Application for a Bank

domestic exempt Islamic fund

01 Jan 2009 Application for a Bank

Required  Steps

SWISS LEGAL FRAMEWORK

 

The Federal law on banks and savings banks of 8 November 1934 (“Banking Act”), the Banking Ordinance and the Required Equity Ordinance of 29 September  2006 (“Equity Ordinance”) rule the organisation and authorisation process of banks in Switzerland.

 

In addition, the Swiss Financial Regulator (“FINMA”) has issued a number of directives and circulars and has rendered a number of decisions (generally published in its annual reports), which describe the FINMA’s practice and requirements in respect of the application of the Banking Act and the Banking Ordinance, and which also set organisational requirements for banks.

 

Finally, rules of self-regulatory bodies may also be relevant. In particular, the Swiss Banking Association (“SBA”) has issued a certain number of directives, which are considered as mandatory by the FINMA, and which may also contain organisational requirements.

 

Requirements for the licensing of a Swiss bank

 

A bank must obtain a license from the FINMA before it can start its operations and be registered with the commercial registry[1]. Based on the Banking Act and Banking Ordinance, the following conditions must be fulfilled to obtain an authorisation to act as a bank:

 

  • Share capital

A bank must have a fully paid-in share capital of CHF 10 mio. at least. In practice, however, the FINMA usually requires a minimum of CHF 20 mio. The FINMA is reviewing whether the CHF 20 mio threshold for a new bank should be maintained for forex dealers.

  • Equity and liquidities

A bank must have sufficient equity and liquid assets in accordance with its activities. The rules on capital adequacy are set up in the Banking Act, the Banking Ordinance and the Equity Ordinance. The capital adequacy requirements generally follow the international standards set by the Basle Committee on Banking Regulations and Supervisory Practices. The relevant provisions of Swiss law distinguish between core capital (tier I), supplementary capital (tier II), which is further divided into upper tier II and lower tier II capital, and additional capital. Core capital includes the paid-up share capital, the reserves and profits carried forward. At least half of the bank’s capital resources must be core capital. Supplementary capital may include latent reserves and long-term subordinated debt. A credit risk weight applies then for each of the bank’s assets and off-balance-sheet liabilities, depending on the nature of the asset or liability concerned, as well as on the nature and rating of the counterparty. Exposures in derivative instruments are converted into credit equivalent amounts before being multiplied by the risk weighting of the corresponding asset. Special consideration must be given to market risks, as well as to operational risks. Finally, the risk-weighted assets and off-balance sheet liabilities are compared with the bank’s capital resources (solvency ratio). As a rule, the solvency ratio must at all times exceed 8%, at least half of which must be core capital.

 

Large credit exposures are limited (risk distribution rules). Unsecured credits advances to a single debtor may not, in the aggregate, exceed 20% of a bank’s own funds.

 

  • Organisation
    • The Articles of Association and the internal regulations of the bank must clearly define the scope of its activities and provide for an appropriate organisation (commensurate to the geographic and material scope of its activities).
    • The effective management of the bank must be carried out of Switzerland, and the members of the management must be domiciled in a place where they can effectively manage the business of the
    • There must be a separation between the management organs, on the one hand (management), and the top management, supervision and control organs on the other hand (board of directors).
    • All individuals responsible for the administration and management of the bank must have a good reputation and be “fit and proper” (board of directors and management).
    • There must be a clear separation internally between the functions of asset management, trading and back
    • The bank must have risk management regulations, setting out the rules on risk definition, limitation and The rules must in particular  include appropriate limits for credit and market risks.
    • An efficient internal control system  must  be in   This internal control system includes an internal audit organ (inspectorate), independent from the management.
    • Outsourcing: outsourcing to third parties in or out of Switzerland is possible if certain conditions are met as set out in the FINMA Circular 99/2, such as choosing, instructions and supervising with good care the third party, keeping a full right of control on the outsourced activities, executing a written agreement, adopting a disaster recovery plan, taking appropriate steps to guarantee data protection and in particular the preservation of banking secrecy, etc.
  • Auditors

 

In addition to its statutory auditors, the bank needs to appoint independent auditors who will control the annual accounts of the bank, as well as the bank’s compliance with all applicable legal and regulatory rules.

 

  • Shareholders

 

Any person holding a qualified or decisive participation in the bank (i.e. any individual or company holding, directly or indirectly, at least 10% of the capital or voting rights of the bank, or if they may significantly influence the management of the bank by any other means) must guarantee that their influence will not have a negative impact on the good management of the bank.

 

In addition, if the bank is held by foreign shareholders, the jurisdiction of domicile of the foreign shareholders holding qualified shareholdings in the bank must guarantee reciprocity, unless a contrary international obligation exists. We do not expect any issue here.

 

  • Consolidated Supervision

 

If the bank is part of a financial group or a financial conglomerate, the FINMA may require a confirmation that the bank is subject to an appropriate consolidated supervision from a regulator. The FINMA may also require that the group supervision be carried out by itself – in addition to the individual supervision of the bank – if the financial group or financial conglomerate owns a bank or a securities dealer in Switzerland and is effectively managed from Switzerland. The FINMA will in particular want to ensure that the following requirements are fulfilled by financial groups or conglomerates:

 

  • The members of the management and of the board of directors have a good reputation and are “fit and proper”.
  • The organisation is appropriate, in particular in view of the internal control
  • There are appropriate equity and
  • A qualified independent external auditor has been

 

Two or more companies are considered as forming part of a financial group if the following conditions are fulfilled:

 

  • There is at least one bank or securities dealer in the
  • The companies are mainly active in the financial
  • The companies form an economical unit or have a duty to assist each

 

If an insurance of a certain economical importance is part of such a financial group, which is however mainly active in the banking or securities dealing fields, it will be deemed to be a financial conglomerate.

 

Application to the FINMA

 

In accordance with the practice developed by the FINMA, an application to the FINMA to obtain a banking license must be written in one of the Swiss official languages, i.e. French, German or Italian and sent, and contain at least the information and documents listed below.
 
4.1.1 General information

 

     

  • Reasons and drivers for the setting-up of the
  • Planned business activities, including geographical
  • Place of incorporation and place of
  • History, activities of the parent company, and possibly of the group (including total of balance sheet, equity, assets under management, etc.).
  • In case of transformation of an existing company into a bank: description of the current status and activities, together with appendices such as articles of incorporation, extract from the commercial register and annual

 
4.1.2 Direct and indirect participations
 
 

  • Planned
  • List of all direct and indirect participation of 5% or more (up to the ultimate beneficial owner) with the indication of their individual voting
  • Organization chart of the shareholders indicating the voting and capital
  • Information about any agreements and arrangements by which control or significant influence can be exercised (such as shareholders’ agreements).
  • Information and documents on the holders of qualified or decisive participations:
    • For individuals: nationality, domicile, qualified participations owned in other entities, information on any administrative and judicial pending proceedings if applicable, signed CV, references and extract of no criminal
    • For companies: articles of incorporation, extract of the commercial registry or equivalent, description of the activities, financial situation, information on any administrative and judicial pending proceedings if applicable, and group
  • Standard FINMA form duly filled in by the applicant bank disclosing the qualified or decisive
  • Standard FINMA form duly filled in by each qualified or decisive participant, confirming whether the shares are held on a fiduciary basis or not, and if options or similar rights have been granted on these

 

4.1.3 Information regarding  the  persons  responsible  for  the  administration  and  for  the management

 

Board of directors (or any other organ responsible for the top management, the supervision or overall control):

 

  • Composition (chairman, vice-chairman and the members of any committee).
  • Personal data (including nationality, address of domicile, date of birth) of the members of the board of directors (or similar organ).
  • Signed curriculum vitae (containing at least the following information: personal data, education, description of professional activities, mandates).
  • Certificate of good character; certificate of no criminal records, letters of
  • Information on completed or pending judicial or administrative proceedings if they are of commercial relevance or could affect adversely the fit and proper requirement.
  • Information on qualified or decisive participations in other companies, in particular those operating in the financial sector.

 

Management:

  • Composition, organisation and responsibilities for the
  • Personal data (including nationality, address of domicile, date of birth) of the members of the
  • Signed curriculum vitaes (containing at least the following information: personal data, education, complete chronological employment record detailing previous professional activities, name(s) of previous superior(s), number of subordinates at former employer(s), reason for the change of employment, mandates).
  • Confirmations from former employer(s).
  • Details on where the management activities of the bank will be carried For members domiciled abroad, evidence needs to be provided that the domicile does not affect the proper management of the bank.
  • Certificate of good character; certificate of no criminal records, letters of
  • Information on completed or pending judicial or administrative proceedings if they are of commercial relevance or could affect adversely the fit and proper requirement.
  • Information on qualified or decisive participations in other companies, in particular those operating in the financial sector.

 

4.1.4 Business activity and internal organisation

 

  • Detailed description of the planned business activities and
  • Articles of incorporation, articles of association and internal regulations tailored to the business activities of the
  • Organization
  • Additional information regarding the organization:
    • employees
    • infrastructure, logistics, informatics
    • outsourcing
    • internal control  systems  and  risk  management  (together  with  the  risk management regulations)
    • separation of functions (trading, asset management and back office)
    • compliance with due diligence obligations
    • organization, sphere of authority and activity of the internal auditor
    • obligation to maintain a journal, obligation to notify and rules of conduct (only if the bank applies also as security dealer).

 

4.1.5 Business plan

 

  • Business plan for the first three financial years (development of business operations, clientele, staff and organisation etc).
  • Budgets for the first three financial years (provisional balance sheet, profit and loss account).

 
4.6 Regulatory auditors

 

  • Written declaration of acceptance of the
  • Report of the auditors on the articles of incorporation, articles of association, internal regulations as well as the planned organization (including risk management regulations).

 

4.7 Additional requirements for foreign controlled banks
 
 

  • Evidence of the guarantee of reciprocity or the existence of an adverse international
  • Business name of the bank and status of the procedure with the commercial registry.

 

4.8 Additional requirements for applicants belonging to a group operating in the financial business sector (evidence of a supervision on a consolidated basis)

 

  • Organisation chart of the
  • List of the consolidated participations with the indication of the competent
  • List of the participations not included in the consolidation with explanations on the
  • Name(s) and address(es) of the foreign authority(-ies) in charge of the supervision of the group on a consolidated
  • Description of the regulatory framework of the financial sector of the foreign country(- ies) responsible for the supervision on a consolidated

 

4.9 Miscellaneous documents

 

  • Last management report of the parent company as well as of the holders of qualified or decisive participation in the capital of the
  • Original power of attorney

 

 

 
 

Our Experience

 

lecocqassociate provides a full range of financial regulatory, corporate and commercial advice in relation to the structuring and incorporation of entities.

This newsletter is for information purposes only. It does not constitute professional advice or an opinion. Please contact Mr. Dominique Lecocq on moc.e1498682882taico1498682882ssaqc1498682882ocel@1498682882lrd1498682882 for any questions.
 

[1] Section 3 Banking Act