Glossary

A

Alternative Investment Fund Managers Directive

Die EU-Richtlinie 2011/61/EU über die Verwalter alternativer Investmentfonds legt die Zulassung, die laufende Tätigkeit und die Transparenz der Verwalter alternativer Investmentfonds (vgl. «Non-UCITS») fest, die alternative Investmentfonds in der EU verwalten und/oder vertreiben.

Ä

Äquivalenz

Die Finanzmarktregulierung eines Staates kann ausländische Marktteilnehmer von Pflichten des lokalen Rechts ausnehmen, sofern diese in ihrem Heimatstaat einer gleichwertigen Regulierung und Aufsicht unterliegen. Diese Gleichwertigkeit wird in der Regel im Rahmen eines Äquivalenzanerkennungsverfahrens geprüft. Insbesondere die EU-Finanzmarktregulierung setzt für grenzüberschreitende Tätigkeiten aus Nicht-EU- bzw. -EWR-Staaten in zahlreichen Bereichen eine Äquivalenzanerkennung voraus.

B

Bail-in

Officially ordered conversion of debt into equity or waiver of claims.

Basel framework

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’).

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
  financing transactions;

• 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
  buffers;

• measures to combat systemic risk, with particular emphasis
  on systemically important banks; and

• the introduction of global liquidity standards.

Biometric risks

Risks resulting from changes in human life and the probability of their occurrence, such as (early) death, disability and longevity.

Bitcoin

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.

C

Central Securities Depositories Regulation

Die Central Securities Depositories Regulation (CSDR; Verordnung [EU] Nr. 909/2014) schafft eine Verbesserung der Wertpapierabrechnungen in der Europäischen Union und enthält damit auch Bestimmungen über Zentralverwahrer.

Client procedure

If a foreign authority requests FINMA to provide data on Swiss and foreign clients of Swiss financial intermediaries as part of international administrative assistance, these clients may seek to prevent the handover of their data as part of a ‘client procedure’. A ruling issued by FINMA in such cases can be contested before the Federal Administrative Court. Client procedures are often requested by those who have carried out transactions on foreign exchanges via a Swiss financial intermediary and are suspected of breaches of market conduct rules and disclosure requirements. The fact that the client procedure involves advance information being provided to those affected and also delays supervisory investigations abroad has attracted criticism internationally

Collateral management

Management of deposited securities for risk-related transactions.

Combined ratio

The ratio of claims expenditures (insurance benefits and administrative costs) to premium income, expressed as a percentage.

Commitment-Ansätze I und II

Der Commitment-Ansatz I ist ein Risikomessverfahren zur Bestimmung der Wirkung von Derivaten auf das Fondsvermögen. Die Wirkung der Derivate auf das Fondsvermögen wird anhand des Wertes von deren Basiswerten berechnet. Beim Commitment-Ansatz I ist die Erzielung einer Hebelwirkung untersagt. Beim Commitment-Ansatz II hingegen ist die Erzielung einer Hebelwirkung im Rahmen der gesetzlichen Limiten zulässig.

Common Equity Tier 1 capital

Common equity is loss-absorbing equity capital of the highest quality. CET1 consists of paid-in capital, disclosed reserves and retained earnings.

Contingent convertible bond

A form of debt capital that can be converted into equity under certain conditions. It is designed to improve a bank’s situation in a crisis or enable its resolution by allowing it to store up additional capital during periods of economic growth that can be accessed as equity in a downturn. Conversion is mandatory once a predetermined trigger point is reached.

Countercyclical capital buffer

This term refers to temporarily increased capital requirements for banks. It is an instrument introduced in Basel III to curtail excessive lending and has a countercyclical effect. It also aims to improve the resilience of banks to the risks of loss. The buffer amounts to a maximum of 2.5% of a bank’s riskweighted assets.

Custodian bank

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.

E

Enforcement proceedings

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.

ESMA equivalence recognition process

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).

European Market Infrastructure Regulation

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.

F

Financial Institutions Act

The Financial Institutions Act (FinIA) regulates the operational requirements for financial institutions.

Financial market infrastructure

Under the terms of the future Financial Market Infrastructure Act (FinMIA), 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.

Financial Market Infrastructure Act

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

Financial Sector Assessment Programme

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).

Financial Services Act

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

Finanzinstitutsgesetz

Das Finanzinstitutsgesetz (FINIG) regelt die Anforderungen an die Tätigkeit der Finanzinstitute.

FINMA-Rundschreiben

Mit Rundschreiben kodifiziert und standardisiert die FINMA ihre Aufsichtspraxis. Diese Rundschreiben bilden aber keine Rechtsetzung, die Gerichte bindet. Die Betroffenen werden mit einem Erläuterungsbericht informiert und haben die Möglichkeit zur Stellungnahme. Die Ergebnisse werden in einem Anhörungsbericht veröffentlicht. Die FINMA kann Rundschreiben beschliessen, wenn sich die Aufsichtspraxis verfestigt hat oder ein ausgewiesener Bedarf der Beaufsichtigten nach Kodifizierung der Praxis besteht.

G

General partner

In a limited partnership for collective investment, ‘general partner’ denotes the partner who bears unlimited liability. Under the Collective Investment Schemes Act (CISA), the general partner of a limited partnership for collective investment must be a company limited by shares with its registered office in Switzerland.

Going concern capital

Funds to absorb losses from ongoing business activities

Going concern funds

Funds to absorb losses from ongoing business activities

Going-Concern-Kapital

Mittel zur Absorption von Verlusten aus der laufenden Geschäftstätigkeit

Going-Concern-Mittel

Mittel zur Absorption von Verlusten aus der laufenden Geschäftstätigkeit

Gone concern capital

Loss-absorbing funds required or reserved for a resolution scenario

Gone concern funds

Loss-absorbing funds required or reserved for a resolution scenario

Gone-Concern-Kapital

Die für den Resolution-Fall erforderlichen bzw. reservierten verlustabsorbierenden Mittel

Gone-Concern-Mittel

Die für den Resolution-Fall erforderlichen bzw. reservierten verlustabsorbierenden Mittel

H

Higher loss absorbency

Enhanced ability to absorb a higher level of (unexpected) losses using equity capital. Higher loss absorbency requirements for global systemically important insurance companies (G-SIIs) are currently under development.

I

Internal model

System used by an insurance company to quantify the risks in connection with solvency under the SST, based on a company-specific risk profile. Insurance companies may wholly or partly use internal models provided these have been approved by FINMA.

Internal ratings-based approach

Approach to determining the capital requirements for credit risks based on a bank’s own ratings and risk parameter estimates. This approach requires approval by FINMA.

L

Letter of assurance

From the beginning of the 1990s onwards, the expression ‘letter concerning assurance of proper business conduct’ was increasingly used by the Swiss Federal Banking Commission, one of FINMA’s three predecessors, in its supervisory practice. This letter is intended to inform an individual who has held a top management position or executive board position at a supervised institution of FINMA’s possible reservations about the assurance of proper business conduct requirement following the individual’s possible wrongdoing as a result of an irregularity. This letter also states that FINMA will conduct enforcement proceedings to examine the individual’s fitness for assuming a future position. The outcome of the proceedings is fully open.

Leverage ratio

Ratio of equity capital to debt capital (or often vice versa). As a regulatory provision, the leverage ratio also refers to the minimum requirement for equity capital in relation to the overall exposure. A leverage ratio is not a risk-weighted indicator.

Liquidity Coverage Ratio

This short-term liquidity ratio is a new quantitative liquidity parameter under Basel III. In a predefined stress scenario, it measures highly liquid assets (such as high-quality government bonds) against a net payment outflow. The ratio must be at least 100%.

Loss absorbency

A general term for the capacity to absorb (unexpected) losses of a given extent using equity capital.

M

Markets in Financial Instruments Directive II

In October 2011, the European Commission presented a legislative package revising the Markets in Financial Instruments Directive (MiFID), Directive 2004/39/ EC, consisting of a directive and an ordinance. In particular, MiFID contains rules on the organisation and operation of securities exchanges and their participants as well as business conduct rules to protect investors when financial services are provided.

Modellansatz

Hier geht es um ein Risikomessverfahren im Asset Management für den Einsatz von komplexen Derivaten oder Anlagestrategien, bei denen der Commitment-Ansatz keine hinreichende Messung des Marktrisikos erlaubt. Die Bewertung des Risikos stützt sich auf ein Modell, wobei der mit einer bestimmten Wahrscheinlichkeit eintretende maximal mögliche Verlust berechnet wird (Value-at-Risk).

N

Net Stable Funding Ratio

Part of the Basel III framework, the NSFR has a one-year time horizon and has been developed to provide a sustainable maturity structure of assets and liabilities. The aim is to promote resilience over a longer time horizon by creating additional incentives for banks to fund their activities with more stable sources of funding on an ongoing basis. The ratio must be at least 100%.

Non-discretionary conclusion of contracts

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. 

Non-prosecution agreement

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.).

Non-target letter

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.

Non-UCITS

Collective investment schemes not subject to the EU’s UCITS Directive. See also UCITS (Directive).

O

OTC derivative

OTC derivatives are derivative financial instruments that are traded bilaterally outside an exchange or other regulated market.

P

Parabanken

Mit dem Begriff «Parabanken» werden übrige Finanzintermediäre nach Art. 2 Abs. 3 GwG bezeichnet, beispielsweise Vermögensverwalter, Treuhänder oder Zahlungsdienstleister.

Preliminary investigations

FINMA carries out preliminary investigations (also referred to simply as ‘investigations’) to establish whether there are grounds for initiating formal enforcement proceedings.

Private Equity Funds

Private Equity Funds sind kollektive Kapitalanlagen, die in nicht börsengehandelte Firmen investieren. Typische Strategien sind Leveraged Buy Outs, Management Buy Outs oder auch Venture Capital. Der Private Equity Manager versucht über eine entsprechende Einflussnahme im Management des Zielunternehmens den Wert des Unternehmens zu steigern und dieses danach mit Gewinn wieder zu veräussern. Bei Private Equity Funds handelt es sich in der Regel um geschlossene Fonds mit einer Laufzeit von beispielsweise sieben bis zehn Jahren.

Prudential supervision

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.

Q

Qualified investor

Professional clients as defined in Art. 4 para. 3 FinSA count as qualified investors as per Art. 10 CISA. According to Art. 4, para. 3 let. a FinSA, professional clients are mainly financial intermediaries as per the Banking Act, CISA and portfolio management and investment consulting clients as per FinIA. High net worth private individuals can also state in writing that they wish to be considered as qualified investors as per CISA.

R

Recovery, resolution and resolvability

• 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.

Regulatory Consistency Assessment Programme

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.

Reinsurance captive

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.

S

Short selling

Selling financial instruments that the seller does not possess at the time of sale.

Short Selling

Vgl. Leerkäufe

Solvency II

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.

Standard model

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.

Supervisory college

Meeting of representatives of international supervisory authorities to discuss the supervisory issues affecting an institution with multinational operations.

Supervisory review

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.

Swiss Code of Obligations

Swiss Federal Act of 30 March 1911 on the Amendment of the Swiss Civil Code (Part Five: The Code of Obligations) (Code of Obligations; SR220)

Swiss Solvency Test

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.

SwissDRG

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 importance

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.

T

Tied assets

Tied assets are designed to secure claims arising from insurance contracts. If an insurance company goes bankrupt, the proceeds of the tied assets are used first to satisfy such claims. Only then is any remaining surplus transferred to the bankrupt estate. The value of the capital investments of tied assets must cover the claims arising from insurance contracts at all times. The Insurance Supervision Ordinance (ISO) and FINMA circulars therefore contain specific provisions on the capital investments of tied assets.

Too big to fail

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.

U

UCITS (Directive)

UCITS are Undertakings for Collective Investment in Transferable Securities. The EUʼs UCITS Directive (2009/65/EU) sets out Europe-wide standard requirements for collective investment schemes open to public investors.