Switzerland
Answer ... (a) Mortgage lending?
The Capital Adequacy Ordinance is the main applicable regulation – in particular:
- Article 44, which deals with the countercyclical capital buffer (at the request of the Swiss National Bank (SNB), the Federal Council can oblige banks to maintain a countercyclical capital buffer of up to 2.5% (in the form of Tier 1 capital) for their mortgage business); and
- Article 72 on the risk weighting for mortgage loans (the main rule is that the higher the loan-to-value ratio, the higher the risk weighting and thus the capital adequacy requirements for banks).
The Swiss Bankers Association (SBA) – the private umbrella organisation to which the vast majority of Swiss banks belong – also plays an important role. The SBA has issued two guidelines that are recognised as minimum prudential standards by the Financial Market Supervisory Authority (FINMA). These are:
- the Guidelines on Minimum Requirements for Mortgage Loans; and
- the Guidelines on Assessing, Valuing and Processing Loans Secured against Property.
FINMA considers credit risk in mortgage financing as one of the seven main risks.
(b) Consumer credit?
Consumer credit is regulated by the Consumer Credit Act, which came into force in 2001 and was last revised in 2019.
This law replaced the former federal law, as well as any cantonal laws. Its purpose is to prevent individuals from falling into a state of over indebtedness.
Under Swiss law, a ‘consumer’ is a natural person who enters into a consumer credit agreement for a purpose that can be considered unrelated to his or her commercial or professional activity.
All forms of commercial credit granted to consumers are in principle covered by the law, including leasing agreements and, to a certain extent, credit and customer cards, where the contractual provisions give the customer the right to choose a credit option (ie, where he or she can pay the amount on the invoice in instalments without being considered in default).
The law applies only to credits with a value of between CHF 500 and CHF 80,000. The maximum interest rate – set by the Federal Council and reviewed annually – is:
- 10% for cash credits, contracts for the financing of goods or services and leasing contracts; and
- 12% for credits granted in the form of an advance on a current account or on an account linked to a credit card or a customer card with a credit option.
(c) Investment services?
The Financial Services Act came into force on 1 January 2020, with a transitional period of two years. Therefore, most of the new legal requirements came into force on 1 January 2022. The Financial Services Ordinance supplements the abovementioned law.
According to the law, ‘financial services’ include:
- the acquisition or disposal of financial instruments;
- the receipt and transmission of orders in relation to financial instruments;
- the administration of financial instruments (wealth management);
- the provision of personal recommendations on transactions with financial instruments (investment advice); and
- the grant of loans to finance transactions with financial instruments.
The act aims to strengthen the protection of the clients of financial service providers and to establish comparable conditions for the various financial service providers. In addition, it sets out requirements for the fair, diligent and transparent provision of financial services and regulates the offering of securities and other financial instruments.
The new law introduces, among other things:
- rules on the classification of clients (private, professional, institutional); and
- rules of conduct (duty to inform, verification of suitability and appropriateness, duty to document and report, transparency and due diligence in relation to client orders).
(d) Payment services and e-money?
The Financial Market Infrastructure Act and its implementing ordinance came into force on 19 June 2015. This law regulates the organisation of financial market infrastructure and sets the rules of conduct for participants in securities and derivatives trading on these markets.
Article 81 of the Financial Market Infrastructure Act defines a ‘payment system’ as an entity that clears and settles payment obligations based on uniform rules and procedures.
The Federal Council can impose specific requirements on payment systems, especially with regard to capital, risk distribution and liquidity, if required by the implementation of internationally recognised standards. The SNB has certain powers in connection with the Swiss Interbank Clearing (see below).
The operator of a payment system needs a licence from FINMA only if:
- the functioning of the financial markets or the protection of the financial market participants requires it; and
- the payment system is not operated by a bank.
There is only one payment system in Switzerland that is considered to be systemically important: the Swiss Interbank Clearing, which is operated on behalf of and supervised by the SNB.
Subject to the abovementioned reservation, and given that Switzerland applies the principle of technological neutrality in financial regulation, there are no specific provisions governing payment services or electronic money in the financial regulations. It is a matter of applying the various existing prudential regulations on a case-by-case basis to determine whether a payment service provider should be subject to regulation.
Switzerland
Answer ... (a) Mortgage lending
Mortgage lending is primarily governed by the following regulations issued by the Swiss Bankers Association (SBA), which have been recognised by the Swiss Financial Market Supervisory Authority (FINMA) as binding minimum standards:
- SBA Guidelines on Minimum Requirements for Mortgage Financing: These regulate the minimum requirements for the application of the lower risk weighting of mortgage-secured positions in accordance with the provisions of the Capital Adequacy Ordinance.
- SBA Guidelines on Assessing, Evaluating and Processing Mortgage-backed Loans: These contain the key principles to be reflected in a bank’s internal policies with respect to the lending activity, credit monitoring and reporting.
(b) Consumer credit
Consumer credits are governed by the Consumer Credit Act of 23 March 2001 and its implementing ordinance (please also see question 10.1).
The Consumer Credit Act governs various types of credit, including cash loans, current account overdraft facilities, accounts overdrawn with the tacit acceptance of the bank, credit cards and customer cards with credit options, non-cash loans (in particular consumer finance and hire purchase), payment extensions and similar financing facilities, as well as certain leasing agreements. On the other hand, credit arrangements that are properly secured or amount to less than CHF 500 or more than CHF 80,000, or that must be repaid within three months, are generally not within the scope of the act.
The Consumer Credit Act is designed to offer borrowers improved protection against overindebtedness resulting from consumer credits. The main elements of the legislation are as follows:
- a mandatory check of the borrower’s credit capacity, to be carried out by the lender;
- an obligation on the part of the lender to report the consumer credit granted to a dedicated information office;
- an obligation to comply with the maximum interest rate set by the Federal Council;
- a right of revocation on the part of the borrower; and
- a ban on aggressive advertising for consumer credit.
(c) Investment services
The Financial Services Act of 15 June 2018 and its implementing ordinance establish the requirements for honesty, diligence and transparency in the provision of financial services, and govern the offering of financial instruments. Among other things, the act includes regulations on client segmentation and rules of conduct regarding client information, suitability and appropriateness testing, documentation and accountability and best execution.
Banks are generally subject to the Financial Services Act whenever they provide the following ‘financial services’:
- the acquisition or disposal of financial instruments;
- the receipt and transmission of orders relating to financial instruments;
- the administration of financial instruments (portfolio management);
- the provision of personal recommendations on transactions with financial instruments (investment advice); and
- the granting of loans to finance transactions with financial instruments.
(d) Payment services and e-money
The Swiss regulations contain no specific provisions governing payment services or e-money. Instead, Switzerland relies on the flexibility and technology neutrality of existing financial market regulations.
Consequently, it must be assessed in each individual case whether a payment service provider falls within the scope of Swiss financial market laws. In particular, the Banking Act, the Financial Institutions Act, the Anti-Money Laundering Act, the Consumer Credit Act and the National Bank Act may apply. Moreover, the implementing ordinances of these laws and the circulars of FINMA must be taken into account.
In order to ease the Swiss regulatory regime for providers of innovative financial technologies, various amendments have recently been introduced to the Swiss banking regulation specifically exempting certain activities from the requirement to obtain a banking licence (please see question 15.2). Depending on the individual circumstances, providers of payment services may also benefit from these exemptions.
Notwithstanding the foregoing, if deemed necessary for the proper functioning of the financial market or the protection of financial market participants, payment systems that are not operated by banks may require a specific licence from FINMA under the Financial Market Infrastructure Act of 19 June 2015.