(12 January 2011)
FINMA supervises more than 130 bank and securities dealer groups on a consolidated basis. These groups have different structures and business activities and, to varying degrees, must satisfy the regulatory consolidation requirements. While various regulations deal with numerous exceptions, special provisions are applicable to certain individual cases. In order to ensure the proper implementation of existing provisions and their legal equality regarding the content and scope of consolidated supervision in an individual case, FINMA has developed a systematic classification of financial groups and provisions applicable on a consolidated basis (subject matter of consolidated supervision). This does not mean that new regulations have been issued, but rather that a precise description of current practice has been provided.
FINMA has already informed the regulatory auditors about the categorisation, since in individual cases the need arose for supplementary position statements in annual regulatory audit reports. This has resulted in various questions being raised by auditors and those subject to regulatory supervision which prompted FINMA to publish the following list of FAQs, outlining these questions and answers anonymously.
A. FINANCIAL GROUPS AFFECTED
1. To what types of financial groups do the following FAQs apply? Which groups are not affected?
The FAQs apply to banks and securities dealer groups under Article 3c of the Banking Act (BA; SR 952.0) . For further details on these financial groups, see Question
2.
Financial groups that comprise a fund management company or an asset manager under the Collective Investment Schemes Act (CISA; SR 951.31), but do not comprise a bank as defined in the BA nor a securities dealer under the Stock Exchange and Securities Trading Act (SESTA; SR 954.1), may also be subject to consolidated supervision by FINMA. Financial groups under CISA and insurance groups and conglomerates referred to in the Insurance Supervision Act (ISA; SR 961.01) are not included in these FAQs.
2. In what cases is a bank or securities dealer group considered present under Article 3c BA?
A financial group is considered present under Article 3c BA if a bank or securities dealer
a) has a direct or indirect interest in one or more companies operating in the financial sector or real estate companies with more than half of the voting rights or capital or otherwise has a controlling interest in them (Art. 12 of the Banking Ordinance [BO; SR 952.02]), or
b) is controlled by a holding company that operates primarily in the financial sector (Art. 11 para. 1, let. b BO), or
c) forms an economic unit with other companies operating in the financial sector, or is legally obligated or de facto forced to assist group companies operating in the financial sector (Art. 12 BO).
The term “financial conglomerate” is used when a financial group also comprises an insurance company that has a subordinate position within the group when compared to the bank or securities dealer group. These FAQs also apply to financial conglomerates dominated by banks or securities dealers.
The scope of consolidation in bank and securities dealer groups is governed by Article 14 BO. When auditing banks and securities dealers, in which natural persons hold a qualified interest, and those with partners with unlimited liability in the legal form of a partnership (e.g. private bankers), an audit firm must in particular examine whether they control other companies operating in the financial sector. The audit firm must comment on this in their annual regulatory audit report (chapter 2.8, “Adherence to regulations on consolidated supervision”).
B. SYSTEMATIC CLASSIFICATION OF FINANCIAL GROUPS
3. How are financial groups classified for the purposes of consolidated supervision?
Depending on their structure, financial groups subject to consolidated supervision by FINMA are classified as follows:
a) Parent company structure: The financial group is headed by a parent company in the form of a bank or a securities dealer domiciled in Switzerland. The parent company has a direct or indirect interest with more than half of the voting rights or capital invested in the group companies, or otherwise has a controlling interest in them.
b) Holding structure: The financial group is headed by a holding company that is not licensed as a bank or a securities dealer. The holding company has a direct or indirect interest with more than half of the voting rights or capital invested in at least one bank or a securities dealer domiciled in Switzerland, and possibly in other groups of companies operating in the financial sector, or otherwise has a controlling interest in them. More than one superimposed holding company may control a financial group. The relevant head of the financial group is formed by the topmost holding company operating in the financial sector. For more information, see also Question
4.
c) Atypical structure: This concerns contract-based groups and similar entities as well as de facto financial groups. In these contractually controlled groups, the group of companies do not form an affiliated economic unit by virtue of unified control based on invested capital or voting rights, but rather on the basis of a contract. In de facto financial groups, the group is headed by one or more natural persons who also control other companies operating in the financial sector apart from a bank or a securities dealer domiciled in Switzerland.
d) Subgroup of a foreign financial group: These financial groups subject to regulatory supervision by FINMA are part of a foreign financial group or a foreign financial conglomerate.
e) Financial subgroup of a Swiss financial group: This is the case when a Swiss financial group includes more than one bank or securities dealer domiciled in Switzerland, each of which in turn controls one or more group companies operating in the financial sector. The financial subgroup includes at least one bank or securities dealer domiciled in Switzerland and may also be headed by a (sub-)holding company.
4. Do the manner and scope of consolidated supervision depend on the group structure?
As a general principle, the various group structures are subject to the same consolidated supervision requirements. However, in the case of holding structures, a holding company may be exempted from the scope of consolidation of consolidated supervision where the conditions listed below are satisfied cumulatively. A holding company:
a) does not control any other companies operating in the financial sector apart from the bank or the securities dealer;
b) does not engage in any business activities in the financial sector apart from holding an interest in the bank or the securities dealer;
c) does not have any influence on the business activities of the bank or the securities dealer; and
d) is not financed by external funds to a significant degree.
Holding companies not subject to consolidated supervision must be monitored to ensure that they continue to fulfil these four criteria. The audit firm is to comment on this in its annual regulatory audit report (chapter 2.8, “Adherence to regulations on consolidated supervision”).
C. SUBJECT MATTER OF CONSOLIDATED SUPERVISION
5. What is the subject matter of consolidated supervision?
As a general principle, the same supervision regulations apply to a bank or securities dealer group on a consolidated basis as they do to a bank or securities dealer on an individual institution basis. The subject matter of consolidated supervision under Article 14a BO governs which provisions must be satisfied at the consolidated level, and can be subdivided into quantitative and qualitative elements (see Questions
6 and
8). Among other specifications, quantitative elements include a reporting requirement to the Swiss National Bank (SNB) or the audit firm, as appropriate.
6. Which quantitative elements must be satisfied and what is the legal basis?
| Quantitative elements |
| a) |
Accounting |
|
Preparation of consolidated financial statements |
BA: Art. 3g, Art. 6 para. 1
BO: Art. 14a para. 1 let. h, Art. 23a, Art. 23b, Art. 25d–25k, Art. 28
FINMA Circ. 08/2 “Accounting — Banks” |
| Auditing of consolidated financial statements |
BA: Art. 18 para. 1 let. a
FMAO: Art.16
FINMA Circ. 08/41 “Audit Matters”: => SFBC Circ. 05/1 “Audit”, SFBC Circ. 05/2 “Audit Reports” |
| Publication of consolidated financial statements |
BA: Art. 3g, Art. 6 para. 4 and 6
BO: Art. 26 |
| Consolidated supervisory reporting to SNB |
FINMA Circ. 08/14 “Supervisory Reporting — Banks” |
| b) |
Capital adequacy |
|
Compliance with consolidated capital adequacy requirements |
BA: Art. 3g, Art. 4
BO: Art. 14a para. 1 let. f
CAO: Art. 1–82
FINMA Circ. 08/20 “Market Risks — Banks”
FINMA Circ. 08/21 “Operational Risks — Banks”
FINMA Circ. 08/34 “Core Capital — Banks” |
| Consolidated capital adequacy reporting to SNB |
CAO: Art. 13 para. 2 |
| Consolidated capital adequacy disclosure |
FINMA Circ. 08/22 “Capital Adequacy Disclosure — Banks” |
| c) |
Risk diversification |
|
Compliance with consolidated risk diversification requirements |
BA: Art. 3g, Art. 4 para. 4
BO: Art. 14a para. 1 let. f
CAO: Art. 6–12, Art. 83–123
FINMA Circ. 08/23 “Risk Diversification — Banks” |
| Large exposures to be reported to audit firm |
CAO: Art. 90 |
| Reporting of the ten largest borrowers in consolidated audit report |
FINMA Circ. 08/41 “Audit Matters”: => SFBC Circ. 05/2 “Audit Reports”, Appendix 4 |
| d) |
Consolidated interest-rate reporting to SNB |
FINMA Circ. 08/6 “Interest-Rate Risks — Banks” |
|
7. Must all groups satisfy these quantitative elements to the same extent?
The table in Question
6 shows the maximum variant. In an individual case, various disclosure exemptions may be applied, e.g.:
Financial group with exclusively insignificant group companies (cf. Questions13 and 14)
Exemption from individual or all quantitative elements
Financial group with significant real estate companies (cf. Question 11)
Full consolidation of real estate companies for accounting purposes and of capital adequacy requirements under the Swiss standardised approach (SA-CH)
Requirements satisfied under Art 23a para. 3 and 4 BO
Exemption from the publication of consolidated financial statements
Financial group dominated by private bankers
Exemption from the publication of consolidated financial statements and consolidated capital adequacy disclosure
Financial group dominated by a securities dealer without significant interest-rate risks outside the trading book
Exemption from filing the consolidated interest-rate report with the SNB
Swiss subgroup of a foreign financial group under Art 23a para. 5 BO
Exemption from the publication requirement pertaining to consolidated financial statements (where included in the consolidated financial statements of the foreign financial group) or exemption from capital adequacy and risk diversification requirements (where entity is subject to consolidated supervision outside of Switzerland and only Swiss group companies exist).
8. Which qualitative elements must be satisfied and what is the legal basis?
| Qualitative elements |
| a) |
Organisation of the financial group |
|
Internal policy (rules and regulations) on consolidated supervision (subject to FINMA’s approval) |
BA: Art. 3 para. 3, Art. 3f para. 2
BO: Art. 7 para. 4; Art. 14a para. 1 let. a |
| Group-wide monitoring and internal control (including group-wide internal audit and compliance) |
BO: Art. 14a para.1 let. b
FINMA Circ. 08/24 “Supervision and Internal Control — Banks” |
| Group-wide risk management |
BA: Art. 3f para. 2
BO: Art. 14a para. 1 let. c |
| Group-wide outsourcing |
FINMA Circ. 08/7 “Outsourcing — Banks” |
|
Group-wide remuneration scheme |
FINMA Circ. 10/1 “Remuneration Schemes” |
| b) |
Proper conduct of business by the executive bodies of the financial group |
BA: Art. 3f para. 1
BO: Art. 14a para. 1 let. d |
|
| c) |
Segregation of members of the board of directors and executive management |
BO: Art. 14a para. 1 let. e |
|
| d) |
Liquidity provisioning within the financial group |
BA: Art. 4 para. 1 and 2
BO: Art. 14a para. 1 let. g; Art 18 para. 3 |
|
| e) |
Combating of money laundering at the group level |
AMLO-FINMA: Art. 4–6 |
|
| f) |
Other obligations of financial group towards FINMA |
|
Audit report on the financial group and consolidated supervision |
FINMA Circ. 08/41 “Audit Matters”: => SFBC Circ. 05/1 “Audit”, SFBC Circ. 05/2 “Audit Reports” |
|
|
Approval of articles of association and by-laws by FINMA |
BA: Art. 3 para. 3
SESTO: Art. 25 para. 1 let. a |
|
|
Reporting of foreign activities |
BA: Art 3 para. 7
SESTO: Art. 25 para. 1 let. b |
|
|
Willingness of financial group to disclose information |
FINMASA: Art. 29 |
|
| g) |
Same audit firm throughout the financial group |
BO: Art. 14a para. 1 let. i
FMAO: Art. 7 |
|
9. Must all groups satisfy these qualitative elements to the same extent?
The table in Question
8 shows the maximum variant. In an individual case, various disclosure exemptions may be applied, e.g.:
The financial group exclusively controls real estate companies (cf. Question 11)
Exempted from compliance with the qualitative elements
The financial group exclusively controls group companies without any relevant commercial links in terms of AMLA
Exemption from the obligation to combat money laundering at group level
Financial group dominated by private bankers
The requirement to segregate members on the board of directors from those in executive management is not applicable
Financial group dominated by a securities dealer
The requirement to segregate members on the board of directors from those in executive management and exemption from liquidity provisioning requirements within the group may not apply.
10. Are exceptions or exemptions relating to compliance with quantitative and/or qualitative elements possible?
Quantitative elements of consolidated supervision provide for exceptions where group companies are insignificant (no consolidation required where the group companies, individually or taken as a whole, are not significant for the objective of consolidated supervision).
In justified cases, FINMA may grant exemptions upon application regarding the qualitative and quantitative elements to be satisfied.
The qualitative elements of consolidated supervision need not be satisfied at the level of financial subgroups of Swiss financial groups since the Swiss financial group as a whole must adhere to these elements. As to the quantitative elements, exceptions are provided for at the level of a financial subgroup of a Swiss financial group in the regulations applying to accounting, capital adequacy and risk diversification (Art 23a para. 5 BO, Art 10 CAO).
For contract-based groups and similar entities as well as de facto financial groups, consolidated supervision is established on a case-by-case basis.
11. Which consolidated supervision requirements apply to real estate companies?
As a general principle, real estate companies are not considered to operate in the financial sector under Art 11 BO as long as their business is restricted to the holding and administration of real estate properties, and they do not engage in any active purchase and sales activities.
However, where accounting is concerned, real estate companies are subject to full consolidation (Art 25e para. 1 BO). Financial groups that calculate their required capital under the Swiss standardised approach (SA-CH) are also subject to full consolidation in terms of their capital adequacy requirements (Art 6 para. 3 CAO). For financial groups affected that exclusively control real estate companies, this means that consolidated supervision is restricted to compliance with accounting and also capital adequacy requirements as applicable. An exemption from consolidated supervision applies if the audit firm declares the real estate company to be insignificant in terms of all quantitative elements due to its size and business operations.
12. What requires special attention in the case of financial intermediaries that belong to a financial group and are subject to supervision by FINMA under the Anti-Money Laundering Act?
For group companies belonging to a financial group subject to supervision by FINMA under Article 14 of the Anti-Money Laundering Act (AMLA; SR 955.0), i.e. DSFIs, FINMA may require that compliance with the AMLA and FINMA's Anti-Money Laundering Ordinance (AMLO-FINMA; SR 955.033.0) is shown in the financial group’s audit report (Art. 4 para. 1 AMLO-FINMA). If a group company is sold, it may only continue to operate as a professional financial intermediary when it has procured a new licence as a DSFI or through affiliation with a self-regulatory organisation (SRO). The financial group is to immediately inform FINMA if a financial intermediary subject to FINMA's supervision leaves its scope of consolidation.
D. SIGNIFICANCE OF GROUP COMPANIES
13. When is the significance of group companies taken into account and for which elements is this done?
The issue of the significance of group companies is taken into consideration when establishing the subject matter of consolidated supervision and, in so doing, exclusively for the four quantitative elements.
14. When is an exemption from the provisions on the quantitative elements possible (see Question 6)?
An exemption of this type is possible in consolidated supervision where the financial group, apart from a bank or securities dealer, only includes insignificant group companies. Significance of a group company is to be assessed individually for each of the four regulatory areas (Art. 24 para. 2 let. d BO; Art. 8 para. 1 let. a CAO, margin no. 3 of FINMA Circ. “Interest-Rate Risks — Banks”).
15 . What applies when only individual group companies are insignificant?
If only individual, but not all group companies are insignificant, the insignificant units are exempt from compliance with individual or all quantitative elements.
16. Who assesses the significance of group companies?
The significance of group companies is judged primarily by the audit firm. When determining the significance of group companies, the following principle should always be borne in mind: several group companies which may be considered insignificant when assessed on an individual basis may be of greater significance when viewed in their totality.
E. QUESTIONS
17. Who can I contact if I have any more questions?
banks@finma.ch or phone +41 31 327 93 00