Regulation Focus Series | Article 5: Switzerland & FINMA

Switzerland is a small and picturesque country lodged in the mountainous heart of Europe, bordered by France, Germany, Italy and Austria. It has a long history of neutrality and prides itself on its reputation for stability and independence. 

The country’s economic success is strongly tied to its status as one of the world’s most important financial centers — Switzerland is home to some of the largest banks in the world, which have been instrumental in developing innovative banking products and services that are used around the globe. 

Switzerland's strong emphasis on privacy has allowed it to become one of the major players in global finance. 

However, this approach comes with certain responsibilities: Swiss financial institutions must adhere to strict Know Your Customer (KYC) regulations designed to prevent money laundering and other illegal activities. In order to maintain their reputation as reliable partners for international investors, these institutions must ensure they meet all KYC requirements set out by Swiss regulators such as the Financial Market Supervisory Authority (FINMA). 

The Swiss government takes a proactive approach towards countering money laundering activities within its borders; it requires financial institutions operating within Switzerland to perform extensive customer due diligence measures when onboarding new customers or processing large transactions from existing customers.

FINMA & other Swiss regulators

The Swiss government is responsible for KYC and Anti-Money Laundering (AML) regulations through multiple organizations. The primary agencies involved are FINMA, the Swiss Federal Banking Commission, and the Swiss National Bank (SNB). 

FINMA is Switzerland’s primary regulatory authority over banks, insurance companies, stock exchanges, securities dealers, fund management companies, and other financial intermediaries — and more recently has expanded its purview to include regulation of Virtual Asset Service Providers (VASPs) and SROs. 

FINMA ensures that these entities adhere to all applicable laws pertaining to KYC and AML regulations. This includes supervising compliance with customer identification requirements, transaction monitoring systems and suspicious activity reporting obligations. 

The Swiss Federal Banking Commission is responsible for issuing banking licenses in Switzerland and overseeing the soundness of the banking sector. It works closely with FINMA to monitor adherence to KYC and AML regulations. 

The Swiss National Bank (SNB) is a central bank responsible for maintaining monetary stability in Switzerland by setting and carrying out monetary policy decisions related to price stability, economic growth, employment levels, inflation targets and international cooperation. The SNB also provides guidance on how financial institutions can meet their legal obligations associated with KYC and AML regulations as required by FINMA.

KYC and AML Rules

FIs and VASPs operating in Switzerland must comply with the rules set out by FINMA. These KYC, AML and Combating the Financing of Terrorism (CFT) rules are designed to ensure that FIs and VASPs only deal with legitimate customers, transactions, and activities. 

FINMA’s KYC rules are designed to ensure that FIs and VASPs identify their customers through appropriate due diligence measures. These can be broadly categorized as:

• Collecting information on the company or individual who wishes to open an account or transact business with them, and 
• Verifying the customer’s identity and assessing whether they are associated with any nefarious activities or organizations. 

Under FINMA regulations, FIs and VASPs must: 

• Document all customer identification processes;
• Keep records of all their dealings and transactions for at least 10 years; 
• Notify relevant authorities if there is suspicion of money laundering or terrorist financing activity taking place;
• Provide reports on suspicious activity where warranted; 
• Implement adequate AML/CFT policies in place that covers employee training as well as internal control protocols in order to ensure compliance with these regulations. 
• Be part of a Self-Regulating Organization (SRO). These organizations ensure their affiliate companies and financial intermediaries are compliant with FINMA regulations.

In addition to KYC/AML/CFT requirements imposed by FINMA, FIs operating in Switzerland are also subject to specific obligations laid down by the Swiss Money Laundering Act (MLA). This act requires FIs to put into place procedures to establish beneficial ownership information regarding corporate entities they do business with. This includes: 

• Obtaining certified documents from the appropriate authorities confirming the legitimacy of the entity in question. 
• Conducting regular reviews of their customer base — a process known as ongoing monitoring — in order to determine whether any changes have taken place that could lead to money laundering activities taking place within them. 

KYC data requirements for FIs and VASPs

Like in most jurisdictions with developed compliance regimes, FINMA rules compel FIs and VASPs to carry out KYC checks on individual and business customers that include collecting and verifying documents and information. These include: 

For Swiss nationals or residents

• Identity documents like an ID or passport
• Proof of nationality

For international persons

• ID card
• Professional/passport photo
• Passport/driving license
• Nationality
• Name at birth
• Date of birth
• Address

For corporate entities

• Commercial register number
• UBO (Ultimate Beneficial Owner) information
• Registered office in Switzerland

FINMA and VASPs

FINMA has taken a very proactive approach to regulating VASPs in order to balance providing a healthy environment for VASPs to operate while ensuring strict compliance with AML and CFT rules.

In addition to the rules for FIs outlined above, VASPs operating within Switzerland are required by law to fulfill additional KYC requirements including primary source document verification before onboarding new customers.

To ensure compliance with FINMA regulations, VASPs should conduct a range of KYC checks on their customers including:

• Identity verification
• Address verification
• Telephone number verification
• Source of funds/wealth validation 
• Ongoing monitoring for suspicious activities

Additionally, VASPS need to implement strong and effective customer due diligence (CDD) processes to build accurate risk profiles of their customers and process higher risk high-risk customers or transactions through additional checks to understand their nature.

By implementing these measures, VASPs can meet FINMA requirements and operate securely in Switzerland, both from a compliance and fraud perspective. 

How KYC-Chain Can Help

Is your business regulated by FINMA or looking to do business in Switzerland? KYC-Chain’s end-to-end onboarding workflow solution allows our clients to securely and efficiently carry out the necessary KYC checks to comply with Swiss AML and KYC laws — as well as most of the world’s global jurisdictions, which we are covering steadily in this Regulation Focus Series. 

Get in touch and we’ll be happy to show you how KYC-Chain can be your KYC onboarding solution.