SWITZERLAND: An Introduction to Banking & Finance

Background

Switzerland continues to shine as a global leader in banking and finance, blending its storied tradition of stability with cutting-edge innovation. As we approach 2025, we delve into certain key legal trends and hot topics shaping the sector, offering insights into how these changes are enhancing Switzerland’s appeal while ensuring its adherence to the highest international standards. These shifts highlight both opportunities and challenges for financial institutions operating in Switzerland and their clients.

Regulatory

Overhaul of regulatory regime

On 10 April 2024, the Swiss government, the Federal Council, published a report on banking stability that proposed several measures following the Credit Suisse crisis. Key areas include:

• corporate governance;
• capital requirements;
• early intervention;
• crisis liquidity; and
• resolution planning.

Rejected measures include higher leverage ratios, changes to AT1 capital instruments and deposit withdrawal restrictions. The proposed actions focus on enhancing corporate governance laws, introducing a senior managers regime and improving variable compensation regulations.

Additionally, the report suggests stricter capital requirements for parent banks, better early intervention protocols and more robust liquidity management. The Federal Council also recommends diversifying resolution strategies and improving bail-in procedures to ensure financial stability and minimise state intervention risks.

Fintech/crypto regulations

Switzerland provides a clear regulatory framework for fintech companies, crypto custodians and staking providers based on the principles of:

• “substance over form”; and
• “same business same rules”.

Such framework is currently being reviewed in order to increase legal certainty and boost innovation. The supervision of the Swiss Financial Market Supervisory Authority (FINMA) in this area is aimed at balancing innovation with investor protection and market integrity. Fintech companies may benefit from a special “fintech licence” that allows for certain regulatory relaxations to promote technological advancement, and also allows for deposit-taking of up to CHF100 million. Crypto custodians are required to comply with anti-money laundering regulations, but are otherwise unregulated if the custody is such that a client’s crypto-assets can be segregated in a bankruptcy of the custodian. For staking providers, the regulatory status and treatment depend on the specific way such staking is performed. FINMA’s guidance offers details on these matters, reflecting Switzerland’s commitment to fostering a secure and innovative financial sector.

Cross-border provision of financial services

When Switzerland introduced the Swiss Financial Services Act (FinSA) in 2020, the idea was to create a regulatory level playing field for all financial services provided and all financial instruments advertised or offered to clients. The previous regulatory architecture was restructured, and certain concepts – such as the legal notion of “distribution” or the licensing requirement for distributors of collective investment schemes – were abolished.

The common denominator of financial services such as investment advice, asset management, or the purchase and sale of financial instruments is that such services must be provided to clients – or, in other words, that there must be a mandate or other client relationship between the client and the service provider. If this is not the case, and, in particular, if financial instruments are offered to independent third parties (such as financial intermediaries) or counterparties, the Swiss financial services regulation under the FinSA should not apply.

Improvement of anti-money laundering (AML) framework

On 22 May 2024, the Federal Council adopted a bill on the further development of the AML framework. The goal is to reinforce the integrity and competitiveness of Switzerland as a business hub. Key elements include the following.

• A transparency register for beneficial owners of legal entities shall be established, aimed at enhancing law enforcement’s ability to uncover hidden ownership structures. Such register will not be publicly available.
• (Legal) advisers involved in high-risk advisory activities (such as corporate structuring or real estate transactions) shall be conferred upon AML (due diligence) duties and become subject to AML supervision by a self-regulatory organisation.
• Other measures address sanctions evasion and diligence for certain cash transactions regarding precious metals and real estate.

The measures are in line with international standards and could be enacted by 2026.

Finance

Debt funds and direct lending in or into Switzerland

Switzerland is a compelling environment for debt funds, offering a combination of:

• economic stability with strong innovation and technology drivers;
• a reliable and efficient regulatory framework; and
• the generally high credit quality of Swiss companies.

Encouraged by banks’ reduced risk appetite, due to higher capital and liquidity requirements combined with increased public and regulatory scrutiny, debt funds and other private debt companies are increasing their share of the Swiss corporate credit market.

One potential obstacle for debt funds is Swiss withholding tax, which could be triggered on interest payments under a loan agreement if more than ten so-called non-bank lenders extend credit under the respective instrument. Such risk can be mitigated by:

• structuring specific facilities for banks and non-bank lenders; and
• obtaining tax rulings confirming that each non-bank lender counts as only one non-bank lender and that no look-through approach is applied.

Sustainability in the Swiss loan market

The importance of sustainable financing is set to grow, as Swiss banks commit to initiatives such as the industry-led and UN-supported Net Zero Alliance. Developing a sustainable lending strategy is a crucial component for fulfilling such commitments.

Several Swiss banks are currently active in the sustainability-linked loan (SLL) market. SLLs are loans tied to sustainability targets agreed upon by both the lender and the borrower. These loans can be structured as either bilateral or syndicated, utilising various key performance indicators (KPIs). The most common KPI is the improvement of the borrower’s existing ESG rating. Other targets include enhancing energy efficiency, reducing greenhouse gas emissions and increasing the use of renewable energy, although these are less frequently used.

If the borrower meets the agreed-upon sustainability targets, it usually benefits from a lower interest rate. However, due to the additional costs associated with the set-up and the additional reporting requirements, the potential interest rate reduction is often not the primary motivation for entering into an SLL. Instead, borrowers are typically driven by a genuine intention to transform into more sustainable businesses.

Digital Swiss Franc

A recent Swiss Bankers Association’s White Paper introduced the concept of a book money token (BMT), a digital currency designed to support Switzerland’s digital economy. The BMT is envisaged as taking the form of a stablecoin based on distributed ledger technology, and aims to enhance transaction efficiency, reduce risks and open new business opportunities. It is intended to maintain the Swiss Franc’s stability and technological sovereignty. The BMT will be programmable, leveraging smart contracts for complex applications, and will be issued by regulated intermediaries.

The White Paper explores three variants of the BMT, with the “Joint Token” model being the most promising. This model involves a consortium of banks issuing a unified BMT, ensuring stability and broad acceptance. The initiative aims to bolster Switzerland’s financial infrastructure and digital economy.