Switzerland: Outsourcing: FINMA Publishes A New Circular 2018/3 On Outsourcing For Banks And Insurance Companies

Last Updated: 15 December 2017
Article by Rashid Bahar and Martin Peyer
Most Read Contributor in Switzerland, July 2019

On 5 December 2017, the Swiss Financial Market Supervisory Authority FINMA published its new circular 2018/3 'Outsourcing – Banks and Insurance Companies'. The revised FINMACircular 2018/3 (the 'New Circular'), which will enter into force on 1 April 2018, is applicable to banks and securities dealers and, in contrast to the current FINMA-Circular 2008/7, also covers insurance companies.

The main changes are (i) a harmonization of the requirements for banks, securities dealers and insurance companies, (ii) a more plastic definition what constitutes outsourcing based on a case-by-case analysis factoring in the business model and risk profile of each institution, (iii) a requirement to hold an inventory of outsourced functions and further changes regarding the organisational framework for outsourcing projects, (iv) a more differentiated approach to intragroup outsourcing, and (v) a focus on supervisory issues, leaving data protection and banking secrecy out of the scope of the New Circular.

Overall, the New Circular continues to provide a favourable environment for outsourcing, provided that financial institutions are sufficiently staffed to ensure that they can continue to take care of the core functions of the board of directors and executive management.


The current rules on outsourcing for banks entered into force in 1999 and were last revised in 2002. Since then, outsourcing became more prevalent, following technical developments and the increased focus on core competences and cost cutting in the financial industry. The regulatory regime was therefore overdue for a complete overhaul.

Accordingly, FINMA initiated a consultation process in December 2016, which prompted a strong debate within the industry. Almost a year later, FINMA has now published the New Circular, which aims to be more principle-based and, at the same time, ensures that the outsourcing does not prejudice clients and creditors of banks and insurance companies or jeopardize supervision by FINMA.

The New Circular focuses on supervisory matters and, consequently, no longer addresses the requirements on data protection and banking secrecy.

Therefore, financial institutions will no longer be able to turn to FINMA to obtain comfort on these issues, but will need to look to the Federal Data Protection and Information Commissioner (FDPIC) or cantonal prosecutors for guidance. In this context, financial institutions should closely monitor the ongoing revision of the Data Protection Act and, to the extent they are subject to it, the EU GDPR. These will pose their own challenges for banks and insurance companies and call for a separate review of existing outsourcing arrangements and internal procedures to ensure they comply with the revised legislation on data protection.


In contrast to the current FINMA-Circular 2008/7 on outsourcing, the New Circular will apply not only to banks and securities dealers but also to insurance companies, including Swiss branches of foreign insurance companies.

According to the New Circular, outsourcing is defined as mandating a service provider independently and permanently to carry out an essential function either wholly or in part. A function is deemed essential, if compliance with the objectives and regulations of the financial market legislation significantly depends on it. Whereas the draft of the New Circular contained an illustrative list of essential functions (such as processing of payments, IT, risk management in the case of banks and securities dealers as well as claims settlement, financial accounting and asset management in the case of insurance companies), this list has been stripped from the final version of the New Circular. Therefore financial institutions will need to determine on a case-by-case basis whether a given activity constitutes outsourcing under the New Circular.

Restrictions on Outsourcing and Approval

Overall, the New Circular perpetuates the current liberal approach to outsourcing. The outsourcing of all essential functions remains permissible subject to limited exemptions. Only the core functions of the board of directors and executive management, as well as the decision to accept and terminate client relationships cannot be outsourced. Further restrictions apply to category 1 to 3 banks and securities dealers, which must maintain their own risk control and compliance functions as an independent body, whereas other banks and securities will only need to appoint one member of the executive management for these areas.

This approach is also a significant relief for insurance companies, which until now could only outsource two of their three main functions, whereas insurance captives can even go a step further and delegate certain core competencies to specialized management companies or affiliates.

As was the case until now, banks and securities dealers do not require an approval from FINMA to outsource essential functions. By contrast, insurance companies will continue to need one, since the outsourcing of essential functions implies an amendment of the regulatory business plan which is subject to FINMA approval.

Organizational Requirements

The New Circular sets out various organizational requirements relating to any outsourcing. First, the company has to keep an up-to-date inventory of the functions that have been outsourced. Furthermore, the company must select the outsourcing provider based on its professional experience and ensure proper instruction and supervision of the outsourcing provider. Moreover, a written contract is required for outsourcing essential functions which provides the outsourcing company the right to instruct and control the service provider, requires its approval for involving subcontractors and ensures that outsourced functions can be audited at any time.

Intra-Group Outsourcing

Whereas the draft of the New Circular did not differentiate between external and intra-group outsourcing, the New Circular allows financial institutions to take into account their ties with affiliates when considering the requirements on selecting, instructing and controlling an outsourcing provider as well as the requirements that apply to the contractual documentation. In this way, the New Circular allows financial institutions to take into account the fact that some risks do not apply in an intra-group setting and that some regulatory requirements are not relevant in such a context or, at least, should be addressed differently.

Outbound Outsourcing

The outsourcing of essential functions to a foreign jurisdiction is permissible, if the financial institution can guarantee that it, its regulatory auditor and FINMA can exercise and enforce its rights of inspection and auditing. The New Circular no longer requires formal documentation that these requirements are satisfied through a legal opinion or otherwise. Moreover, unlike the draft that was published in the consultation proceedings, the New Circular will not require banks and securities dealers to inform FINMA before they outsource functions involving a transfer of mass client identifying data (CID) to foreign jurisdictions. However, banks will continue to be required to comply with the requirements set out in Annex 3 of FINMA-Circular 2008/21 'Operational Risks – Banks' when handling CID.

Responsibility and Auditing

The rules on the responsibility for outsourced functions and the auditing requirements remain unchanged in the New Circular with the exception of certain changes in the terminology.

Banks, securities dealers and insurance companies remain responsible in relation to FINMA for all functions that have been outsourced. Moreover, the company must ensure that it, its regulatory auditor and FINMA will be able to monitor and assess compliance of the outsourcing provider with the regulatory requirements. The outsourcing of certain functions must not hinder supervision by FINMA in particular in cases of outbound outsourcing.


The New Circular will enter into force on 1 April 2018. Overall, it changes the regulatory requirements for outsourcing. As such, it calls for a review of existing agreements with outsourcing providers and may trigger changes in the IT infrastructure. However, the New Circular will be phased in slowly. Existing outsourcing arrangements of banks and securities dealers will be 'grandfathered' during a transition period of five years ending on 1 April 2023. Insurance companies will be subject to a different regime: new insurance companies will immediately be subject to the New Circular, whereas existing ones will need to comply with the new framework only if there is a change in their regulatory business plan.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions