Additional depositor and customer protection – partial revision of the Swiss Federal Banking Act
On 19 June 2020, following the consultation, the Federal Council adopted the dispatch on the partial revision of the Swiss Federal Banking Act (Bundesgesetz über die Banken und Sparkassen, Bankengesetz). The legislative amendment intends to strengthen customer and depositor protection and promote system stability.
The partial revision focuses on three main areas: (i) the restructuring proceedings for banks, (ii) deposit insurances and (iii) intermediated securities.
The Federal Council published a preliminary draft of the intended partial revision of the Swiss Federal Banking Act last year and initiated the consultation procedure (Vernehmlassung) to allow, among others, cantons, political parties represented in the Federal Assembly, organisations and other interested parties to provide their thoughts on the draft. Following the consultation procedure, modifications (if any) will be incorporated and published together with a dispatch (Botschaft) by the Federal Council. The partial revision of the Swiss Federal Banking Act is at this stage. The Federal Assembly is expected to deal with the envisaged legal revision in the second half of 2020. The changes will come into force at the beginning of 2022 at the earliest.
Restructuring proceedings for banks
In the past, there has been criticism on the Bank Insolvency Ordinance (Bankeninsolvenzverordnung-FINMA) as it does not provide a sufficient legal basis for intervening in the protected positions of customers and creditors in the context of bank reorganisations. Therefore, it has been decided to incorporate regulations regarding the insolvency of banks and provisions that may affect legal positions or interfere with the rights of third parties directly into the Swiss Federal Bank Act in order to strengthen the legitimacy. Furthermore, improvements and clarifications have been made, among others, regarding the reorganisation plan (Sanierungsplan), the appeal procedure, the capital measures and FINMA's authority to change the legal form of a bank subject to a restructuring was included. The latter was included following the consultation process.
Deposit insurance (Einlagensicherung)
Additionally, regulations with respect to the deposit insurance shall be adapted to international standards. Instead of a fundamental revision, the deposit insurance will be improved with a few pragmatic adjustments. Particular attention is given to the reduction of deadlines for forwarding the funds to the depositors, the financing of the deposit insurance scheme and the increase of the system ceiling of the deposit insurance scheme. The payment from the deposit insurance to the bankruptcy liquidator shall be made within seven days upon receipt of the notice of the order of bankruptcy. Subsequently, the bankruptcy liquidator should forward the funds to the depositors again within 7 days.
Furthermore, today's deposit insurance system shall be strengthened by adding an ex-ante-component. Following the revision, banks will have the obligation to deposit (i) easily realisable securities of high quality or (ii) cash in Swiss francs permanently with a third-party custodian for half of their contribution obligations to the deposit insurance. As a result, those banks that claim the deposit insurance now also must make their contribution.
Moreover, the maximum commitment of 6 billion Swiss francs will be increased in terms of amount and set at 1.6 percent of the total amount of the guaranteed deposits. The absolute minimum amount must be at least 6 billion Swiss francs.
Although an ex-ante fund is common in an international comparison, Switzerland has opted for the less expensive and complex solution of depositing securities. The structure of this deposit of securities (Wertschriftenhinterlegung) is to be regulated in greater detail in the ordinance.
Securities and precious metals deposited in custody accounts at a bank in Switzerland are the property of clients. In case of a bankruptcy, these assets need to be quickly and easily segregated. Therefore, these assets must be kept separate from the bank's own portfolio and from the assets of other customers. The obligation to keep the assets separately still has regulatory gaps. In order to fill such gaps, the Swiss Federal Intermediated Securities Act (Bucheffektengesetz) will be partially amended.
In addition, as a result of the consultation process, the possibility to directly transmit data among Swiss custodians or from Swiss to foreign custodians has been included.