Regulator FINMA

FINMA

FINMA –  Swiss Financial Market Supervisory Authority, is completely under the state control.

The appearance of MiFID in 2007 year, that fixed the basic standards and regulations of interaction of participants of financial markets within the European space, demanded from the Switzerland, safe Harbor of the global capital and the guarantor of reliability, the development of similar provisions (Switzerland is not in EU, but is closely integrated in its economy).

It was established in 2007. The main task is common for state financial regulator: control and surveillance measures, protection of investors from possible fraud, licensing, maintaining a high level of reputation in the financial market of Switzerland.

Though FINMA and is a government body, the funding comes not from the budget, but at the expense of membership dues, which determines sufficiently large organizational independence from the governmental policy. The structure of FINMA include experts from completely different fields: economists, mathematicians, computer programmers, auditors, investment professionals and accounting, lawyers. In an effort to maintain stable operation of financial markets, FINMA thus partially contributes to the development of competition.

Functions and objectives of FINMA:

  • Prevention of money laundering, of unlawful schemes to obtain illegal income of deception (or incomplete information) of investors;
  • Audit of financial institutions, using the method of “double control”. Besides the fact that, FINMA performs its own inspection of financial institutions, the accredited auditors also control their work. According to the results of crosscheck inspections, the rating is assigned to each financial organization, and then the frequency, methods and supervision are defined according to it;
  • creation of a relatively autonomous system of functioning of the stock exchanges on the basis of self-regulation with limited intervention of FINMA in extreme cases. Constant monitoring of the functioning of stock exchanges;
  • collection and analysis of financial statements of economic entities to assess the adequacy of capital and the development of possible crisis scenarios, minimizing risk (loss of liquidity, solvency);
  • control over the implementation of directives, regulations in the financial sector related to the powers of FINMA.

FINMA powers as an independent state regulator   in financial markets of Switzerland:

  • the right to set financial standards (standards based on pan-European rules to regulate markets, but taking into account peculiarities of the national market);
  • FINMA is the legislative body. The organization is granted the right to develop regulations and circulars and rules governing the financial markets;
  • the licensing of all participants in exchange and OTC markets, including brokers and dealing centers. Control over observance of conditions specified during the license issuance;
  • the right to initiate bankruptcy proceedings, restructurings, participation in resolving disputes in judicial instances in case of insolvency of the subject;
  • has the right to impose sanctions if necessary.

Among the brokers the FINMA license refers to the second level of supervision like BaFin and CySEC (the first level include NFA and FCA). The credibility to FCA, for example,  is a little more among the investors, because the British regulator has more experience in resolving disputable situations and advanced functionality for control.

The documents that FINMA relies upon in its work: laws about banking and stock markets, supervision of financial markets of Switzerland, the Directive on combating money laundering.

Demands to financial organizations, applying for FINMA license:

  • the applicant is obliged to open an office in Switzerland that would force him to follow the laws of the country;
  • the applicant should develop the document with the specified (determined) potential risks of financial instruments, transactions, receipt financial services in it;
  • compliance with liquidity requirements, capital adequacy. Rules depend on the volume of financial flows of the money concentrated in Bank accounts;
  • admission of auditors for scheduled and unscheduled inspections of the work of the licensee. The provision of the constituent documents, the resolution on their placement in public access.

The Swiss jurisdiction has a first-class regulatory framework and a developed system of control over observance of requirements of the legislation in its arsenal. A high level of self-awareness and responsibility of participants of the financial system in Switzerland allows the regulator to focus its work not just on  prevention of illegal actions, but on trading risks and how to minimize them.

Official BaFin website: https://www.finma.ch

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