License for the financial services in Switzerland in 2020 — what is going on?

License for the financial services

2020-02-10 | Knowledgebase

Constantly our law firm receives requests from our existing and potential clients regarding the financial services license in Switzerland. Such license is a complex issue that is connected with many aspects of the future business and processes. The reason for this is that building the company-provider of financial services is an intermediate stage on the way to bank opening. In this short article, I will tell you about the main nuances and issues in the process of obtaining.

License for the financial services in Switzerland

There are two types of financial regulation in Switzerland. The Swiss financial market supervisory authority - FINMA – is a supervisory body that issues authorisations and controls provision of bank, fintech, insurance, financial intermediary services (FOREX, asset management, fiduciary services etc.). Part of such services, like for example, some financial intermediary services may require either direct (by FINMA) or indirect (by SRO) regulation.*

License for the financial services in Switzerland

*Please, be aware that the legislation concerning financial markets is constantly changing due to the quick development of the industry.

Types of Supervision of Financial Market Actors

After the new financial market laws (FinSA, FinIA) and ordinances, as well as changes to the existing legislation entered in force on 1 January 2020 in Switzerland, the regulation of financial markets has been updated accordingly. Part of financial intermediaries, like banks, fund managers, investment companies, insurance institution, security firms, payment systems etc. is subject to FINMA authorisation and supervision.

Although portfolio managers and trustees are now to be licensed by FINMA, their supervision is entitled to Supervisory Organisation (SO).

Self Regulatory Organisations still exist and supervise the fulfilment of Anti-Money-Laundering Duties by the rest of financial intermediaries, who on a professional basis accept or hold on deposit assets belonging to others or who assist in the investment or transfer of such assets. In particular persons who carry out credit transactions, provide services related to payment transactions, trade for their own account or for the account of others in banknotes and coins, money market instruments, foreign exchange, precious metals, commodities and securities and their derivatives; make investments as investment advisers; hold securities on deposit or manage securities, has to become member of SRO. You can easily check the membership in SRO using this link.

Direct and indirect regulation of the financial market institutions

The functions of supervisory bodies include:
⁃ Receiving and processing the application for membership/authorisation as financial intermediary.
⁃ Checking that the documents provided conform with FINMA requirements.
⁃ Specification of how to interact with supervisory authority and controlling the fulfilment of the AML/Compliance legislation.
⁃ Regular audits of the regulated company depending on the risk level of the company's activities.
⁃ Conclusions, recommendations and control over the implementation of the recommendations or instructions after the audit.
⁃ Membership revocation and sanctioning in case of violations of the applicable norms and regulations.

Requirements to the applicants for the financial services license

The obtainment of the authorisation for para-banking services (usually simply called "financial services license") does not require high results from the applicant. The main issues that play role are:

The company's management
AML compliance
Clients profile creation, management and updating
Cross-border risks calculation
The questions such as the volume of the shared capital, date of the first registration of the company, current or future clients - are not the top-topics to discuss during the application. These are more or less tools for marketing activity of the company.

Documents preparation for the application

As mentioned above, the regulatory body wants to know how the company will function.It is necessary to show the planned marketing activities, on-boarding procedures and qualification of the management and employees in the field of the planned financial activities.

The lawyers of Goldblum and Partners prepare the following detailed information and documents:

1. About the CEO (it is required by the law to have minimum one director that is Swiss resident):

— detailed CV with the previous jobs, experience, references from past employers.
We recommend to give social media links, contact email and phone numbers. The relevance of the past experience to the planned activities of the company is very important.
— references from previous employers and motivation letter with description of relevant experience will be a benefit. This shows the professionalism of the manager.
— excerpts from the debt collection register and certificate of the criminal record.
— proof of the high education and post-graduate education in the relevant areas.
— copies of the publications in professional magazines.

This is not the exhaustive list and some positions may change depending on the planned activities and the person involved.

2. About the compliance with anti-money-laundering rules

This is one of the most important points for the regulatory body while assessing the application. In addition to the complex national legislation and regulations, the Swiss Confederation has signed and agreed to the number of international treaties related to the anti-money laundering and terrorism prevention sphere.

GwG (Geldwaschreigesetz, German. "Anti-Money-Laundering Act") applies to financial intermediaries and governs the combating of money laundering and terrorist financing. It ensures the exercise of due diligence in the conduct of financial transactions.

FINMA elaborates norms for control over the client's transactions, on-boarding procedures, frequency of the audits for the financial intermediaries and clients, process of notification about the suspected transactions.

MROS (Meldestelle für Geldwäscherei) receives information about the suspected activities of the clients (natural persons and legal entities), financial intermediaries, and acts in order to stop such transaction, for example by blocking the funds. In addition, it forwards the information to the international bodies related to anti-money laundering (FATF checks the fulfilment of FATCA etc.).

In order to comply with all requirements and fulfil legal obligations, the financial intermediary shall have the independent employee, that will control the AML procedures and their effectiveness in the company. In the small or mild companies, the same person is usually responsible for the on-boarding of the new clients, risk management and compliance rules.

The AML officer can be either employee of the company or the separate independent company, that provides External AML Officer according to the contract.

The documents and information list for the AML officer during the financial license application is usually the same as for the director of the company.

Cross-border risks calculation

The Swiss Confederation is not a member of the EU and the EU National Bank Directives do not have direct influence on the financial institutions and companies in Switzerland, but the on-boarding of the clients in the country other than Switzerland has to comply with the regulations of this country, and also take account of the legislation of the country of client's residence.

The most obvious areas of such interference are the taxes and international sanctions. For example, the USA (tax obligations of the citizens without regard on the residence), Germany (tax obligation of the natural persons-residents), South Sudan (international sanctions).

The elaboration of the on-boarding procedures for the financial intermediary can be outsourced to the law firm (in form of recommendations for the work-flow), or can be a task for the AML/Compliance Officer.

Clients profiles management

The compliance procedures include the control over the fulfilment of the imperative norms for the financial intermediary prescribed by the law, as well as the calculation of the additional criteria such as reputational and financial risks.

 Clients profiles management

It is important to define the risk scale for clients and make a final decision about the clients on-boarding based on these risks.

Among the main risk categories are the politically, financially, military involved persons (Politically Exposed Persons PEPs) and their relatives, transactions where it is difficult to define the source of the funds, criminals and fugitives from justice.

As mentioned above, the compliance may be the obligation of the employed AML Officer or delegated to the external compliance service provider. Goldblum and Partners prepares the profile of such employee or external service provider for the application to the SRO.

The frequency of updating the client's profiles varies and is usually defined based on the risks of the operation and the supervisory rules regarding the audit of financial intermediary. For example, the companies related to the cryptocurrencies have audit once in 6 months, while traditional asset management company - yearly.

The fees for the financial license application

In addition to the costs of the application preparation there are following fees from the side of the regulator:

Application fee

Fee for the first year of company's functioning

Fee for speed up the application procedure

The total cost is usually 2000 - 8000 CHF and do not include the regular audits of the company's activities (SRO or auditor will charge for this audits based on the hourly rate).

Timeline for the application

Usually the application is examined during 4-12 weeks, depending on the risk level of the planned activities, number of employees, management and so on. It is not possible to define the timeline more precisely due to the specific needs of each applicant.

Legal disclaimer. This article does not constitute legal advice and does not establish an attorney-client relationship. The article should be used for informational purposes only.

How can we assist you?

Goldblum and Partners is an independent law firm (with offices in Zug and Zürich), top-ranked by the international ratings in the category Banking and Finance since 2014. We are confident in the financial market regulation and have worthful portfolio of the clients from the field (banks and financial intermediary). We can assist you in the following ways:

Preparing the application for the financial services license

Obtaining banking or FinTech license

Compliance
AML, KYC, on-boarding, client profile management as an external AML Officer

Escrow services
Goldblum and Partners is member of SRO and authorised Escrow Agent. We will be happy to fulfil your trust and expectations while providing you with high quality legal support, compliance and escrow services.

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