side pockets. - Money Market Funds (MMFs): - MMFs are ~3.5% of the net fund assets in Switzerland and are dominated by a few players. - Constant NAV MMFs are not permitted. - AMAS Guidance on MMFs amended in 2022 introducing minimum liquidity threshold of 5%/7.5% for daily maturity in Swiss/ foreign currency respectively. - Deferred payment is a mandatory LMT for MMFs. - Authorization review, supervisory measures, and stress testing: - Authorization reviews OEF liquidity management (max proportion of potentially illiquid investments reviewed). - FINMA may demand stress tests, model portfolio overviews, and explanations; may require adjustments to investment policy, redemption frequency, notice period and/or LMTs. - New reporting requirements (2021) improved data on portfolio and investor liquidity and LMTs; FINMA developed dashboards and requested stress tests; proposed 22 thematic on-site inspections between 2022-2024 on important fund managers. - FINMA plans to further develop its own stress test framework and expand it to further investment fund categories; such a stress test framework should be implemented on priority. - Recent experience and real estate pressures: - Crises since last FSAP did not significantly affect Swiss asset management industry, although real estate funds face some redemption pressures. - Swiss real estate funds represent AUM of approx. CHF 77 bn (June 2024). - Redemption requests totaled CHF 1.6 bn. or 2.3% of AUM in 2023/2024; CHF 0.9 bn predominantly from funds with foreign real estate investments. - So far, no Swiss real estate fund has deferred its redemptions. - Recommendations on liquidity risk management: - Significant enhancements should continue by implementing recent FSB and IOSCO recommendations on priority. - FINMA and FDF propose waiting until FSB standards are operationalized into IOSCO Recommendations, which would effectively mean regulatory work starting post Q2 2025. - Recommendation: FINMA and FDF should begin regulatory impact analysis as soon as possible; at minimum, impact assessment should begin as soon as possible. ### CIS reporting, analytics, and supervisory intensity - CIS reporting and data collection: - FINMA introduced a new CIS reporting in 2021: annual reporting providing granular data on liquidity, leverage, exposure, borrowing, collateral, and counterparty risk for each fund. - Reporting includes all Swiss CIS and foreign CIS with alternative strategies managed by a Swiss fund manager above CHF 500 mn threshold. - This complements SNB reporting which collects data on all Swiss open-ended CIS on a quarterly basis. - FINMA collected data in 2020 on AUM in pension schemes and CIS held with insurance companies, banks, and securities firms, to be repeated end-2024. - Analytical capacity and technology: - FINMA upgraded its data warehouse and created data cubes and Power BI dashboards targeting the Early Warning and Rating System (FRA), improving supervisory analytical capability. - Increased supervisory intensity after UBS-Credit Suisse merger: - Post-merger, FINMA increased supervisory intensity of merged asset management entities; the two entities are now in a higher supervision category. - Measures: FINMA determining audit strategy in coordination with regulatory auditor; monthly fund-level quantitative reporting and qualitative quarterly manager-level reporting; more frequent on-site inspections; assessment letters at least every two years depending on rating. - Cross-border cooperation: - FINMA defined specific circumstances for exchange with foreign authorities; average of approximately 120 interactions with foreign regulators per year since 2020, with an upward trend. - FINMA is signatory to IOSCO MMoU and EMMoU and holds bilateral MoUs; regular annual meetings with supervisory authorities from Luxembourg, Germany, and Liechtenstein. ### Reporting, supervision, and enforcement — identified deficiencies and recommendations - Reporting and data recommendations: - Enhance reporting for foreign CIS, cross-sectoral data, early warning events, and overall periodicity. - Specific deficiencies: - Foreign CIS reporting limited to CIS with AUM more than 500 million and alternative strategies; limited data on number/size of foreign CIS marketed to non-retail investors. - Cross-sectoral data currently ad hoc; should be regularized and reporting formats uniform across license types. - Early warning event reporting absent (e.g., redemptions over threshold, significant valuation write-downs, use of ex-post LMTs); recommend event-based reporting for domestic and foreign CIS. - Periodicity: granular reporting to FINMA is only annual; recommendation to improve periodicity for high-risk funds/managers. - Supervision structure and practices: - Cross-sectoral supervision: - Current fragmentation: asset management within asset management division; banks, securities firms, insurance companies supervised within respective divisions. - Recommendation: introduce cross-sectoral supervision of asset management activities; adopt activity-based approach. - Proposed FINMA reorganization expected to make asset management division more cross-sectoral; implement sooner rather than later. - Fund manager–custodian bank relationships: - Banks dominate asset management; independence provisions may not be sufficient to remove conflicts of interest. - Recommendation: more intensive supervision of fund manager–custodian bank relationships; assign higher supervisory risk to fund managers and depository activities. - Supervisory expectations and ratings: - Recommendation: FINMA should publish supervisory expectations and remove legal impediments to doing so. - Recommendation: regular and deep review of supervisory rating system outcomes and risk-weightings. - Resources: - Recommendation: FINMA should enhance resources for supervision of asset management and wealth management activities, particularly of banks; increase direct supervision and limit reliance on auditors. ### Trading systems — market structure, concentration, and licensing developments - Industry overview and market concentration: - 99.99% of the turnover of on-venue trading in Switzerland is done on SIX Securities Exchange (SSX). - BX Swiss operates with turnover of less than 0.01% of total on-venue turnover in Switzerland. - SIX group operates two stock exchanges (SSX and SIX Digital Exchange (SDX)) and an MTF (SIX Repo AG); SDX focuses on DLT-based securities. - Total market capitalization is CHF 1.7 trillion (2023), of which top 10 issuers constitute 92%. - Trading in ETFs and bonds constitute 16% and 6% of the total turnover on SSX respectively. - SIX market share in Swiss equities increased to almost 100% in 2020 after the EU equivalence decision, which then shrank after recognition was granted to UK venues. - Impact of EU equivalence decision and market shares (market share data as of September 2024, YTD excl. off-venue volumes): - SIX Swiss Exchange (CH) 70.8% - Cboe Europe (UK MTF) 19.2% - Aquis (UK MTF) 5.0% - Turquoise (UK MTF) 2.5% - Other MTFs 2.5% - FinMIA licensing framework and DLT trading: - Four types of trading systems under FinMIA: stock exchanges, multilateral trading facilities (MTFs), DLT trading facilities, and organized trading facilities (OTFs). - DLT trading license permits trading and post-trading functions under same license and direct access to individuals and unregulated entities. - At time of main text: 3 stock exchanges and 1 MTF licensed by FINMA — all part of the SIX group, except BX Swiss AG. - No DLT trading facility had been licensed at the time of main text; applications were under process. - SDX launched in 2021 for DLT securities; operates under traditional stock exchange and CSD licenses rather than DLT Trading Facility license. - In March 2025, FINMA licensed BX Digital AG as the first DLT trading facility. - OTFs and off‑venue trading: - OTFs operate mainly by banks; data on OTF trading not available to FINMA. - Trading in Swiss equities shifting towards off-venue and less transparent execution mechanisms. - FINMA lacks data on trading in OTFs and should seek regular reporting from existing OTFs. ### Pre‑ and post‑trade transparency, dark trading, and SwissAtMid - Post-trade transparency: - Trading venues must immediately publish transaction information (price, volume, time) for all securities; same applies to DLT trading facilities. - Pre-trade transparency: - Legal framework provides pre-trade transparency for shares but not for other securities; enabling provision in FinMIO exists but not exercised. - SSX uses pre-trade transparency exemption for reference prices for SwissAtMid dark pool. - SwissAtMid allows execution at the midpoint of SSX’s lit order book; around 5.56% of trades in SSX constitute dark trading. - Recommendation: consider pre-trade transparency requirements for non-equity securities through suitable regulatory revisions. - Market liquidity and transparency concerns: - Market liquidity shifting towards off-venue trades, dark trading, auctions; industry indicates more than 50% of trading volume currently occurs off-book (FINMA note). - Reduced transparency and liquidity fragmentation raise concerns for price formation and market resilience. ### Market abuse legal framework, surveillance, and proposed reforms - Legal and institutional framework: - Market abuse provisions mainly in FinMIA and FinMIO; criminal offences exist for insider trading and price manipulation under FinMIA. - Surveillance responsibility primarily rests with trading venues (SROs); FINMA’s role is limited to investigating and enforcing cases brought to its attention. - Cooperation with Office of Attorney General (OAG) is common for criminal cases where FINMA lacks investigative tools. - Enforcement outcomes (past five years): - FINMA conducted 11 enforcement proceedings enforcing market abuse provisions. - FINMA referred 36 cases to OAG (mostly suspicions on insider trading). - FINMA issued 18 letters of reprimand to market participants. - Market manipulation cases from Swiss Trading Venues to FINMA account for roughly 2% of all market abuse cases. - In 2024, nearly 11% of cases received by FINMA pertain to market manipulation. - Proposed FinMIA reforms (public consultation in 2024): - (i) Transfer issuer obligations (ad hoc publicity, management transaction disclosures) from self-regulation to State law and strengthen them. - (ii) FINMA to undertake main market surveillance, including cross-market abuses, and centralize reporting office under FINMA. - (iii) Lower threshold for supervised entities to intimate FINMA to suspicion of market abuse (“suspicious transaction reports”). - (iv) Enhance criminal enforcement: expand scope of price manipulation offences, enhance punishments, reduce financial thresholds for serious offences, improve investigation technology. - Explanatory notes: centralization intended to address fragmentation and improve transaction report quality; suspicious transaction reporting to resemble EU requirements but threshold may remain slightly higher. - Recommendations on SROs, FINMA powers, and enforcement: - Introduce explicit SRO-FINMA cooperation obligations under law and increase FINMA powers over SROs per IOSCO. - Centralize reporting and surveillance within FINMA with significant investments in technology and human resources. - Provide FINMA clear enforcement powers, including power to fine individuals and companies for market abuse, and investigation powers (search and seizure, telephone records) on a case-by-case basis with OAG approval. - Priority implementation of proposed reforms, disclosure of beneficial ownership details, and lowering of reporting thresholds for supervised institutions. ### Market resilience, concentration, outages, and operational resilience - Market concentration and dependencies: - SIX Stock Exchange dominates securities trading in Switzerland; many venues and providers depend on SIX for reference prices. - Shared IT systems across the SIX group create concentration risks. - Recent outages: - June 2023: outage for three hours, the worst outage for the exchange since 2012, due to a technical glitch. - July 2024: trading suspended across all segments for four hours due to a data issue; this affected trading in certain foreign venues reliant on market data feed from SSX. - SIX published Emergency and Outage Principles in August 2024. - Operational resilience and outsourcing: - FINMA Circular 2023/1 provides requirements on operational risks and resilience; applies to the SIX group through separate notification. - Broad outsourcing requirements under FinMIA and FinMIO; outsourcing of essential services subject to FINMA prior approval and substantive requirements. - Operational risk and IT were rated highest risks in FINMA’s last supervisory rating. - Supervisory actions and recommendations: - FINMA has performed supervisory reviews, external audits, assessment letters, ad hoc interventions/measures for critical incidents, and further measures planned. - Recommendation: further work on cyber risks and operational resilience; ensure domestic alternatives, strengthen resilience and contingency planning. ### Market infrastructure, trading controls, clearing, and settlement - Ex‑ante and ex‑post trading controls: - Ex‑post tools: suspend/halt trading, circuit breakers, suspend participants, deletion of orders, cancellation of trades. - Ex‑ante tools: controls for Direct Electronic Access. - Clearing and settlement: - Shares, ETFs, CHF bonds and certain ETPs centrally cleared by SIX x-clear AG; interoperability with LCH & CBoE Clear; related risk management applies. - Instruments not centrally cleared (e.g., structured products) have very small volumes. - FINMA can order reduction of a large position or additional margin during supervision; non-implementation can be escalated to enforcement. - Algorithmic and high‑frequency trading: - FinMIO requires trading venues to identify algorithmic orders and participants to flag such orders and record all entered orders including cancellations. - Participant systems subject to testing and controls to prevent disruptions; venues may charge higher fees for certain order types. - Short selling, settlement fails, and data limitations: - No explicit restrictions on short-selling in FinMIA/FinMIO; no requirement to flag short-sales in practice; BX Swiss AG has no short-selling rules. - No clear data on short selling available to FINMA. - Focus on minimizing settlement fails via settlement discipline and buy-in rules; CSD data indicates settlement fails are low. ### Supervision, reporting cadence, audits, and on‑site inspection regime - Reporting and supervisory cadence: - Trading venues and SROs must provide periodic and ad-hoc reports; report extent is risk-based. - FINMA divides supervised institutions into five supervisory categories; FMIs rated annually on risk criteria. - On-site inspections for FMI groups: two to four times per year; smaller FMI institutions: every 2-3 years. - Standard supervisory instruments: supervisory meetings, on-site reviews, annual audits by audit firm, assessment letters for Categories 1 and 2. - On-site inspections: Supervisory Reviews (SR) ~3 days; Deep Dives (DD) ~1 day. - Regulatory audits: - Audit strategy applied across categories; audit firms report findings to FINMA in standardized reports. *Source: EXECUTIVE SUMMARY, Technical Note on Regulation and Supervision of Asset Management Activities and Trading Systems (Switzerland), IMF.* ### EXECUTIVE SUMMARY __________________________________________________________________________ 4 ### EXECUTIVE SUMMARY ### Key findings - Switzerland has a large securities market and one of the world’s largest asset and wealth management industries, where banks play a dominant role. - Swiss asset managers manage CHF 7.87 trillion in assets, among others CHF 1.3 trillion in collective assets and CHF 1.9 trillion in discretionary mandates. - The secondary market in Switzerland leads the market share of trading in Swiss equities globally, including in three of the top ten shares in Europe by market capitalization. - Securities trading is concentrated in one trading venue, under the SIX group, which manages practically the entire financial markets infrastructure in the country. Banks are dominant shareholders of the trading venue/group and the leading broker-dealers. - Major progress has been made to the legal, regulatory, and supervisory framework since the last FSAP: - The legal framework for the asset management industry underwent an overhaul with two new Acts coming into force in 2020. - The new framework introduced a new licensing regime for portfolio managers and trustees, who did not previously require licensing. - Substantial improvements were made to the collective investment scheme (CIS) framework, particularly with respect to liquidity risk management, reporting, and supervisory process. - A new licensing framework for distributed ledger technology (DLT) based trading facilities was introduced in 2021. - Several key reforms to the framework for trading systems are underway, particularly relating to market abuse. - Significant scope remains for further improvements to the legal, regulatory, and supervisory framework for securities markets, including: - Improvements in organizational structure and resources within FINMA. - Plugging data gaps. - Enhancing the regulatory framework. - Filling of gaps in the supervisory perimeter. - Improvements to FINMA’s supervisory regime. - Expanding FINMA’s investigation and enforcement powers. ### Recommended supervisory and regulatory priorities (high-level) - FINMA should adopt substantial improvements to its organizational structure and supervisory framework: - FINMA’s organization structure should reflect the cross-sectoral nature of asset management and trading activities to permit a holistic view and consistent approach. - Data gaps should be plugged on priority and related reporting frameworks strengthened. - Further strengthening of FINMA resources is required given the sheer size and scale of the industry, particularly for asset and wealth management activities of banks and for trading systems. - FINMA should improve its supervisory efforts and limit reliance on regulatory auditors to compliance-based audits. - FINMA should enhance reporting requirements; disclose publicly supervisory expectations to supplement principle-based regulations; improve focus on certain key risks in the risk-based supervision process; and adopt an outcome-based periodic review of the entire process. - FINMA should improve market monitoring, particularly on trading outside venues and shifts in liquidity patterns, enabling periodic identification of shifts in potential risks and adjustment of supervisory processes accordingly. - The regulatory framework should continue to be upgraded in line with international standards: - Priority implementation of FSB and IOSCO standards on liquidity risk management for open-ended funds. - Gaps in FINMA’s supervisory perimeter should be plugged: pure investment advisory and distribution services should be subject to supervision (preferably under a holistic licensing, regulatory and supervisory regime). - The legal basis for SRO-FINMA cooperation should be laid down and FINMA’s powers over SROs should be strengthened in line with IOSCO principles. - Legal impediments that may constrain FINMA from expressing its supervisory expectations should be removed. - The effectiveness of the current supervisory framework for portfolio managers and trustees and the overall licensing, regulatory and supervisory framework for prospectus review functions should be analyzed and reviewed and, based on the outcome, reforms to the legislative framework should be undertaken, if necessary. - Ongoing reforms for financial market infrastructures, including trading systems, should be implemented as a priority, particularly relating to market abuse. - FINMA must be empowered with adequate investigative and enforcement tools, particularly powers to fine individuals, to enable effective enforcement of market abuse cases. ### Table 1 — Switzerland: Main Recommendations (as presented) - 1. FINMA should undertake a cross-sectoral reorganization of its oversight of asset management activities and increase resourcing of supervision of asset and wealth management activities, particularly by banks. (¶47, 51) — Addressee: FINMA — Timing: MT — Priority: H - 2. Data gaps should be plugged on priority and related reporting requirements should be enhanced. (¶14, 46, 60, 91) — Addressee: FINMA — Timing: ST — Priority: H - 3. FINMA should improve its supervisory framework for asset management and trading systems through targeted improvements. (¶25, 48, 49, 50, 98, 99) — Addressee: FINMA — Timing: MT — Priority: H - 4. The regulatory framework for asset management should be further strengthened through priority implementation of FSB and IOSCO recommendations on liquidity risk management. (¶38) — Addressee: FDF — Timing: ST/MT — Priority: M - Note: “Work on FSB and IOSCO recommendations should start in the short term; implementation can be extended to medium term.” - 5. Gaps in the supervisory perimeter should be filled by providing necessary powers to FINMA; any legal impediments for FINMA to disclose its supervisory expectations should be removed. (¶24, 49, 77, 100) — Addressee: FDF — Timing: MT — Priority: M - 6. FINMA should improve market monitoring, particularly relating to off-venue trading, organized trading facilities (OTFs), aspects affecting market liquidity, and short-selling. (¶60, 61, 90, 91) — Addressee: FINMA — Timing: ST — Priority: H - 7. Mechanisms to prevent, detect, and enforce market abuse should be enhanced, including through implementation of proposed reforms, improvement in requirements for issuers and supervised entities, better ability to detect market manipulation, and enhancing FINMA’s investigative and enforcement powers. (¶78, 79, 80, 81) — Addressee: FDF, FINMA — Timing: MT — Priority: H Italic source attribution: *Source: EXECUTIVE SUMMARY, Technical Note on Regulation and Supervision of Asset Management Activities and Trading Systems (Switzerland), IMF.* ### 10. Supervised entities in Switzerland can undertake asset management under different ### 10. Supervised entities in Switzerland can undertake asset management under different licenses. ### Licensing cascade under FinIA - FinIA introduced a licensing cascade where a higher category license permits other services under the same license. - Five categories in decreasing order of regulatory intensity: (i) securities firms (ii) fund management companies (iii) managers of collective assets (iv) portfolio managers and (v) trustees. - Permitted activities under the same license (Table 2): - Bank: Securities firm, manager of collective assets, portfolio manager, and trustee - Securities Firm: Manager of collective assets, portfolio manager, and trustee - Fund management company: Manager of collective assets, portfolio manager - Manager of collective assets: Portfolio Manager - A bank can manage collective assets as well as individual mandates under its banking license. - Within a banking group, the holder of the dedicated license for acting as a fund management company must be a company separate from the bank. - A ‘fund management company’ primarily performs fund administration and issuance of CIS units in practice but can also manage CIS and individual client assets under the same license; fund management companies often delegate CIS asset management to ‘managers of collective assets’. - The portfolio manager license is the lowest in the hierarchy, mainly permitting management of individual client assets; it also permits management of CIS for qualified investors under certain thresholds. - Portfolio managers and trustees were not required to be licensed before FinIA and were only subject to AML/CFT requirements; FinIA introduced new licensing requirements for portfolio managers and trustees, and brought managers of occupational pension schemes into scope. ### Assets under management — aggregate figures and table data - Asset managers based in Switzerland manage approximately CHF 7. 87 trillion of assets, based on data received from FINMA. - This includes management of collective investment schemes (CIS) (~CHF 1.3 trillion) and discretionary client mandates of ~CHF 1.9 trillion. - Portfolio managers, recently brought under the licensing regime, manage ~CHF 250 billion. - Aggregated AUM figures in Table 3 (CHF bn): - Type of asset management service — By fund management companies and managers of collective assets — By banks under the banking license — By portfolio managers - 1 CIS: 1,264.21 — 324.19 — 4.97 - Domestic CIS: 544.43 — 307.96 — 0.24 - Foreign CIS: 719.78 — 16.23 — 4.73 - 2 Discretionary mandates: 649.88 — 1,000.48 — 244 - 3 Total AUM (incl. execution-only and advisory services, except for portfolio managers): 2,770.67 — 4,859.39 — 248.97 - TOTAL ASSETS UNDER MANAGEMENT: 7879,03 - Notes attached to the table (verbatim): - 1 The table includes only figures on assets managed under the licenses mentioned thereunder. The table is compiled based on the domicile of the asset manager. - 2 If a bank has a separate fund management company / manager of collective assets license, it is included in the first column. - 3 This only includes foreign CIS with AuM > CHF 500 mn. and alternative investment strategy. - 4 Based on data "Assets under Management" delivered by banks according to FINMA Accounting Ordinance, FINMA-Circular 01/20 (Appendix 4, cm 216-229) and FINMA Circular 08/14. It covers only AuM from Swiss single banks, not from other entities of Swiss banking group. - 5 The assets under management are calculated based on the information provided in the licence application forms. - 6 Can include double counting. - Data caveats: - The figures suffer from other data gaps; granular details of execution-only and advisory services are not available for all sectors. - The CHF 250 billion figure for portfolio managers is likely to be higher since data for foreign CIS managed by banks below CHF 500 million (with non-alternative strategy) is not available. ### Switzerland-domiciled CIS: structure and composition - Switzerland-domiciled CIS have an AUM of CHF 1.3 trillion; managers based in Switzerland mainly manage these CIS under licenses of fund management company and managers of collective assets. - Foreign managers manage ~CHF 150 billion (11%) of Swiss CIS assets. - Approximately one-third of the Swiss CIS AUM are single investor funds. - Single investor funds are created primarily for institutional investors: pension funds (72%) and insurance companies (17%). - 99.6% of the Swiss domiciled CIS (by Net Fund Assets) are open-ended funds. - Asset composition by Net Fund Assets: - ~80% are equity funds, fixed income funds and mixed funds. - Alternative Funds: 0.67% of total net fund assets (NFA). - Money Market Funds (MMFs): 3.5% by NFA. - Real estate funds: 5.7% by NFA. - More than 8500 approved foreign CIS are marketed to Swiss retail investors, but data gaps hinder understanding of the size of these foreign CIS. - Data gaps exist on foreign CIS marketed to non-retail investors and on banks managing foreign CIS (non-alternative strategy) below CHF 500 mn. ### Data gaps and recommendation on data collection - Current data gaps are substantial and comprehensive monitoring of the asset management industry is absent given cross-divisional fragmentation within FINMA. - These gaps prevent FINMA from obtaining a holistic view of the asset management industry, which is large and highly interconnected with the banking sector. - Recommendation: - FINMA should prioritize plugging data gaps in the asset management sector. - FINMA should compile a clear set of data already available within FINMA across various divisions to identify gaps that prevent a clear and holistic picture of asset management activities and entities. - This compilation should lead to a review of the current reporting framework to plug necessary data gaps. - Specific data gaps with respect to the CIS sector are covered in a separate recommendation under the supervision section. ### Introduction of FinIA and FinSA — impact and conduct framework - Prior to FinIA and FinSA, CISA governed licensing, regulation, and supervision of both funds and fund managers; post-2020, CISA evolved into purely fund-specific legislation, while FinIA took over licensing and regulation of fund managers and FinSA included conduct requirements. - FinIA: - Introduced the licensing cascade described above and new licensing requirements for portfolio managers and trustees. - Brought managers of occupational pension schemes and managers of sub-threshold CIS into the licensing framework. - Every new service not authorized earlier needs prior approval of FINMA. - FinSA: - Cross-sectoral law governing conduct of financial service providers and prospectus requirements; largely modelled on EU MiFID II. - Standardized conduct requirements relating to transparency, conflicts of interest, due diligence obligations. - Applies differentiated conduct requirements depending on client type: private customers, professional, and institutional clients (decreasing level of protection in that order). - Provides an ‘opt in/ out’ regime enabling clients to move from one segment to another. - Retail clients with a long-term investment management or advisory agreement with a regulated financial institution are deemed to be qualified investors under the revised CISA. - Suitability assessments required for provision of portfolio management service; for investment advisory activity, portfolio-related advice requires suitability assessment while transaction-related advice requires only appropriateness assessment. - Requirements under FinSA are relaxed in certain aspects compared to MiFID II (e.g., client classification, suitability requirements, execution-only services for complex products to retail clients). - Distribution and investment advisory services are governed under a ‘client adviser’ regime under FinSA: - Client advisers are natural persons performing financial services; if employed by a supervised institution no registration required; otherwise registration in a ‘register of advisers’ is required. - Distributors were earlier required to be licensed under CISA; this was replaced with a registration regime under FinSA. ### Supervision model for portfolio managers and trustees; licensing exercise - FINMA licenses portfolio managers and trustees, but supervision is delegated to supervisory organizations (SOs); FINMA licenses and supervises SOs and remains responsible for enforcement and approval of changes to licensing facts. - Five SOs have been licensed by FINMA and commenced activities; applicants must select one authorized SO during licensing, which does preliminary vetting before sending to FINMA. - SOs are financed through fees on supervised institutions and mainly use regulatory auditors for supervisory functions. - Licensing activity since introduction of FinIA: - By end of the transitional period (Dec 2022), FINMA had received 1699 license applications (1,534 from portfolio managers and 165 from trustees, including existing and newly established institutions). - Based on data available end-October 2024, 90% of the applications submitted at the end of the transitional period had been processed; fewer than 160 applications were pending. - FINMA hired several staff on contract to deal with the licensing process and proposes to retain several for supervisory and other functions. - Several license applications were also received for acting as managers of collective assets as management of occupational pension schemes were brought into scope. ### Recommendations on supervisory perimeter and supervisory organizations - Recommendation on supervision of pure investment advisory and distribution: - Pure investment advisory and distribution services should be subject to supervision. - Currently such services are governed under the ‘client adviser’ framework with registration and FinSA conduct rules but without corresponding supervision. - The framework relies on an Ombudsman regime and civil courts for disputes, which is not a substitute for supervision. - At minimum, a basic reporting and supervisory framework, with supervisory powers assigned to FINMA, should be in place; FINMA can determine intensity and frequency of supervision based on risk derived from supervisory data. - Consider upgrading to a more holistic licensing, regulatory and supervisory framework for such activities to align with international regimes. - Recommendation to review SO structure and effectiveness: - The supervisory structure with multiple SOs for portfolio managers and trustees should be reviewed for quality of supervision, effectiveness, and efficiency. - Concerns include potential ‘SO shopping’, race to the bottom, multiplicity leading to differences in supervisory practices and reporting, reliance on auditors creating redundancy, duplication of work with FINMA, conflicts of interest in SO governance, and further fragmentation of the supervisory institutional structure. - Suggested review could be part of FINMA’s ongoing supervision of the SOs, with findings included in FINMA’s report to FDF. - Possible follow-up reforms: strengthen regulatory requirements around conflicts of interest (including profit-related incentives), remove duplication of supervisory efforts, and if necessary, consider direct supervision of such entities by FINMA (in line with the existing supervisory structure for other supervised entities in the securities market). - Review findings could inform legislative reforms in the next FinIA/FinSA review. *Source: IMF technical note section on asset management (chapter 10) from the Switzerland FSAP content unit.* ### 25. FINMA should consider publishing information on the exemptions granted from ### 25. FINMA should consider publishing information on the exemptions granted from ### Exemptions publication and supervisory resource allocation - FINMA processes several exemption applications which essentially are letters from FINMA confirming that the said entity is exempt from licensing; such letters are often sought by service providers such as banks. - Fees are charged for this purpose by FINMA, but given that FINMA is already resource constrained, this is a waste of valuable supervisory time and resources, especially for standardized applications. - Publishing information on exemptions, even if in a summary format, will: - provide clarity to the industry that may obviate obvious and standard exemption applications and reduce corresponding allocation of supervisory resources; - improve overall transparency of FINMA’s processes. *Limited Qualified Investor Fund (L-QIF)* ### L-QIF design, scope, and registration - A new category of alternative fund called limited qualified investor fund (L-QIF) was introduced in 2021, effective from March 1, 2024. - L-QIF can only be offered to qualified investors. - If the fund is open-ended, it must be managed by a Swiss fund management company and if closed-ended, by a Swiss manager of collective assets. - The fund is modelled on funds in Europe (e.g., RAIFs in Luxembourg) and introduced with a competitiveness objective. - 8 L-QIFs have been registered with the Federal Department of Finance as of 12 November 2024. - Requirements under CISA and CISO that relate to authorization and approval from FINMA (including amendments and changes through the fund life) do not apply to L-QIFs. ### Regulatory treatment and manager-level supervision - While not authorized, L-QIFs are regulated at a fund level under CISA similar to other funds, with certain exemptions (e.g., on investment conditions, diversification requirements, and prospectus). - Open-ended funds are subject to leverage caps through limits on borrowing, pledge of securities, and total exposures. - An L-QIF can (i) borrow amounting to a maximum of 50 % of the net fund assets; (ii) pledge or assign as security a maximum of 100 % of the net fund assets; (iii) Overall exposure of no more than 600 % of the net fund assets. Leverage limits are same as applicable to ‘other funds for alternative assets’ under the CISA Act. - Liquidity risk management requirements apply to open-ended L-QIFs. - Special regulations apply to L-QIFs that invest directly in real estate, similar to other real estate funds. - L-QIF must set out information on the special features and risks of the individual investments in the fund contract. - L-QIFs are subject to SRO standards; however: - authorization/approval regulations from FINMA do not apply; - the requirement to prepare a prospectus does not apply; - there are no investment conditions in the regulations, broadening scope to a wide variety of securities and non-securities (including real estate, crypto, art, wines, etc.), although disclosures of risks associated with such investments apply; - risk diversification requirements do not apply, but related disclosures apply. ### Reporting and supervisory information flows - The fund itself is not directly supervised by FINMA but is indirectly supervised through the fund manager by FINMA. - Fund manager requirements include risk management and knowledge and experience requirements for staff; liquidity risk management requirements apply at the manager level. - Reporting obligations exist but reporting is done to the Federal Department of Finance (FDF) rather than to FINMA. - All L-QIFs must be notified to the FDF with information on the structure, strategy, and planned asset classes; periodic reporting requirements to the FDF are laid down. - The FDF has delegated this reporting requirement to the SNB. SNB collects data from L-QIFs using the same template as for other funds, including information on assets, liabilities and risk data including a breakdown of assets and liabilities by maturity and a statement of off-balance-sheet transactions. - FINMA receives such information from its information sharing arrangements and plans to incorporate such information in its own supervisory process. ### Recommendation on L-QIFs - FINMA should closely monitor risks from L-QIFs and substitute lower authorization checks with correspondingly higher supervisory intensity, particularly if such funds become a material business of the fund manager. - As the industry grows, FINMA should increase supervisory intensity given the absence of authorization and lack of entry-level checks—particularly where such funds become a substantial business of a fund manager. - Care should be taken to ensure that, as regulations are expanded for other funds in the future, regulatory arbitrage does not arise between such funds and other similar structures. ### Liquidity Risk Management for Open-Ended Funds (OEFs) #### International context and Swiss regulatory updates - International developments referenced: - FSB recommendations for liquidity risk management for OEFs (2017); - IOSCO recommendations (2018); - FSB recommendations for MMFs (2021); - FSB OEF framework review and IOSCO guidance on anti-dilution liquidity management tools (2023); - IOSCO consultation on review and update of CIS liquidity risk management recommendations (2024); further work planned. - Swiss regulatory and supervisory framework for liquidity risk management of open-ended funds were enhanced by amending CISA and CISO (with effect from 2024) and enhancements in authorization, supervision, and reporting. #### CISO liquidity management duties and tools - CISO specifies liquidity management duties for fund managers: - an appropriate process for early identification of liquidity risks for each OEF, with principles (e.g., investment liquidity profile must be consistent with investment policy and redemption conditions); - ongoing monitoring and assessment of liquidity risks; - stress tests at least a year, based on normal and extraordinary market conditions, historical and hypothetical scenarios (Waived for funds with AUM < CHF 25 million); - a crisis plan for every CIS, including use of liquidity management tools (LMTs), procedures, and internal responsibilities, with an obligation of regular review. - CISO provisions on LMTs: - appropriate LMTs must be provided for an open-ended CIS depending on investment liquidity, distribution of risk, investor base and redemption frequency; - legal basis for FINMA to allow creation of side pockets in exceptional cases, subject to prior possibility in the fund contract and wider investor interest, at the request of the fund manager; - legal basis for gating introduced in CISO in 2020; - open-ended real estate funds are subject to a stringent LMT – a 12 month notice period and only effective at the end of the accounting year. - In practice, Swiss asset managers have a broad set of LMTs; fund contracts commonly provide for three or more LMTs. Almost all Swiss CIS provide for deferred repayment; for MMFs, this is mandatory under self-regulatory standards. - Other LMTs include longer redemption and notice periods, redemption gates, redemption fees, swing pricing, anti-dilution levy, temporary borrowing, redemption in kind, and side pockets. #### Money Market Funds (MMFs) - MMFs are ~3.5% of the net fund assets in Switzerland and are dominated by a few players. - Constant NAV MMFs are not permitted. - Investors are largely retail. - A substantial part of MMF regulation is based on self-regulation by AMAS, which is approved by FINMA. - AMAS Guidance on MMFs was amended in 2022 introducing a minimum liquidity threshold of 5%/7.5% for daily maturity in Swiss/ foreign currency respectively. - Deferred payment is a mandatory LMT for MMFs under the AMAS Guidance. - MMFs did not face liquidity pressures during 2020. #### Authorization review and supervisory measures - Review of liquidity management provisions is part of authorization: - For OEFs other than real estate funds, the maximum proportion of potentially illiquid investments permitted by the fund contract is reviewed during authorization. - If this figure exceeds a certain threshold, clarification is sought on mitigation of these risks on institutional and fund level. - FINMA may demand plausible stress tests, model portfolio overviews, and detailed explanations; if doubts persist, FINMA may seek adjustments to investment policy, redemption frequency, notice period and/or additional LMTs. #### Reporting, supervisory intensity, and stress testing - New reporting requirements improved data on portfolio and investor liquidity and available LMTs, enabling FINMA to identify liquidity gaps. - Since the last FSAP, FINMA undertook an in-depth analysis including off-site and on-site work focused on funds deemed high liquidity risk: small and mid-cap equity funds (especially Swiss stocks), CHF fixed income funds, real estate funds, and MMFs. - Information gathered included assets liquidity, investor base and behavior, redemption coverage ratio, stress test parameters and methodology, reverse stress testing, back testing, and use of LMTs. - FINMA requested stress tests based on predefined parameters and in some cases conducted its own liquidity assessment of the asset side. - Managers not in-line with best practices were challenged and asked to improve processes. - Inflows and outflows at fund and asset class level were monitored; dashboards were developed for specific fund categories. - 22 thematic on-site inspections on the topic were/are proposed to be conducted between 2022-2024 on the most important fund managers. - FINMA plans to further develop its own stress test framework and expand it to further investment fund categories; such a stress test framework should be implemented on priority. #### Recent experience and real estate fund pressures - Crises since the last FSAP did not significantly affect the Swiss asset management industry, although real estate funds continue to face some redemption pressures. - Swiss real estate funds represent AUM of approx. CHF 77 bn (June 2024). Most invest in Swiss real estate; 4% invest abroad. - Redemption requests totaled CHF 1.6 bn. or 2.3% of AUM in 2023/2024; predominant was the share of funds with foreign real estate investments at CHF 0.9 bn. - So far, no Swiss real estate fund has deferred its redemptions. - Based on FINMA’s supervisory analysis, periodic reporting or reviews of annual and interim financial statements were implemented for real estate funds with higher risks. ### Recommendations on liquidity risk management - Significant enhancements to the legal and regulatory framework for liquidity risk management of CIS should be continued by implementation of recent FSB and IOSCO recommendations on priority. - The 2023 FSB and IOSCO recommendations require long-term regulatory adaptation of the Swiss framework to implement the categorization approach and other liquidity measures. - Currently, FINMA and FDF propose to wait till the FSB standards are operationalized into the IOSCO Recommendations and further international guidance on stress tests and valuation are in place, which would effectively mean regulatory work is expected to start post Q2 2025. - Recommendation: FINMA and FDF should begin their regulatory impact analysis as soon as possible because: - revision of IOSCO framework is technical and unlikely to change fundamental FSB recommendations; - FINMA already has the power to regulate details on the topic, potentially obviating lengthy legislative processes for certain aspects; - the impact of the revised recommendations is unknown and if potentially high, it is imperative to start early. - At a minimum, impact assessment should begin as soon as possible. ### Supervision, Reporting, and Enforcement #### CIS reporting and data collection - FINMA introduced a new CIS reporting in 2021: annual reporting providing data on liquidity, leverage, exposure, borrowing, collateral, and counterparty risk on a granular level for each fund. - The reporting is entirely electronic, using a new platform developed by FINMA. - It includes data on all Swiss CIS and foreign CIS with alternative investment strategies managed by a Swiss fund manager (incl. banks or securities firms), both above a CHF 500 mn threshold. - This new FINMA CIS Reporting complements SNB reporting which collects data on all Swiss open-ended CIS on a quarterly basis. - As part of cross-divisional data collection, FINMA collected data in 2020 on the AUM in pension schemes and CIS held with insurance companies, banks, and securities firms, which is to be repeated end-2024. #### Analytical capacity and technology - FINMA upgraded its data warehouse (DWH) infrastructure and created data cubes providing supervisory staff with dashboards for in-depth data analysis, risk assessment and comprehensive overviews. - FINMA integrated a Business Intelligence (BI) solution within its Asset Management division targeting the Early Warning and Rating System (FRA). - The new Power BI solution improves supervisory analytical capability. #### Increased supervisory intensity after UBS-Credit Suisse merger - Post UBS-Credit Suisse merger, FINMA increased supervisory intensity of the merged asset management entities because the merged entities control a large part of all Swiss fund assets, increasing concentration risk. - The two entities are now in a higher supervision category. - Measures include: - FINMA pro-actively determining audit strategy in coordination with the regulatory auditor; - monthly fund-level quantitative reporting and qualitative quarterly manager-level reporting; - more frequent on-site inspections and discussions with board of directors and management; - FINMA will issue an assessment letter at least every two years depending on the rating. #### Cross-border cooperation - Since 2020, FINMA defined specific circumstances for exchanges with foreign authorities in authorization/approval processes (e.g., establishment of subsidiaries or branches abroad, transfer of key personnel, delegations of critical functions). - This has resulted in an average of approximately 120 interactions with foreign regulators per year since 2020, with an upward trend. - For ongoing supervision, FINMA collaborates with foreign regulators on a case-by-case basis under existing MoUs. - FINMA is signatory to IOSCO MMoU and Enhanced MMoU (EMMoU) and has bilateral MoUs with various supervisory authorities. - FINMA holds regular annual meetings with supervisory authorities from Luxembourg, Germany, and Liechtenstein to address broader issues. *Source: 1cheea2025009-source-pdf - 25. FINMA should consider publishing information on the exemptions granted from* ### 42. In 2021, FINMA conducted a thematic surveillance on depository banks. In the previous ### 1cheea2025009-source-pdf - 42. In 2021, FINMA conducted a thematic surveillance on depository banks. In the previous ### Thematic surveillance of depository banks (2021) - Objective: verify that depositary banks follow rules of proper conduct related to loyalty, diligence, and investor information obligations. - Scope and methods: - Considered quantitative factors (volume of deposits, intra-group relationships) and qualitative aspects (internal measures, previous audits). - Sought confirmation that banks notify investors transparently in cases of conflicts of interest arising from delegated activities. - Conducted on-site or virtual on-site reviews at selected banks and desk review among selected institutions with detailed examination of other delegated activities. - Outcome: - Based on submission by FINMA, it is understood that there were no significant concerns. ### Supervision of greenwashing risks - Regulatory action: - In November 2021, FINMA published Guidance 05/2021 aimed at preventing and combating greenwashing and defining greenwashing in its supervisory framework. - Authorization and supervisory processes: - During CIS authorization, FINMA ensures implementation of certain sustainability-related disclosure requirements including naming/labelling, investment objectives and strategies, risk disclosures, marketing materials and website disclosures, and periodic sustainability related reporting. - Supervisory activity: - FINMA conducted on-site thematic inspections on sustainability at fund managers and desk reviews/fund analyses on deception (e.g. based on press/whistleblowers). - FINMA analyzed sustainability reporting of all Swiss real estate funds and assessed consistency with the sustainability strategy as described in the fund documents. ### Major enforcement case: bank asset management activity - Events: - Enforcement action by FINMA and ongoing criminal proceedings. - FINMA deployed remedial measures and required governance and risk management arrangements. - Enforcement proceedings against relevant individuals have been initiated; criminal proceedings are pending. - Implications: - Highlighted significant potential impact of asset management business on a bank, including reputational risks and potential impact on the bank balance sheet. ### Recommendations — Reporting and data - Enhance reporting requirements, particularly for: - Foreign CIS, cross-sectoral data, early warning events, and overall periodicity. - Specific deficiencies and suggested improvements: - Data on foreign CIS is limited: - For foreign CIS managed by Swiss fund managers, reporting is limited to CIS with AUM more than 500 million and for alternative strategies. - Apart from number of total foreign CIS marketed to Swiss retail investors, no other data is available. For non-retail funds, even the number is not available. - Recommendation: at minimum, high-level aggregated data should be available, with granularity considered for specific risks. - Cross-sectoral data collection: - Currently collected on an ad hoc basis for CIS held with banks, securities firms, and insurance companies; should be regularized. - Reporting formats should be made uniform for similar activities irrespective of license to enable a holistic view. - Early warning event reporting: - FINMA lacks reporting of early warning events (e.g., redemptions over a certain threshold, significant valuation write-downs, use of ex-post LMTs). - Recommendation: introduce event-based reporting for domestic and foreign CIS to detect early potential systemic risks. - Periodicity: - Overall periodicity of granular reporting to FINMA is only annual. - Data reporting to SNB does not have the granularity of FINMA reporting. - Recommendation: improve periodicity, at least for high-risk funds/fund managers and/or in high-risk areas. ### Recommendations — Supervision structure and practices - Cross-sectoral supervision: - Current state: asset management activities of fund management companies, manager of collective assets and portfolio managers supervised by asset management division; asset management activities of banks, securities firms, and insurance companies supervised within respective divisions. - Issue: fragmentation of supervision and differential approach across FINMA for similar activities. - Recommendation: introduce cross-sectoral supervision of asset management activities within FINMA; adopt a more activity-based approach than entity-based to ensure harmonization. - Note: proposed reorganization of FINMA is expected to make the asset management division more cross-sectoral; authorities are considering such an initiative and FINMA should implement it sooner rather than later. - Fund manager–custodian bank relationships: - Rationale: banks dominate the asset management industry in Switzerland; custodian banks have significant obligations under the CISA including oversight functions (NAV calculation, compliance of investment decisions with the law). - Issue: independence provisions may not be sufficient in practice to obviate inherent conflicts of interest. - Recommendation: more intensive supervision in the risk framework for fund manager–custodian bank relationships; consider assigning a higher risk in supervisory framework to prompt fundamentally intensive supervisory process for fund managers and depository activities. - Context: a recent FINMA thematic surveillance on custodian banks assessed compliance with rules of conduct regarding loyalty, diligence, investor disclosures of conflicts of interest, focusing on the NAV function. - Supervisory expectations: - Issue: principle-based regulatory approach requires clarity on supervisory expectations; FINMA currently issues such expectations only to entities subject to supervision with no visibility to the rest of the industry. - Recommendation: FINMA should publish its supervisory expectations and any legal impediment to doing so should be effectively removed. - Supervisory ratings process: - Issue: supervisory process for Category 3-5 entities relies primarily on ratings; ratings depend on selection of risks and weights. - Example: current system classifies a significantly large portion of portfolio managers as high-risk entities. - Recommendation: conduct regular and deep review of outcomes of the rating system to ensure fit for purpose, including review of underlying risks and risk weights. - Resources for supervision: - Issue: need for further enhancement of resources for asset management division given size and expanse of industry. - Specific gap: resources for non-prudential/conduct supervision of wealth management and asset management activities of banks are insufficient given size and importance to bank revenues and profits. - Recommendation: FINMA should enhance resources for supervision of asset management and wealth management activities, particularly of banks; increase direct supervision and limit reliance on auditors to compliance-based audits. ### Trading systems — Industry overview - Market concentration: - 99.99% of the turnover of on-venue trading in Switzerland is done on SIX Securities Exchange (SSX). - SIX Group operates almost the entire financial market infrastructure in the country including payments systems, securities settlement and depository, and a digital stock exchange. - SIX is owned primarily by banks, with one bank owning a significant part of total shareholding. - BX Swiss operates in the country with turnover of less than 0.01% of total on-venue turnover in Switzerland; BX Swiss focuses on retail-oriented products. - Organized Trading Facilities (mainly by banks) operate securities trading on a discretionary or bilateral basis or have trading platforms for non-securities. - Product mix and market shares: - Bulk of securities trading is in domestic equities; issuers are largely domestic. - SIX Swiss Exchange is home to over 250 Swiss stocks. - Total market capitalization is CHF 1.7 trillion (2023), of which top 10 issuers constitute 92%. - Trading in ETFs and bonds constitute 16% and 6% of the total turnover on SSX respectively. - SIX market share in Swiss equities increased to almost 100% in 2020 after the EU equivalence decision, which then shrank after recognition was granted to UK venues. ### Box: Impact of EU equivalence decision on securities trading (summary) - 2019 EU Commission decision not to extend equivalence to Switzerland significantly affected trading of Swiss shares. - Article 23 MiFIR introduced a share trading obligation for EU banks and investment firms to trade certain shares on an EU trading venue or a recognized third country venue. - After non-extension of equivalence in Nov 2018, the Swiss Federal Government adopted emergency protective measures (Ordinance since January 2019) requiring prior FINMA-recognition of foreign trading venues that admit or enable trading of equity securities of Swiss companies. - Consequences: - Trading in Swiss shares shifted almost entirely to SIX exchange; more than 300 Swiss shares were delisted from EU-based exchanges and MTFs. - SIX primary exchange saw a significant increase in share from 37% in June 2019 to 50.9% the following month (source annotation in original text). - Post-Brexit, recognition was granted to UK trading venues in February 2021, resulting in some move of liquidity to UK trading venues. - Developments: - On January 29, 2025, protective measures were lifted; Swiss Federal Council removed the EU from the list of jurisdictions with effect as of May 1, 2025. - Amendment to EU MiFIR in 2024 limited the trading obligation to shares with an EEA ISIN and granted exemptions; Swiss shares are no longer subject to share trading obligations under MiFIR. - Market share of venues for Swiss-listed equities as on September 2024 (YTD excl. off-venue volumes): SIX Swiss Exchange (CH) 70.8%, Cboe Europe (UK MTF) 19.2%, Aquis (UK MTF) 5.0%, Turquoise (UK MTF) 2.5%, Other MTFs 2.5%. ### Legal framework for trading systems - Primary legislation: Federal Act on Financial Market Infrastructures and Market Conduct in Securities and Derivatives Trading (FinMIA) and related Ordinance FinMIO. - Background: - FinMIA introduced in 2015 in response to global developments since the Global Financial Crisis and subsequent reforms with respect to OTC derivatives trading. - Repealed scattered provisions across the Stock Exchange Act, the Banking Act and the National Bank Act to create a single law governing financial market infrastructure and market conduct in securities and derivatives trading. - FinMIA is primarily based on EU law as of that point in time, albeit with some modifications. *Italic: International Monetary Fund — Switzerland country report content unit.* ### 54. Since the last FSAP, FinMIA was significantly amended to permit a new type of license ### Since the last FSAP, FinMIA was significantly amended to permit a new type of license ### Licensing Framework (C) - Four types of trading systems under FinMIA: stock exchanges, multilateral trading facilities (MTFs), DLT trading facilities, and organized trading facilities (OTFs). - FINMA has the authority to grant licenses for these trading systems. - Stock exchanges and MTFs are collectively referred to as ‘trading venues’. Both are institutions for multilateral trading of securities based on non-discretionary rules; key difference: stock exchanges can also undertake listing of securities. - A DLT trading license permits operation of a non-discretionary multilateral trading platform and is unique in two areas: - it permits both trading and post-trading functions under the same license; - it permits direct access to individuals and unregulated entities to the trading platform (both not permitted under the more traditional trading venue licenses). - OTFs: - resemble a residual category including trading systems for securities on a bilateral basis or based on discretionary rules and trading systems for non-securities; - can only be operated by banks, securities firms, trading venues or DLT trading facilities, and therefore do not need a separate OTF license from FINMA; - in the Swiss context, OTFs include both OTFs and parts of the Systematic Internalizers (SIs) in the EU context. - Trading venues are not designated as systemically important FMIs (which would involve the role of Swiss National Bank). A DLT Trading Facility can be a systemically important FMI, although limited to post-trading functions under the license. - Material changes post authorization require formal application and FINMA approval, while non-essential changes only need to be notified. For regulations of trading venues and DLT trading facilities, all amendments require FINMA approval, regardless of whether essential or not. ### Current Market Structure and Licensing Status - At present, there are 3 stock exchanges and 1 MTF licensed by FINMA — all part of the SIX group, except the stock exchange BX Swiss AG. - SIX group operates: - two stock exchanges: the SIX Securities Exchange (SSX) for traditional securities and SIX Digital Exchange (SDX) with a focus on Distributed Ledger Technology (DLT)-based securities; - an MTF called SIX Repo AG for multi-currency repo and money market instruments. - BX Swiss is another stock exchange with very low volumes compared to SSX. - No DLT trading facility had been licensed so far at the time of the main text; there are applications under process. - Post Eurex Zurich ceasing operations in 2018, there is no trading venue for derivatives in Switzerland. - Some banks and securities firms operate OTFs in the country; data on trading in OTFs is not available. ### Licensing and Supervisory Requirements - FinMIA and FinMIO set out detailed licensing requirements for trading venues and DLT Trading Systems; requirements for OTFs are governed by FinMIA, FinMIO, and a FINMA circular. - Requirements for trading venues primarily relate to: legal entity, place of management, organization and governance, self-regulatory functions, outsourcing, fitness and propriety, compliance and risk management, minimum capital, business continuity, IT systems, and orderly trading. - FINMA may require an applicant to produce an auditor report of fulfillment of authorization conditions. - Requirements for DLT Trading Facilities are similar to trading venues with certain additional requirements and relaxations on proportionality considerations. - Operation of an OTF does not require a separate license but must be reported to FINMA by the supervised entity; upon notification, FINMA checks compliance with legal requirements in FinMIA and FinMIO, further specified in a FINMA circular. - The requirements for OTFs are relaxed compared to trading venues in several areas including trading rules and market abuse. The organization requirements to prevent market abuse under FINMA-Circular 13/08 do not apply to OTFs. ### Box 2 — Distributed Ledger Technology (DLT)-Based Securities Trading - August 2021: Switzerland enacted explicit laws for use of distributed ledger technology (DLT), including DLT based securities trading; the Act selectively adapted ten existing federal laws to foster innovation and develop Switzerland as a leading location for blockchain/DLT companies. - Swiss Code of Obligations now has a new category of ‘ledger-based securities’ providing high legal certainty for issuance and transfer of rights on distributed ledgers. - New licensing framework for ‘DLT Trading Facility’ under FinMIA focused on trading exclusively in DLT based securities; framework similar to traditional trading venues with two key additional permitted aspects: - (i) license permits both trading and post-trading functions (clearing, settlement, custody) under the same license; - (ii) retail investors and unregulated entities can directly be participants. - Additional requirements for DLT Trading Facilities include clearing and settlement functions similar to CSDs, and technology-related requirements (audit of smart contracts and the ledger); proportionality relaxations available for small DLT trading facilities. - SIX group launched SDX in 2021 for trading in DLT securities; platform mainly used for listing of bonds and trading is limited. SDX enables atomic settlement. SDX operates under a traditional stock exchange and CSD license (as two separate entities) rather than the new DLT Trading Facility license. - In March 2025, FINMA licensed BX Digital AG, a sister company of the BX Swiss AG, as the first DLT trading facility. - Supervisory observations and suggested supervisory actions: - FINMA should continue to monitor trading in DLT-based securities and review its supervisory framework for sufficiency to deal with new risks from such trading. - If there is any move from atomic settlement to delayed settlement, FINMA should consider a re-assessment of potential settlement risks. - Direct participation of retail investors poses additional conduct-related risks that need careful assessment. - Conduct of non-regulated activities within the same legal entity could pose risks to regulated activities. - FINMA should build up its expertise on the new technology and review its supervisory framework for sufficiency to deal with these additional risks. ### Recommendations (selected) - FINMA should closely monitor trading outside regulated venues in the country, especially in OTFs. - Trading in Swiss equities has been shifting from on-venue trades to off-venue trades over the last five years. - FINMA does not have data on trading in OTFs; focus so far has been primarily on trading venues. - FINMA should seek regular reporting on trading data from existing OTFs. - If analysis exhibits trading on systems in Switzerland not registered as OTFs, necessary clarifications must be sought and appropriate action taken. - FINMA should consider monitoring, at a high-level, trading in Swiss securities globally to analyze trends in potential cross-border risks as well as liquidity and price formation risks. - The regulatory and supervisory requirements and processes for OTFs should be reviewed and suitably enhanced in areas of high risk. - FINMA circular for OTF (2018/1) lays down high level principles for trading rules and duties of the OTF operator; requirements are much relaxed compared to trading venues despite many similar or higher risks for OTFs (e.g., discretionary trading, bilateral trading, direct participants). - Statutory prohibitions against market abuse do not apply to securities solely traded on an OTF. - Surveillance obligations with respect to market abuse do not apply to OTFs, despite thinner volumes and direct participation. - No issuer-related obligations for OTFs, despite potential for risky issuers to be admitted to trading. - Supervision of OTFs is currently done by the banking division, which views risks from a banking rather than a markets perspective, resulting in a lack of adequate supervision from a markets perspective. - FINMA should improve monitoring and supervision of OTFs and, if systemic high-risk areas are observed, consider taking up with the FDF the need for regulatory improvements. - FINMA should review its organization structure and enable a cross-functional structure that provides a market-wide view for supervision of OTFs in addition to the current entity-level view. ### Role of SROs (Section D) - Trading venues must create SROs under FinMIA; FinMIA is flexible on how the trading venue should structure the SRO, requiring only that an SRO appropriate for its activity be established. - In practice: - SIX group established SIX Exchange Regulation AG ("SER") as a separate legal entity fulfilling SRO functions for all its trading venues (including SDX and SIX Repo). - BX Swiss fulfills SRO functions structurally by establishing a separate functional department within the same legal entity. - FinMIA does not provide for a separate authorization for SROs but covers them under overall supervision of the trading venue, relevant outsourcing arrangements and consolidated supervision of the overall group, as applicable. - Independence provisions exist for SROs, including approval of key persons by FINMA. Provisions for DLT Trading facilities are similar, with some relaxations for smaller trading venues. OTFs do not have to create an SRO. - SRO functions and enforcement: - SROs almost entirely regulate, supervise, and enforce aspects relating to trading (including surveillance), participants, and issuers. - Within SER: Regulatory Board approves regulations for issuers and participants; Issuer Committee decides on listing/admission and has issuer and investor representatives. - SER undertakes monitoring, supervisory functions and trade surveillance primarily for detecting market abuse cases. - Exchanges rely primarily on audits for supervision of participants; issuer supervision focuses on review of periodic disclosure obligations. - Quasi-judicial bodies enforce SRO rules: Sanctions Commission, Independent Appeals Board and Board of Arbitration. - Enforcement powers include powers to fine, delist issuers, suspend participants, halt trading, among others. - Listing and admission to trading is governed by the SRO under FinMIA; prospectus review is carried out separately as a ‘prospectus office’ under FinSA. Both SER and BX Swiss exchange are authorized as prospectus offices under FinSA. BX Swiss also acts as a ‘client adviser register’ under FinSA for client advisers. - FINMA supervises SROs and collaborates with them for market surveillance on market abuse; FINMA receives details of potential market abuse cases from the exchange SRO, investigates and enforces, often in collaboration with the Attorney General office. - Cooperation and collaboration between FINMA and the SROs has been challenging based on mission discussions. ### Pre- and Post-Trade Transparency (Section E) - Post-trade transparency: - Regulations provide for post-trade transparency for all securities. - Under FinMIA, the trading venue must immediately publish information on transactions carried out on the trading venue and on the transactions conducted outside the trading venue reported to it for all securities admitted to trading. - Price, volume and time of the transactions must be published. - Same requirements apply to DLT trading facilities. - Pre-trade transparency: - Legal framework currently provides for pre-trade transparency for shares, but not for other securities. - FinMIA requires trading venues to publish in real time the bid and offer prices as well as the sizes of the trading positions at these prices for shares. - An enabling provision exists to apply these to securities other than shares under FinMIO which has not yet been exercised. - Same pre-trade transparency provisions apply to DLT trading facilities as to trading venues. - Under FinMIO, pre-trade transparency obligations that apply to trading venues apply by reference to OTFs for both multilateral and bilateral trading where a liquid market exists (also only for equities). - SROs have certain specific provisions relating to pre-trade transparency in their trading rules, but are limited currently to trading in shares. - Exemptions from pre-trade transparency: - Trading venues may provide pre-trade transparency exceptions in regulations for: - (i) reference price systems, as long as reference prices are widely published and viewed by participants as reliable; - (ii) systems that exist only to formalize transactions already negotiated; - (iii) orders held in an order management facility of the trading venue pending disclosure; - (iv) orders that are large in scale compared with normal market size. - Such regulation and amendments require FINMA's prior approval. - There is no price improvement requirement for dark trading. - Securities transactions are not subject to pre-trade transparency provisions if carried out as part of public tasks and not for investment purposes. - Similar exemptions apply to DLT trading facilities. - Exemptions also apply to OTFs, but only where multilateral trading takes place. Where OTFs operate matched principal trading, no allowance may be made for exceptions from the transparency provisions. *Italicized source attribution: 1cheea2025009-source-pdf - 54. Since the last FSAP, FinMIA was significantly amended to permit a new type of license* ### 67. SSX has had a large dark pool called SwissAtMid since 2016 that uses the pre-trade ### 1cheea2025009-source-pdf - 67. SSX has had a large dark pool called SwissAtMid since 2016 that uses the pre-trade ### Dark trading and pre-trade transparency - SSX has had a large dark pool called SwissAtMid since 2016 that uses the pre-trade transparency exemption for reference prices. - SwissAtMid: - Allows execution of Swiss equity trades at the midpoint of the Swiss Stock Exchange’s lit order book. - Is primarily a venue for participants looking for block liquidity in Swiss shares. - Other pre-trade transparency exemptions are used by SSX for certain specific types of orders. - Overall, around 5.56% of trades in SSX constitutes dark trading. - Given the lack of data on OTF trading activities, it is unclear what part of the trades in OTFs constitute dark trading. - Recommendation: - Pre-trade transparency requirements for trading in non-equity securities should be considered. FinMIA already envisages and provides for such a requirement, with the initial 2015 intent to wait until related requirements at the EU level were in force. - Today, there is sufficient international experience applying pre-trade transparency on non-equity securities. There is already significant trading in non-equity instruments at SIX Stock Exchange. With additional market monitoring of trading outside trading venues, more trading in non-equity securities may come to light. - Pre-trade transparency should be considered for non-equity securities through suitable revisions to the regulatory framework. ### Market abuse legal and institutional framework - Key legal instruments and organizational elements: - Provisions pertaining to market abuse are mainly found in FinMIA and FinMIO, with certain organization requirements for supervised institutions mentioned under a FINMA circular. - FinMIA: broad definitions of insider information, insider trading, and market manipulation and prohibitory provisions; exploitation of insider information and price manipulation are criminal offences under FinMIA with conditions and punishments. - Provisions under FinMIA mainly apply to trading venues and DLT trading facilities; a broad provision on market abuse exists under the OTF circular. - Trading venues have their own market conduct rules; penalties can include cancellation or rejection of trades. - Under FINMA circular 2013/8, supervised institutions have organizational requirements to prevent and deal with market abuse, commonly using off-the-shelf systems. - Surveillance and reporting responsibilities: - The obligation for surveillance for market abuse primarily lies with the trading venues and extends to review of transactions conducted outside the trading venue that are reported or brought to their attention. - SIX developed an in-house surveillance system after previously relying on an external provider. - Supervised institutions must report detected suspicions of substantial importance to FINMA under FINMASA. - FINMA’s current role in surveillance is limited; it mainly investigates and enforces cases brought to its attention by trading venues and other sources, can conduct its own analysis, and can request information (e.g., beneficial owner information, further trade and order information) mainly from banks, securities firms, trading venues, issuers, and market participants. - Cooperation with criminal authorities: - FINMA closely collaborates with the Office of Attorney General (OAG) for investigation and enforcement of market abuse cases. - Cases flagged and forwarded to OAG are usually criminal offences, relate to entities not directly supervised by FINMA (e.g., issuers, natural persons), or where FINMA lacks investigative tools (e.g., recording phones, search and seizure). - FINMA relies on a higher level of evidence for enforcing insider trading cases, often necessitating OAG involvement for investigative powers. - Cross-border cooperation: - SIX Swiss Exchange and BX Swiss have an agreement to regularly exchange trading data on a case-by-case basis in compliance with FinMIA. - For cross-border investigations and enforcement, FINMA uses IOSCO MMoU and EMMoU and, in some cases, bilateral MoUs. - Since the 2014 IMF recommendation, legal amendments permit FINMA to exceptionally refrain from prior intimation to the client if the foreign authority substantiates that prior intimation would compromise the purpose of the request; subsequent intimation is required when the risk ceases to exist. A proposal to eliminate client notification or create a general exception for market abuse cases is under consideration. ### Enforcement outcomes and recent activity - Enforcement statistics (past five years): - FINMA conducted 11 enforcement proceedings enforcing market abuse provisions. Outcomes included declaratory rulings, bans from practicing a profession, bans of a dealer from conducting business, and confiscation of illegal gains. - FINMA referred 36 cases with regard to market abuse to OAG (mostly suspicions on insider trading). - FINMA issued 18 letters of reprimand to market participants. - Observations on scope and detection: - Market manipulation cases from Swiss Trading Venues to FINMA account only for roughly 2% of all market abuse cases, reflecting lack of effective outcomes from surveillance, especially regarding market manipulation. - In 2024, only nearly 11% of cases received by FINMA pertain to market manipulation, indicating many such cases may be going undetected due to lack of quality data, inadequate surveillance capability, or both. ### Proposed FinMIA reforms (public consultation in 2024) and implications - Four key reform aspects relevant to market abuse: - (i) Transfer of issuer obligations of ad hoc publicity and management transaction disclosures from self-regulation to State law, with further strengthening (e.g., requirement to publish name and function of the person for management transactions, obligation to maintain insider lists). - (ii) FINMA to undertake the main market surveillance, including for cross-market abuses (complementing exchange SRO surveillance functions) based on transaction reports, and for this purpose, centralization of reporting office under FINMA. - (iii) Lowering the threshold for supervised entities to intimate FINMA from suspected cases of substantial importance to simply a suspicion of market abuse (“suspicious transaction reports”), similar to corresponding EU requirements. - (iv) Enhancing criminal enforcement of market abuse cases through expanding the scope of price manipulation transactions as criminal offences, enhancing punishment for tertiary insiders, reducing financial thresholds for offences to qualify as serious (criminal) market abuse cases, and use of improved technology for investigation. - Explanatory notes: - Centralization is proposed due to fragmentation of the reporting system and resulting differences in data quality; quality of transaction reports is expected to be enhanced. - The proposed suspicious transaction reporting will resemble EU requirements; the threshold may still be slightly higher to avoid a significant volume of unnecessary reporting, but it will be lower than current Swiss thresholds. - Tertiary insiders will not be abolished but will be merged with secondary insiders to impose more serious consequences. ### Recommendations on SROs, FINMA powers, and operational capacity - SRO-FINMA cooperation and powers: - Explicit SRO-FINMA cooperation obligations should be introduced under law and greater power accorded to FINMA over SROs in line with IOSCO requirements. - An explicit MoU between trading venue SROs and FINMA detailing cooperation areas and procedures is recommended. - FINMA’s oversight powers should include review and revocation of SRO governing laws, regulations, and rules. - FINMA should have full authority to inquire into matters affecting investors or the market and to take over SRO responsibilities where conflicts of interest necessitate it. - Such requirements should be introduced even if surveillance and reporting are centralized within FINMA. - Priority implementation of proposed reforms: - The proposed reforms that strengthen prevention, detection, and enforcement of market abuse should be implemented on priority. - Lowering of reporting thresholds for supervised institutions is key to detection and should be implemented on priority. - Disclosure of beneficial ownership details is key in detecting market abuse cases and the proposed requirements should be implemented. - Centralizing reporting and surveillance within FINMA could be effective given current suboptimal cooperation; this will require significant investments in technology and human resources within FINMA. - Enhancing issuer and supervised institution controls: - Regulatory and supervisory requirements should ensure sufficient mechanisms and controls to prevent insider trading at issuers and supervised institutions. - Current self-regulatory requirements by exchange SROs and FINMA’s high-level requirements should be enhanced to be more granular and specific via supervisory expectations or regulatory requirements. - Improving market surveillance and enforcement capabilities: - Market surveillance of market manipulation must be improved; FINMA should review potential reasons for lack of adequate market manipulation cases in cooperation with exchanges and implement suitable measures. - Investigation and enforcement should be improved by providing FINMA with enhanced investigation and enforcement tools: - The threshold to transfer cases to OAG as criminal should be high and limited to serious cases. - FINMA should be given clear enforcement powers, including the power to fine individuals and companies for market abuse cases. - FINMA should have, at minimum on a case-by-case basis with OAG approval, investigation powers such as search and seizure and powers to obtain telephone records for administrative enforcement. - If judicial pronouncements consistently hinder FINMA’s ability to enforce insider trading cases, FINMA should seek relevant powers from the legislator. ### Market resilience, concentration, and trading outages - Market structure and concentration risks: - SIX Stock Exchange dominates securities trading in Switzerland and is the leading global exchange for Swiss equities. - Several venues and providers depend on SIX for reference prices for Swiss stocks. - Within the larger SIX group, the group manages much of the country’s financial market infrastructure; shared IT systems across the group expose trading systems to risks from activities beyond pure trading. - Recent outages and regulatory follow-up: - SSX suffered two major trading outages since the last FSAP: - June 2023: outage for three hours, the worst outage for the exchange since 2012, due to a technical glitch. - July 2024: trading suspended across all segments for four hours due to a data issue; this affected trading in certain foreign venues reliant on market data feed from SSX. - Multiple outages have prompted renewed regulatory focus globally; IOSCO published good practices in June 2024. - In August 2024, SIX Swiss Exchange published its Emergency and Outage Principles outlining policy and procedures for outages. - Incidents were reported to FINMA and followed by detailed supervisory discussions, resulting in improvements and further follow-up measures. *Source: Excerpt from provided IMF PDF content.* ### 83. Operational resilience and outsourcing requirements apply under the regulatory and ### 1cheea2025009-source-pdf - 83. Operational resilience and outsourcing requirements apply under the regulatory and supervisory framework. ### Operational resilience, outsourcing, and regulatory framework - FINMA Circular 2023/1 provides requirements relating to operational risks and resilience, including provisions relating to resilience, reliability, and integrity of critical systems; these currently apply to the SIX group through a separate notification. - Broad outsourcing requirements apply under FinMIA and FinMIO, primarily relating to outsourcing of essential services; outsourcing of essential services is subject to FINMA's prior approval and certain substantive requirements (e.g., minimum content of the outsourcing agreement, risk management, audit rights). - FINMA Circular 2018/3 lays down supervisory expectations with respect to outsourcing and does not directly apply to FMIs; relevant provisions of FinMIA and FinMIO are interpreted accordingly. - Operational risk and IT were rated as the highest risks in FINMA’s last supervisory rating. ### Market concentration, domestic alternatives, and supervisory priority - Dominance of a single trading venue, concentration of trading, and dependencies for reference prices expose trading systems to significant concerns of market resilience. - At the domestic level, there are practically no alternatives; cross-border trading is possible but domestic alternatives are lacking. - Trading outages in recent years exposed vulnerabilities from reliance on one trading system. - FINMA has performed supervisory reviews, external audits, raised specific assessment letter points, established ad hoc interventions/measures for critical incidents, and has further measures in the pipeline. - There is scope for further improvements, particularly in the area of cyber risks (detailed in a separate Technical Note on cyber risks). ### Ex‑ante and ex‑post trading controls, default procedures, and clearing - Ex‑post tools at trading-venue level include power to suspend/halt trading, impose circuit breakers, suspend trading participants in case of exceeding trading volumes in certain instruments, terminate participants/suspend access to the system, deletion of orders, cancellation of trades, among others. - Most of these aspects are governed through self-regulation; some are required under law (e.g., power to halt trading in extraordinary circumstances). - Ex‑ante tools include controls concerning Direct Electronic Access. - Default procedures exist at trade level (e.g., buy-in obligations on the seller) and at the clearing member level (e.g., default funds, waterfall procedure, segregation, and portability). - Trading in shares, ETFs, CHF bonds and certain ETPs are centrally cleared by SIX x-clear AG, the Swiss cash CCP, and LCH & CBoE Clear in interoperability; related risk management requirements and procedures apply. - For instruments not centrally cleared (e.g., structured products), volumes are very small. - FINMA can order reduction of a large position or provision of additional margin during ongoing supervision; non-implementation can be escalated to enforcement. ### Algorithmic and high‑frequency trading controls - Under FinMIO, trading venues must be able to identify orders generated by algorithmic trading, the different algorithms used, and the participants' dealers who initiated these orders. - Trading venues shall require participants that pursue algorithmic trading to: - flag such orders; - record all entered orders, including order cancellations. - Participants should have effective precautions and risk controls ensuring systems are robust and equipped with sufficient capacity to deal with peak volumes and announcements, are subject to appropriate trading thresholds and upper limits, do not cause or contribute to disruptions, and are effective to prevent market abuse. - Participant systems should be subject to appropriate tests of algorithms and control mechanisms, including: - precautions to limit the proportion of unexecuted trading orders relative to the number of transactions that can be entered into the system by a participant; - mechanisms to slow down the flow of orders if there is a risk of the capacity of the system being reached; - limits and enforcement of the minimum tick size executable on the trading venue. - Trading venues may make provision for higher fees for certain types of orders (especially cancellations) and participants to account for additional burden on system capacity. - SRO regulations include obligations to flag algo trades and identify algorithms; SER’s participant audit covers these provisions. ### Short selling, settlement fails, and data limitations - Neither FinMIA nor FinMIO contain any restrictions on short-selling. - FinMIO permits a trading venue to impose a duty on participants to flag short-sales, but in practice this has not been implemented. - A more explicit rule on short-selling was deleted from the SSX regulations around 2012. - Current SSX trading rules require members to ensure performance of their obligation (settlement) occurs on the contractual due date. - BX Swiss AG has no rules in place regarding short selling. - Since there is no requirement to flag short-sales, there is no clear data available either with the trading venue or with FINMA on short selling. - Focus is on minimizing settlement fails through settlement discipline regimes, buy-in rules, and related monitoring. - Based on CSD data available with FINMA, FINMA is of the opinion that settlement fails are low and not of systemic concern. - SIX has emergency power to issue regulations on short-selling subject to notification to participants; this power has not been used so far. ### Market liquidity shift and transparency concerns - Market liquidity is shifting towards off-venue trades and less transparent execution mechanisms (e.g., dark trading and auctions). - Industry discussions indicate liquidity in Swiss securities is moving outside traditional trading venues, in line with the global trend. - In on-book volumes, dark pools, closing and periodic auctions, and other alternative closing methods enjoy increasing relevance, especially observed by foreign MTFs. - Reduced transparency in these mechanisms raises concerns due to reduction of volumes in price-forming lit markets. - Liquidity fragmentation is another concern, albeit primarily cross-border. - Industry discussions confirmed dark trading in Swiss equities primarily in venues outside Switzerland; lack of data on off-venue trading in Switzerland prevents full confirmation. - FINMA notes: "more than 50% of trading volume currently occurs off-book." ### Supervision, reporting, inspections, and audits - Trading venues and SROs are required to provide periodic reports and ad-hoc substantial incidental reports to FINMA; extent of periodic reports is risk based and differs by entity. - Key reports include financial reports, strategy plans, risk dashboard, risk appetite statement, and internal audit reports; SROs are required to periodically submit reports to FINMA by exchange regulation. - Responsible FINMA staff review each report; identified risks are discussed in supervisory meetings or addressed immediately if severe; supervised entities must immediately report any incident of substantial supervisory importance. - The FINMA internal supervisory concept for FMIs covers supervision of trading venues individually and part of consolidated group supervision; processes for on-site reviews (supervisory reviews & deep dives) are defined in an appendix. - FINMA divides supervised institutions (including FMIs and groups) into five supervisory categories, based on size and importance. - FMIs are annually rated on certain risk criteria based on ongoing supervision and regulatory auditors; category and rating together define supervisory scope and depth. - On-site inspections for FMI groups: two to four times per year; for smaller FMI institutions (without consolidated supervision): every 2-3 years. - Standard supervisory instruments: regular supervisory meetings with management and technical experts, on-site reviews, annual audits by the audit firm, and for the first two categories - an annual assessment letter from FINMA including supervisory focus points and deadlines for mitigation. - On-site inspections are either supervisory reviews (SR) or topic-specific deep dives (DD); SRs take roughly three days and DDs take roughly one day. - Typical SR topics in last five years: operational risk, market surveillance, fire-drill cyber exercise, exchange regulation, listing, data management, outsourcing, business continuity management, corporate governance, etc. - Typical DD topics: cyber risk, issuer disclosures, project management, IT risk management framework, etc. - Some reviews have initiated investigations against trading venues/SROs but have not resulted in enforcement actions in the last five years. - Regulatory audits by audit firms are a key element of FINMA’s supervisory process for trading systems: - Standard audit strategy applied for supervised institutions in FINMA Supervisory Categories 3 to 5. - Calculated net risk exposure in each audit field determines audit periodicity and depth. - For Categories 1 and 2, FINMA defines audit strategy in dialogue with the audit firm. - Audit firms communicate findings to FINMA in a standardized report with the audit firm’s opinion and identified irregularities or recommendations. ### Cross‑border cooperation - Trading venues have cross-border activities (e.g., SIX group operates Spanish BME trading; BX Swiss is part of German Börse Stuttgart group). - Cross-border trading involves foreign venues, participants, and investors; cross-border cooperation with foreign regulators is necessary. - FINMA is a signatory to the IOSCO MMoU and, since October 2019, to the IOSCO Enhanced MMoU, allowing cooperation with foreign regulators on supervision and enforcement. - FINMA cooperates with foreign regulators through joint on-site audits and has bilateral cooperation agreements with: - UK FSA (now FCA) since 2011 for supervision and oversight of SIX Swiss Exchange (Recognized Overseas Investment Exchange in the UK); - China Securities Regulatory Commission (CSRC) since 2022 on the market regulation of the China-Switzerland Stock Connect. ### Recommendations and supervisory reforms - FINMA should closely monitor trading activities that may significantly affect price discovery and market efficiency on a systematic basis, including: - on-venue vs off-venue trading; - dark trading; - reference price venues; - liquidity fragmentation; - concentration in auctions. - FINMA should closely monitor trends from a market resilience perspective because events such as outages where liquidity is concentrated or where the reference price of the primary exchange is of substantial importance could have serious ramifications on market functioning. - FINMA should obtain information on and monitor short selling: - Ability to identify short selling activities and monitoring should be incorporated in the trading or trade reporting systems and FINMA’s supervisory regime. - IOSCO recommends a reporting regime that provides timely short selling information to the market or, at minimum, to market authorities. - FINMA should enhance supervision of the trading venue SROs: - Increase frequency and intensity of supervision of trading venue SROs to cover wide-ranging SRO functions. - Additional supervisory intensity should address risks regarding independence and conflicts of interest arising from concentration of stakeholders in SRO governance (shareholders, participants, issuers). - Consider regulatory reform if mitigation within the current framework proves difficult. - Issuer-related functions of SROs should be subject to increased supervision: - Current issuer-related regulations of the SRO are high-level and principle-based; implementation by issuers is unclear. - Need greater intensity and frequency of supervision of implementation and effectiveness of enforcement, covering ad-hoc and periodical disclosure obligations and obligations pertaining to market abuse. - Review effectiveness of licensing, regulatory, and supervisory framework for prospectus office functions and introduce suitable legislative reforms based on outcomes: - FinSA introduced the concept of prospectus offices to check that prospectuses are complete, coherent and understandable. - Swiss framework is unique given lack of review of prospectus contents for accuracy by prospectus offices; focus is primarily on completeness and post-facto rather than prior review for non-equity securities. - Effectiveness of the regime, particularly regarding misstatements in prospectuses, is currently untested. - Current legislative framework accords FINMA limited role: licensing power, receipt of a yearly report, and limited supervisory powers (intervention where office does not fulfil requirements and cannot perform tasks properly). *Source: 1cheea2025009-source-pdf - 83. Operational resilience and outsourcing requirements apply under the regulatory and supervisory framework.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1cheea2025009-source-pdf.pdf_