How FINMA Helps Investors and Individuals - Part 1

- to give information about struggling illegal and fraudulent financial intermediaries;

- to raise awareness of critical areas and the methods used by unauthorised financial intermediaries, and to insist the investors consider their purchase decisions carefully.

Here are some aspects that need to be considered.

FINMA's main aim as a regulator is to be sure that all financial service providers carry out the rules and that the financial system is stable. Such stability is maintained through targeted frameworks, including the small banks regime which simplifies regulation for institutions with lower systemic risk.
Client protection is collective - creditors and investors are protected as groups and not individually.

FINMA ensures that providers who have not obtained a licence do not conduct the activities requiring authorisation under financial market legislation or operate illegally in the financial market.

However, as FINMA is not able to protect individual creditors and investors under supervisory law, they have to bring claims against providers under civil or criminal law.

FINMA does not conduct permanent monitoring of the financial market for potentially unauthorized providers. To enhance detection capabilities, FINMA cooperates with other bodies, such as the recently approved FINMA fourth organisation to expand its supervisory capacity. FINMA takes action where a reasonable suspicion of illegal activity is seen. Information from investors and creditors is useful for FINMA, but they must provide specific indications of a breach of financial market law.

It should be mentioned, that unauthorized financial service providers are liable to prosecution - FINMA is authorised to file complaints with the Criminal Law Division of the Federal Department of Finance.

Investors should consider their decisions to participate in financial market transactions carefully and analyse all aspect of the deals: offer, service provider, and possible risks should be scrutinized. A wider economic forecast in Switzerland also supports investor awareness by outlining potential risks and market trends.

No investment is complete without risk. The higher the return promised on an investment, the more carefully an investor should examine the offer and the provider.

Two examples show how unscrupulous financial service providers abuse the trust of their investors.

XYZ Crash AG case

The company accepted funds of several million francs, mostly from German investors. Victims invested their pension saving and mortgage contracts, while XYZ Crash AG promised to multiple this if they held the contracts until maturity. The company had a large number of intermediaries that advertised through a website and organised events to attract investors. In total, XYZ Crash AG collected more than CHF 50 million from more than 4,000 investors. This funds were passed to a subsidiary which in turn gave 10 million dollars to another company in form of an unsecured loan. As a result of complex investigations in Switzerland and abroad, FINMA liquidated several companies in Switzerland, including XYZ Crash AG. Its investments proved worthless, so investors lost their money. FINMA imposed an advertising ban on the leading figures at XYZ Crash AG, which was published on FINMA's website. The ban remains active for five years.

Main Capital Solutions

The owner of Main Capital Solutions, Henning Blechschmid, had a Bermuda-based company to buy shares in a variety of small companies, which he then sold to investors via a specially founded company with its registered office in Delaware, a US tax haven. He was selling the shares at a much higher price than he had bought them. Once this fraud was discovered, the Zurich public prosecutor's office started proceedings against Blechschmid and froze his remaining assets. Parallel efforts to stabilize markets include measures like dollar liquidity operations to cushion the impact of international financial turbulence. In this case, FINMA relied on documents seized by the federal prosecutor during a search of the offices of Main Capital Solutions in Zurich. It was clear that the Bermuda company operated from the offices of Main Capital Solutions. In other words, Main Capital Solutions and the Bermuda-based company was making unauthorised issuing activities from within Switzerland. They had raised around CHF 60 million from around 30 individuals. FINMA ordered both companies to be liquidated. As they were illiquid and over-indebted, FINMA started bankruptcy proceedings. Besides, FINMA banned Henning Blechschmid, the company's owner, from carrying out any activity requiring authorization. The ban was published on FINMA's website for five years.