Monday, December 22, 2014

FINMA - “We regulate more intensively, especially where products and innovations are concerned.”

What does a financial regulator do? Here is an example, describing what the Swiss financial regulator FINMA (“Eidgenössische Finanzmarktaufsicht”) does.






FINMA Essentials

FINMA is an institution under public law that has its own legal personality. The own legal personality underlines the regulator’s independence from political interferences. The independence is also financial in that FINMA’s funding stems from fees and duties paid by supervised entities instead of public Government funds.

Two main bodies govern FINMA:

  • The Board of Directors decides on matters of substantial importance, issues ordinances and circulars, and is responsible for FINMA’s budget.

  • The Executive Board is namely responsible for audit, risk, and nominations.

Employing roughly 500 people (14 % of which are non-Swiss nationals), the Swiss regulator is a rather small organization.


What should FINMA achieve?

FINMA has vocation to

  • protect the (collective, not individual!) interests of creditors, investors, and insurance policyholders;

  • ensure the proper functioning of financial markets and the overall stability of the financial system.


FINMA’s goals translate into which concrete activities?

FINMA carries out four principal sets of activities:

  • Licensing: The authority grants and publishes licenses to individuals and legal entities active in regulated financial markets. We are essentially talking about banks, insurance companies, stock exchanges, securities dealers, collective investment schemes, distributors, and insurance intermediaries.

  • Regulation: FINMA can issue ordinances and circulars where it is authorized to do so. However, regulation only takes place at the lowest level, in order to make supervisory practices transparent.

  • Supervision: This is a core task. The administration takes a risk-oriented approach and deliberately monitors less risky areas less intensively than riskier areas.

  • Enforcement: On the one hand, FINMA investigates possible breaches of financial market legislation and takes corrective action vis-à-vis regulated entities. On the other hand, the agency has no authority to impose administrative fines.

Supplementary activities relate to participating in national and international rule-setting bodies:

  • In Switzerland, FINMA advises the Parliament, the Federal Council, and other authorities on technical issues of financial legislation.

  • Internationally, it participates in setting regulatory principles globally within the Financial Stability Board (FSB), the Basel Committee on Banking Supervision (BCBS), the International Association of Insurance Supervisors (IAIS), and the International Organization of Securities Commissions (IOSCO).

However, FINMA is not an institution that directly boosts the Swiss economy. In its own words, “credible supervision and direct promotion of the economy by the supervisory authority are mutually exclusive.”


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