A multilateral agreement on capital adequacy rules for banks. The first such agreement, Basel I, was passed by the Basel Committee on Banking Supervision (BCBS) in 1988. It was substantially enhanced by Basel II, adopted in 2004. The new framework, derived from the experience of the 2008 financial market crisis, was developed in 2010 and is known as Basel III (see ‘Basel III’).
At the end of 2010, the Basel Committee on Banking Supervision (BCBS) adopted stricter, across-the-board rules on equity capital and liquidity designed to strengthen the resilience of the banking sector. The key changes are:
improvements to the quality, consistency and transparency
of the capital base;
higher capital adequacy requirements for the default
risk of derivatives, repurchase agreements and securities
a new capital requirement for the risk of market value
losses on over-the-counter (OTC) derivatives;
supplementing the risk-based capital requirement with an
unweighted leverage ratio;
measures to reduce procyclicality and promote countercyclical
measures to combat systemic risk, with particular emphasis
on systemically important banks; and
the introduction of global liquidity standards.
Risks resulting from changes in human life and the probability of their occurrence, such as (early) death, disability and longevity.
An Internet currency whose units are created and managed decentrally in a computer network consisting of bitcoin operators linked together via the Internet, between whom bitcoins can be transferred electronically. Ownership of bitcoins is attested by a cryptographic key.
An institution that acts as a contractual party between buyer and seller in transactions involving financial instruments.
Central securities depository (CSD) are systemically important infrastructures in securities markets which chiefly execute the registration, safekeeping and settlement of securities in exchange for cash and efficiently process securities transactions in financial markets.
Management of deposited securities for risk-related transactions.
The ratio of claims expenditures (insurance benefits and administrative costs) to premium income, expressed as a percentage.
Common equity is loss-absorbing equity capital of the highest quality. CET1 consists of paid-in capital, disclosed reserves and retained earnings.
A custodian bank holds fund assets in safekeeping, organises the issue and redemption of units as well as payment transactions for collective investment schemes. It also assesses whether the fund management company or SICAV complies with the law and the fund regulations. It must be a bank within the meaning of the Banking Act.
When it appears likely, as part of prudential supervision and on the basis of preliminary investigations, that FINMA will have to enforce compliance with supervisory law, it intervenes by initiating proceedings under the Administrative Proceedings Act. These are known as enforcement proceedings. On conclusion of these proceedings, FINMA may order action to be taken to restore compliance with the law, and ensure that such action is taken.
In the equivalence recognition process, the European Securities and Markets Authority (ESMA) assesses whether certain areas of regulation and supervision in a third country are equivalent to those of the EU. If they are, regulatory relaxations, closer supervisory cooperation or direct market access to the EU are granted (may also be combined).
The European Market Infrastructure Regulation (Ordinance [EU] No. 648/2012) creates harmonised regulation of derivatives transactions conducted over the counter. In particular, it requires market participants to conduct clearing via a central counterparty (CCP) and report all derivatives transactions to a trade repository. It also lays down standard conditions for the licensing and supervision of CCPs and trade repositories as financial market infrastructures.
Under the terms of the future Financial Market Infrastructure Act (FMIA), financial market infrastructures exist at the levels of trading, clearing, settlement and reporting. They include exchanges and similar trading institutions, central counterparties (CCPs) at the clearing level, and securities settlement and payment systems. Accordingly, CCPs and securities settlement and payment systems are referred to as posttrading infrastructures since they involve post-trading processes for settlement. The term now also includes trade repositories for the reporting of derivatives transactions.
The financial crisis highlighted that the lack of transparency in the markets for derivatives traded over the counter (known as OTC derivatives markets) can threaten the stability of the entire financial system, owing to the markets strong international integration and the heavy trading volume and default risks. Since then, international efforts have been set in motion to improve transparency and stability in the OTC derivatives markets. The existing Swiss regulation of financial market infrastructure is no longer appropriate, given financial market developments. To safeguard the competitiveness of the Swiss financial centre and to strengthen financial stability, it is necessary for regulation in the area of financial market infrastructure to be adapted to international standards. In order to secure EU market access, regulation equivalent to that in the EU is to be sought. In August 2012, the Federal Council instructed the Federal Department of Finance (FDF) to prepare a consultation draft.85
Run by the International Monetary Fund (IMF), the Financial Sector Assessment Programme evaluates the financial stability of a financial centre as well as the quality of its regulation and supervision. The assessment is based in particular on stress tests and the standards for regulation and supervision laid down by the Basel Committee on Banking Supervision (BCBS), the International Association of Insurance Supervisors (IAIS) and the International Organization of Securities Commissions (IOSCO).
It became obvious during the financial crisis that client protection is inadequate for certain financial services and products. In March 2012, the Federal Council instructed the FDF, with the assistance of the Federal Department of Justice and Police (FDJP) / Federal Office of Justice (FOJ) and FINMA, to commence work on a project to prepare the legal basis for a new law and submit a consultation draft to the Federal Council. The law is to be drafted on the basis of a crosssectoral approach, encompassing bank services, insurance services, advisory services, etc.85
Contracts concluded on the trading platform in line with predefined rules in the Rule Book. These rules prevent trading platform operators from influencing the conclusion of individual contracts depending on the criteria involved.
An agreement between a prosecuting authority and a company in which the authority acknowledges it will not prosecute the company in connection with a particular form of conduct provided the company meets the conditions set out in the agreement (payment of a fine, cooperation, etc.).
A letter from a prosecuting authority stating that, at the time of writing and on the basis of the information available to the authority, the recipient is not the subject of a criminal investigation.
Collective investment schemes not subject to the EU’s UCITS Directive. See also UCITS (Directive).
OTC derivatives are derivative financial instruments that are traded bilaterally outside an exchange or other regulated market.
FINMA carries out preliminary investigations (also referred to simply as ‘investigations’) to establish whether there are grounds for initiating formal enforcement proceedings.
Prudential supervision aims first and foremost to ensure that solvency is guaranteed, adequate risk control is in place and proper business conduct is assured. It thus also contributes indirectly to the financial markets’ ability to function and to the competitiveness of Switzerland’s financial sector. Prudential supervision of banks, insurance companies and other financial intermediaries is based on the licensing requirement for a specific type of activity, ongoing monitoring of compliance with the licence conditions, and other factors that are subject to regulation.
Under Article 10 para. 3 CISA, qualified investors are supervised financial intermediaries such as banks, securities dealers, fund management companies, asset managers of collective investment schemes, central banks, supervised insurance institutions, public-law bodies, retirement fund institutions and companies with professional treasury services. Wealthy private individuals can also state in writing that they want to be considered as qualified investors; however, they must meet the requirements set out in Article 6 CISO. Investors who have concluded a written asset management contract under Article 3 para. 2 lets. b and c CISA are also considered as qualified investors unless they have specified in writing that they do not want to be considered as such.
Recovery denotes the measures taken by a company to stabilise itself without government intervention.
Resolution denotes restructuring measures or liquidation.
Resolvability means the ability of a company to be resolved or wound up.
As part of the RCAP, the Basel Committee on Banking Supervision (BCBS) audits the implementation of the Basel III minimum standards by its member countries. Consistent implementation of Basel III is necessary to enable meaningful comparisons of the capital and liquidity situation of banks using relevant regulatory ratios and to secure a level playing field for all involved players.
Own insurance entity whose objective is to insure risks emanating from the group through primary insurers. This alternative form of risk transfer aims at allowing companies to enhance their risk and capital management within the group.
Selling financial instruments that the seller does not possess at the time of sale.
Solvency II primarily refers to EU Directive 2009/138/ EC of 25 November 2009 on the taking up and pursuit of the business of insurance and reinsurance (Solvency II). It is also often used to refer to the economic and risk-based method of assessing the capital adequacy of an insurance company contained in the Directive. In quantitative terms, the EU’s Solvency II pursues aims comparable to those of Switzerland’s SST.
Risk model prescribed by FINMA to determine solvency under the SST. There are standard models for life, non-life and health insurance. Reinsurers and insurance groups are required to use internal models.
Meeting of representatives of international supervisory authorities to discuss the supervisory issues affecting an institution with multinational operations.
On-site inspection of supervised institutions by FINMA staff. Supervisory reviews are used to arrive at an in-depth risk assessment in relation to specific issues, but are not a substitute for the auditing activities of regulatory auditors.
The SST is a supervisory instrument that uses economic and risk-based principles to measure the solvency of insurers. It was introduced in 2006 when the Insurance Supervision Act and the Insurance Supervision Ordinance were fully revised, with a transitional period of five years. It assesses the financial situation of an insurance company on the basis of the ratio of eligible equity (risk-bearing capital) to regulatory capital (target capital). The latter are determined in view of the risks incurred.
Treatment cases that are as homogenous as possible on the basis of medical and economic criteria are grouped together. Each hospital admission is allocated to a DRG on the basis of diagnosis and treatment. The groups are the same throughout Switzerland. For each group, a cost weight is calculated that is then multiplied by the basic price to obtain the flat rate per case.
Systemic risks are risks emanating from individual market participants that jeopardise the stability of the entire economy (‘system’). Companies carrying out functions which are indispensable to the economic system, or which cannot be replaced by other companies, are termed ‘systemically important’. One example of a systemically important function is the processing of payment transactions by banks.
A company is categorised as ‘too big to fail’ if its collapse would endanger the stability of the entire economy, thereby compelling the state to rescue it. Discussion of the ‘too big to fail’ issue focuses on the systemic risks emanating from such companies.