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Enforcement

"Enforcement" is the generic term used to describe all the supervisory activities performed by FINMA when confronted with irregularities or indications of violations of supervisory law, in order to investigate, in accordance with the rules laid down in the Federal Act on Administrative Procedure, whether such violations have actually occurred. If such a breach has occurred, FINMA will make a ruling, which may be appealed, regarding any enforcement measures required to restore compliance with the law, or will impose sanctions for any irregularity that has been established.

Enforcement is also responsible for the implementation of supervision duties under FINMASA or another financial market act by using the legal means prescribed in the administrative law, if it is not possible or deemed inappropriate to use other mechanisms.

Typical investigation process

FINMA typically conducts financial market enforcement proceedings in three stages: the first stage involves making investigations prior to initiating actual administrative proceedings and any ensuing appeals process before the appeals court in the second stage. Once an enforceable decision has been made, the third stage involves implementing the specific measures ordered by FINMA.

  • At the investigations stage, FINMA seeks to establish if there are reasonable grounds for believing that a supervised company, or even an individual, has committed any supervisory breach such as to warrant a detailed and potentially extensive investigation of the case in the course of administrative proceedings.
  • If there is sufficiently strong evidence of a supervisory violation and if legal order cannot be restored by any other means FINMA will initiate an investigation, i.e. administrative proceedings. Notice of the opening of proceedings is generally issued to the parties concerned in writing (Art. 30 FINMASA). FINMA initially investigates the facts of the case and may take evidence from the parties and examine witnesses for this purpose. If appropriate, FINMA may make an interlocutory order at this stage, for example for the appointment of an investigating agent (Art. 36 FINMASA). Once FINMA has established the facts, it will invite the parties to comment. Having considered the submissions of the parties, Enforcement refers the matter to the Enforcement Committee of the Executive Board (ENA), or in exceptional cases of particular importance, to the Board of Directors. If FINMA has made a decision and an appeal against this decision is lodged with the Federal Administrative Court, the same person in charge of the litigation in Enforcement will monitor the appeals process until a final judgment on the matter is delivered by the Federal Administrative Court or Federal Supreme Court.
  • An enforceable decision made by FINMA is, depending on its substance, implemented by either the Enforcement division or by the divisions responsible for ongoing supervision.
Types of proceedings

FINMA distinguishes between the following types of administrative proceedings for the purposes of financial market enforcement:

  • Regulation of institutions: administrative proceedings against authorised institutions and companies (e.g. banks, securities dealers, fund management companies, distributors, insurance companies and self-regulatory organisations under the Anti-Money Laundering Act as well as approved audit companies).
  • Subordination process: proceedings against companies and individuals carrying on a business for which a FINMA licence, authorisation, registration or approval is required.
  • Insolvencies: bankruptcy proceedings, including the recognition of foreign bankruptcy findings, and proceedings for the purpose of restructuring ailing supervised institutions.
  • Market supervision: investigative proceedings to establish whether supervised market participants are in breach of FINMA market behaviour rules or if there are indications of stock market abuse.
  • Disclosure matters: proceedings to establish whether investors are in breach of stock exchange disclosure and reporting requirements.
  • Product supervision: proceedings against approved fund products.
  • Watch list and letter regarding assurance of proper business conduct: any action that may be required by FINMA in relation to legal disputes ranging from entries in the watch list to letters regarding assurance of proper business conduct.
FINMA enforcement is primarily directed against licence holders and companies that conduct business reserved to licence holders without the necessary authorisation or approval. However, where a serious supervisory breach is suspected, FINMA may in addition, or exclusively, initiate administrative proceedings against individuals, for example executive officers, proprietors or individual employees of supervised companies. Furthermore, FINMA may commence administrative proceedings against unsupervised individual investors in public companies if there is reason to suspect that they have failed to comply with their stock exchange disclosure obligations.

Measures

In all administrative proceedings, FINMA will impose the measures it deems most appropriate to work towards the application of supervisory law, having regard to the principle of proportionality. The spectrum of measures range from a reprimand (declaratory ruling, Art. 32 FINMASA), specific orders to restore compliance with the law (Art. 31 FINMASA) and the authority to prohibit individuals from practising their profession (Art. 33 FINMASA) or dealers from carrying on business (Art. 35a SESTA), to ordering a supervised institution to remove a person who has provided assurance of proper business conduct and to revoke licences (Art. 37 FINMASA). Depending on which law applies, the revocation of a licence may result in liquidation (e.g. Art. 23quinquies BA) or, where there is an excess of debts over assets, bankruptcy proceedings (e.g. Art. 37 FINMASA in conjunction with Art. 25 ff. BA). FINMA may also confiscate any illegal profits or losses prevented (Art. 35 FINMASA) or order publication of a final and binding ruling (Art. 34 FINMASA).

Where there is risk in delay or special urgency, FINMA may make the necessary interlocutory order (Art. 31 FINMASA in conjunction with e.g. Art. 25 ff. BA), for instance to appoint an investigating agent (Art. 36 FINMASA).

Enforcement policy

Enforcement is just one of several mechanisms for enforcing regulatory compliance. This can have a significant impact on the parties involved, and FINMA takes great care in considering how and when to apply such measures. Enforcement activities are also influenced by factors such as annual targets. To better understand FINMA enforcement, the Board of Directors has adopted an enforcement policy.