FINMA regime for small banks means for financial intermediaries

Following a successful pilot project, the Swiss Financial Market Supervisory Authority FINMA has now introduced the regime for small banks at circular level as of 1 January 2020. Small, but particularly liquid and well-capitalised banks can from now on be exempted from some prudential requirements. This is in line with FINMA's approach of proportional supervision and regulation. FINMA has amended eight FINMA Circulars in response to the introduction of the regime.

Who can benefit from the regime for small banks and the simplified rules

Financial institutions with a banking or securities dealer licence can benefit from supervision categories 4 and 5, and currently over 200 such institutions are subject to FINMA supervision. These include cantonal and regional banks, private banks, securities dealers and asset management banks. These institutions may request exemptions under the small bank regime, provided they have high liquidity and are highly capitalised.

Implementation of the regime for small banks as of 1 January 2020

The small bank regime provides that such banks and securities dealers are relieved of supervisory requirements. The aim is to increase the efficiency of regulation and supervision for small, well-secured financial institutions. To ensure that the security and stability of small banks are not jeopardised, the institutions are given a regulatory regime, for example at the level of the Capital Adequacy Ordinance, which is far less complex than the previous supervisory requirements. Following the launch of the idea for the small bank regime in 2017, the new procedure was successfully tested at 68 institutions in a pilot phase lasting several months.

Following a hearing on the partial revision of the eight FINMA circulars, the regime for small banks has now been definitively implemented as of 1 January 2020. FINMA has received a great deal of positive feedback on the new regulation from the institutions involved and the participants in the consultation process and, in line with the new regime for small banks, has adapted the Circular to define the new regulation. The adapted FINMA Circulars can be found below.

Facilities and exemptions for participation in the regime for small banks

The eight updated FINMA Circulars reveal, among other things, the following facilitations for small banks:

Simplification of capital and liquidity requirements (e.g. elimination of calculation and disclosure of risk-weighted assets) in accordance with the revised Capital Adequacy Ordinance ERV (in German)
Simplification of auditing in accordance with the partially revised FINMA Circular 2013/3 - Auditing (in German)
Reduced requirements for liquidity planning in accordance with FINMA Circulars 2011/2 Capital buffers and capital planning - banks (in German) and 2015/2 Liquidity risks - banks (in German)
For disclosure purposes, only the key metrics table is required in accordance with FINMA Circular 2016/01 Disclosure - Banks (in German)
Adjustments to outsourcing in accordance with FINMA Circular 2018/03 - Outsourcing - Banks and insurers
The obligations in connection with the handling of electronic client data are limited to the basic principles (systematic identification, limitation and monitoring by the senior management body) in accordance with FINMA Circular 2008/21 - Operational Risk - Banks (in German)
Abandonment of the concept of a framework concept and more freedom in the choice of the appropriate form of documentation and simplified risk assessment by internal audit in accordance with FINMA Circular 2017/01 - Corporate Governance - Banks (in German)

The FINMA Circulars 2017/07 Credit Risk - Banks (in German) and 2019/01 Risk Diversification - Banks (in German) have also been updated with regard to the small bank regime.

In accordance with its media release of 27.11.2019, FINMA will provide banks and securities dealers in supervisory categories 4 and 5 with written information on the further procedure and registration process for the regime for small banks.

Learn more about KYC in the banking environment and how you can simplify your compliance with Digital KYC.

Sources:

FINMA REGIME FOR SMALL BANKS

IMPACT FOR FINANCIAL INTERMEDIARIES OF FINMA SMALL BANK REGIME

Who can benefit from the regime for small banks and the simplified rules

Implementation of the regime for small banks as of 1 January 2020

Facilities and exemptions for participation in the regime for small banks

WHAT IS DIGITAL KYC?