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Assurance of proper business conduct

Questions and answers on the "letter of assurance" 

(Status 13 September 2010)

1. What is understood by "assurance of proper business conduct"?

The financial market legislation (see question 3) requires the top executive bodies of supervised institutions to grant assurance of proper business conduct. The main purpose of this requirement is to maintain public confidence in those institutions and safeguard the reputation of the financial centre. Assurance of proper business conduct covers matters of personal character and professional qualifications required for the proper management of a supervised entity. The principal criterion used in assessing a person’s suitability is their past and present business activity as well as their professional plans.

2. Why is there a requirement for assurance of proper business conduct?

The business activities of companies that are subject to supervision by FINMA include a wide range of services that involve dealing with the assets of large numbers of depositors, investors and clients. The aim of imposing high personal standards on those subject to the requirement for assurance of proper business conduct (see questions 4 and 5) is to maintain and enhance the confidence of depositors, investors and clients in the institutions supervised.

The scope of FINMA’s supervisory activities varies according to the applicable financial market legislation and extends from permanent, ongoing monitoring (e.g. banks, securities dealers, fund management companies, mortgage bond institutions, self-regulatory organisations pursuant to the Anti-Money Laundering Act, insurance companies), through partial monitoring (e.g. financial intermediaries pursuant to the Anti-Money Laundering Act and audit companies licensed under the Financial Market Supervision Act), to regular registration without ongoing supervision (e.g. insurance intermediaries, distributors of collective investment schemes).

3. What is the legal basis for the requirement for assurance of proper business conduct?

The requirement is set down in the following financial market legislation that governs FINMA’s supervisory activities: 

  • Banking Act: Swiss Federal Act of 8 November 1934 on Banks and Savings Banks (BA; SR 952.0): Art. 3 para. 2 let. c and cbis (banks) and Art. 3f para. 1 BA (financial groups and financial conglomerates);

  • Insurance Supervision Act and Insurance Supervision Ordinance: Swiss Federal Act of 17 December 2004 on the Supervision of Insurance Companies (ISA; SR 961.01) and Ordinance of 9 November 2005 on the Supervision of Private Insurance Companies (ISO; SR 961.011): Art. 14 and 21 ISA in conjunction with Art. 12 and 14 ISO (insurance companies), Art. 67 ISA (insurance groups), and Art. 75 (insurance conglomerates);

  • Stock Exchange Act: Swiss Federal Act of 24 March 1995 on Stock Exchanges and Securities Trading (SESTA; SR 954.1): Art. 3 para. 2 let. b (stock exchanges and similar organisations) and Art. 10 para. 2 let. d SESTA (securities dealers);

  • Collective Investment Schemes Act and the Collective Investment Schemes Ordinance: Swiss Federal Act of 23 June 2006 on Collective Investment Schemes (CISA; SR 951.31) and the Ordinance of 22 November 2006  on Collective Investment Schemes (CISO; SR 951.311): Art. 14 para. 1 let. a and b and para. 3 in conjunction with Art. 13 para. 1 CISA and Art. 10 ff. CISO-FINMA (fund management companies, SICAVs, limited partnerships for collective investments, SICAFs, custodian banks, asset managers of Swiss and (voluntary subordination) of foreign collective investment schemes, distributors and representatives of foreign collective investment schemes);

  • Anti-Money Laundering Act: Swiss Federal Act of 10 October 1997 on Combating Money Laundering in the Financial Sector (AMLA; SR 955.0): Art. 14, let. c  (financial intermediaries directly superordinated to FINMA), and Art. 24, para. 1 let. c AMLA (self-regulatory organisations recognised by FINMA);

  • Financial Market Supervision Act and Financial Market Supervisory Ordinance: Federal Act of 22 June 2007 on the Swiss Financial Market Supervisory Authority (FINMASA; SR 956.1) and the Financial Market Audit Ordinance of 15 October 2008 (FINMA-PV; SR 956.161): Art. 26 para. 2 and 3 FINMASA in conjunction with Art. 3 para. 1 let. b (audit companies) and Art. 4 let. b FINMA-PV (lead auditors).

4. Who is subject to the requirement for assurance of proper business conduct and takes on the ensuing responsibilities?

The requirement for assurance of proper business conduct is an ongoing, mandatory licence prerequisite for banks, licence holders under the Collective Investment Schemes Act, stock exchanges, securities dealers, financial intermediaries directly subordinated to FINMA, self-regulatory organi-sations recognised by FINMA under the Anti-Money Laundering Act, and insurance companies. The requirement is applicable to:

  • Persons charged with the administration and management of a bank, a stock exchange, a licence holder under the Collective Investment Schemes Act (e.g. a fund management company, a custodian bank, a distributor, an asset manager of Swiss or foreign collective investment schemes), a financial intermediary directly subordinated to FINMA, a securities dealer, an insurance company, or a group or conglomerate supervised by FINMA. This at least includes the board of directors and members of senior management. Depending on the size of the supervised institution and the responsibility assumed, other functions may also be included (see question 5).

  • persons and audit companies entrusted with conducting inspections for a self-regulatory organisation as prescribed in the Anti-Money Laundering Act.

  • the executive bodies of audit companies licensed by FINMA under FINMASA and their lead auditors.
  • individuals and legal persons who directly or indirectly hold at least 10% of the capital or the votes  of a bank, a securities dealer, a licence holder under the Collective Investments Schemes Act, an insurance company, or a group or financial conglomerates supervised by FINMA, or whoever could otherwise significantly influence their business activities (qualified participation).

Persons below the level of top executive management are usually not subject to the requirement for assurance of proper business conduct (see question 5).

5. Who is not subject to the requirement for assurance of proper business conduct?

The requirement primarily concerns the top executive bodies of a company supervised by FINMA (see question 4). It is not applicable to employees with only limited or no managerial functions. Depending on the specific duties performed, it also concerns persons working in a relevant managerial function, the hierarchical level of their position, the entire organisation of the supervised company (number of employees, design of control mechanisms), and the type of business. Generally speaking, the requirement does not apply to many influential management positions at middle-sized and large companies, whereas it would apply to persons exercising the same function at a very small company.

6. When does FINMA assess an individual’s assurance of proper business conduct  and when not?

FINMA is responsible for the supervision of companies for which it has issued licences, granted recognition, registration or an authorisation. FINMA therefore reviews an individual’s assurance of proper business conduct only in terms of their role at the supervised company. FINMA does not extensively check the requirement applicable to all those concerned at the companies it supervises, but rather only in certain cases:

  • When reviewing new applications for licences, recognition, authorisation or registration, it always verifies if the executive bodies and qualified participants fulfil the assurance requirement.

  • In case of changes of functions or individuals at authorized companies, FINMA does not check and approve that each individual subject to the assurance requirement actually fulfils it. In principal, FINMA assumes that the supervised institutions employ managing directors that fulfil the requirement for assurance of proper business conduct. If deemed necessary, however, FINMA does verify whether an individual fulfils the assurance requirement.

  • Following irregularities or a certain incident at a supervised company, FINMA investigates the individual’s responsibilities. If necessary, FINMA may order the dismissal of an executive who is considered not to fulfil the assurance requirement.

In contrast, FINMA generally does not investigate the requirement for assurance of proper business conduct for persons who are no longer employed at an authorized institution  (no investigation as a precaution; see question 19).

7. In the event of irregularities or alleged misconducts what does FINMA investigate?

FINMA is notified from different sources about irregularities or alleged misconducts. Such irregularities or alleged misconducts could be of importance when assessing the requirement for an individual to grant assurance of proper business conduct (e.g. indications of insufficient control measures, market manipulation, violation of internal directives, embezzlement, etc). If the irregularities or the alleged misconduct are of a serious nature, FINMA investigates whether one or more individuals subject to the  assurance requirement are responsible. If this is the case, FINMA may assess the  assurance of proper business conduct of the individuals concerned if they still hold the same office, or a similar one subject to the such a requirement, at a supervised company (see questions 9 and 19). In such cases, FINMA may not only request the supervised company to dismiss the person concerned, but also impose upon them a temporary ban from practising their profession or other activities (vgl. question 20).

8. What exactly is a letter from FINMA concerning the assurance of proper business conduct?

From the beginning of the 1990s onwards, the expression "letter concerning the assurance of proper business conduct" was increasingly used by the Swiss Federal Banking Commission, one of FINMA's three predecessors, in its supervisory practice. FINMA uses such a letter to inform the person concerned of its possible reservations concerning the assurance of proper business conduct following that person’s possible wrongdoing as a result of an irregularity  (see question 9).

9. When does FINMA issue a letter concerning the assurance of proper business conduct?

If the person connected with the irregularity or alleged misconduct is presently not subject to the requirement for assurance of proper business conduct (i.e. because this person was never subject to this requirement or they relinquished their position), FINMA does not investigate whether this person fulfils the requirement for assurance of proper business conduct. In such cases, there is no reason to do so. Instead, FINMA considers whether it should send such a letter to this person and does so if:

  • it cannot rule out that the person concerned will in future be subject to the requirement for the assurance of proper business conduct;

  • it considers, based on the information at hand (still uninvestigated and generally incomplete), the incident or the alleged misconduct to be of such a serious nature that it raises doubts about the person concerned in terms of their granting  assurance of proper business conduct;
  • it is deemed necessary to explicitly inform the person concerned.

FINMA foregoes, among others, sending such a letter if, from the given circumstances, it can be concluded that the person concerned will neither take up an executive position nor acquire qualified participation at one of the companies supervised by FINMA, or if the person is no longer a resident of Switzerland.

10. What is the content of a letter concerning the assurance of proper business conduct?

Based on the  information in its possession (in general only provisional at that point), FINMA states in such a letter the facts that may create doubts about whether the person concerned fulfils the requirement for assurance of proper business conduct. This letter measures neither the validity nor the completeness of the information available. The person concerned may, if they wish, comment on the facts outlined in the letter. FINMA states clearly that it reserves the right to investigate whether the person concerned is capable of granting assurance of proper business conduct, if they in the future take up a position subject to this requirement (see questions 4 and 5). At this stage, the outcome of the investigation is fully open.

11. Can an appeal be lodged against the letter of assurance?

No. It does not seek to establish any rights and duties, and does not encroach in any way on the legal status of the person concerned. FINMA will only make binding comments on the assurance of proper business conduct in its letter to the addressee if the person concerned has been formally offe-red a position subject to the assurance requirement at a supervised institution. This may lead FINMA to instigate proceedings and to gather further evidence. Such proceedings are time-consuming and may entail considerable costs for the person concerned.

12. I have received a letter concerning the assurance of  proper business. What must I do?

You are not expected to react. If you wish, you may, however, comment at your earliest convenience on the incident or alleged misconducts briefly outlined in the letter. This may prove useful since the issues at hand may be forgotten with time.

13. If I receive such a letter, must I seek the advice of a lawyer?

This is not necessary, but, depending on the case, may be useful. You may also contact FINMA directly at any time without engaging a lawyer.

14. Why does FINMA not respond extensively to my comments on the letter of assurance?

Sending out a letter does not imply that FINMA is instigating proceedings against the person concerned. This does not change even if you send FINMA your comments on the letter. FINMA will confirm receipt of your comments and keep them on file. If necessary, at a later stage, FINMA will consult these comments if enforcement proceedings are initiated to investigate the the person’s assurance of proper business conduct. This person would then participate formally as party to the proceedings.

15. For how long is such a letter valid?

Generally speaking, there are no time constraints on an assurance letter. If you, nonetheless, have doubts following a time lapse as to whether the (uninvestigated) incidents or misconducts may still pose difficulties for the assurance of proper business conduct, you are advised to contact FINMA.

16. Does receiving a letter concerning assurance of proper business conduct mean that I may no longer work for a company supervised by FINMA?

No. You may still continue to work for a company supervised by FINMA as long as the position in question is not subject to the assurance requirement. Only if the position in question becomes subject to such a requirement could an investigation be initiated.

17. What must I do if one of the companies supervised by FINMA offers me a new job?

FINMA recommends you to clarify whether the new position is subject to the requirement for assurance of proper business conduct (see questions 4 and 5). You are advised to contact FINMA if certain issues are still unclear. If the new position is subject to the requirement for assurance of proper business conduct, you are legally entitled to request FINMA, if necessary, to issue a decree stating whether or not you fulfil the requirement for the position in question.

18. If I receive a letter concerning assurance of proper business conduct and I do not contact FINMA before starting a new job will I be penalised?

If you do not clarify with FINMA the issue of the requirement for assurance of proper business conduct and, where applicable, if you fulfil the requirement before taking up a new managerial position at a company supervised by FINMA, this does not jeopardise your legal position with FINMA (see question 17). The advantage of clarifying the issue in advance is that you know whether FINMA has decided to investigate the issue and, if that is the case, whether you fulfil the requirement. If you ignore these recommendations and take up such a position without notifying FINMA in advance, there is the risk, or rather the unpleasantry, that FINMA, upon hearing of your new appointment, initiates proceedings to clarify your fulfilment of the requirement for assurance of proper business conduct . If FINMA reaches the conclusion, after formal investigations, that you do not fulfil this requirement, it could request the supervised company to remove you from that position. Thus, there is the risk that FINMA may initiate formal proceedings liable to charges against the supervised company at which you have taken up a position subject to the assurance requirement  and against you.

You should therefore consider informing your new employer about FINMA's letter concerning assurance of proper business conduct,  should you decide not to clarify the issue in advance directly with FINMA.

19. Why does FINMA not make a general investigation of my assurance of proper business conduct?

FINMA may not generally assess a person’s assurance of proper business conduct  , i.e. irrespective of the specific circumstances pertaining to the position in question at a certain institution. When assessing the fulfilment of the requirement for assurance of proper business conduct, FINMA is obliged to look into the specific function a person subject to this requirement would exercise within an institution. This is the case since the person concerned might fulfil the requirement for a certain position, while they do not fulfil it for another position. For instance, it does make a difference whether the person concerned would be a member of the executive board, or the CEO, or the sole executive board member, or a member of the board of directors or its chairman. The scope and type of the future business activities and the institution's size and complexity are also relevant. Where appropriate, other aspects considered are the nature of the circumstances which led to a person's dismissal or discharge, the relevance of their indiscretions at the previous position and their possible effect on the new area of responsibilities, the person's activities and conduct following their resignation and assuming a new position, and the time elapsed following the incidents.

20. What is the difference between the practice applied by FINMA concerning the assurance of proper business conduct and the possibility of FINMA banning an individual from practising a profession or exercising an activity?

Under the Financial Market Supervision Act, FINMA may prohibit a person responsible for a serious violation of supervisory provisions from acting in a managerial capacity at any entity subject to its supervision. The prohibition from practising a profession may be imposed for a period of up to five years (cf. Art. 33 FINMASA). Furthermore, FINMA may prohibit an individual responsible for securities trading working for a securities dealer who has committed a serious breach of the Stock Exchange Act, the implementing provisions or company-internal rules from practising securities trading on a permanent or short-term basis (cf. Art. 35a SESTA).

If FINMA instigates proceedings that could lead to an individual being banned from practising a profession or exercising an activity, it  clarifies directly whether the incident at hand is a severe breach of supervisory law, if a clearly defined person is responsible in terms of supervisory law, and how this is to be evaluated with regard to their future activity in the financial sector. If, on the other hand, FINMA sends a letter concerning the assurance of proper business conduct to the person concerned, this means that it has, at least for the time being, decided to forego investigating the implication of this person in relation to a serious violation of supervisory law.

21. Whom may I contact for additional information?

law@finma.ch