Frequently asked questions (FAQs)
Questions and answers on the business conduct letter
(status: 8 November 2016)
1.
What is meant by “proper business conduct requirement”?
Financial market law (see question 3) requires top management at supervised institutions to comply
with the proper business conduct requirement. The main purpose of this requirement is to maintain
public confidence in those institutions and safeguard the reputation of the financial centre. The proper
business conduct requirement includes matters of personal character and professional qualifications
required for the proper management of a supervised company. The principal criterion used in assessing a person’s suitability is their past and present business activities, as well as their professional
plans.
2.
Why is there a proper business conduct requirement?
The business activities of FINMA-supervised companies include a wide range of services that involve
dealing with the assets of large numbers of depositors, investors and clients. To maintain and enhance
their confidence in these institutions, the proper business conduct requirement (see questions 4 and 5)
seeks to impose high personal standards on those subject to it.
3.
What is the legal basis for the proper business conduct requirement?
The requirement is set down in the following financial market laws that govern FINMA’s supervisory
activities:
 Banking Act: Swiss Federal Act of 8 November 1934 on Banks and Savings Banks (BA; SR 952.0)
bis
Article 3 para. 2 let. c and c (banks) and Article 3f para. 1 BA (financial groups and financial conglomerates);
 Insurance Supervision Act and Insurance Supervision Ordinance: Swiss Federal Act of
17 December 2004 on the Supervision of Insurance Companies (ISA; SR 961.01) and Ordinance
of 9 November 2005 on the Supervision of Private Insurance Companies (ISO; SR 961.011)
Articles 14, 23 para. 2 and 46 para. 1 let. b ISA in conjunction with Articles 12 and 14 ISO (insurance companies), Article 67 (insurance groups) and Article 75 ISA (insurance conglomerates);
 Stock Exchange Act: Swiss Federal Act of 24 March 1995 on Stock Exchanges and Securities
Trading (SESTA; SR 954.1) Article 10 para. 2 let. d SESTA (securities dealers);
Laupenstrasse 27, 3003 Bern
Phone +41 (0)31 327 91 00, Fax +41 (0)31 327 91 01
www.finma.ch
 Collective Investment Schemes Act and Collective Investment Schemes Ordinance: Swiss Federal
Act of 23 June 2006 on Collective Investment Schemes (CISA; SR 951.31) and the Ordinance of
22 November 2006 on Collective Investment Schemes (CISO; SR 951.311): Article 14 para. 1 lets.
a and b and para. 3 in conjunction with Article 13 para. 1 CISA and Article 10 et seq. CISO (fund
management companies, SICAVs, limited partnerships for collective investments, SICAFs, custodian banks, asset managers of Swiss and (voluntary supervision) of foreign collective investment
schemes, distributors and representatives of foreign collective investment schemes);
 Anti-Money Laundering Act and FINMA Anti-Money Laundering Ordinance: Swiss Federal Act of
10 October 1997 on Combating Money Laundering and Terrorist Financing (AMLA; SR 955.0) and
the Swiss Financial Market Supervisory Authority’s Ordinance of 3 June 2015 on Combating Money Laundering and Terrorist Financing in the Financial Sector (AMLO-FINMA; SR 955.033.0):
Article 14 para. 2 let. c (directly subordinated financial intermediaries) and Article 24 para. 1 let. c
AMLA (self-regulatory organisations recognised by FINMA); Article 9 para. 1 AMLO-FINMA.
 Financial Market Infrastructure Act: Swiss Federal Act of 19 June 2015 on Financial Market Infrastructures and Market Conduct in Securities and Derivatives Trading (FMIA; SR 958.1) Article 9 paras. 1–3 and Article 27 para. 2 FMIA.
4.
Who is subject to the proper business conduct requirement and assumes the responsibilities involved?
The proper business conduct requirement is an ongoing, mandatory licence prerequisite for banks,
financial market infrastructures, licence holders under the Collective Investment Schemes Act, securities dealers, financial intermediaries supervised by FINMA, self-regulatory organisations recognised by
FINMA under the Anti-Money Laundering Act, and insurance companies. The requirement applies to:
 Persons charged with the administration and management of a bank, a financial market infrastructure, a licence holder under the Collective Investment Schemes Act (e.g. a fund management company, a custodian bank, a distributor, an asset manager of Swiss or foreign collective investment
schemes), a financial intermediary directly supervised by FINMA, a securities dealer, an insurance
company, or a group or conglomerate supervised by FINMA. This at least includes the board of directors and members of senior management. Depending on the size of the supervised institution
and the responsibility assumed, other functions may also be included (see question 5).
 Individuals and legal persons who directly or indirectly hold at least 10% of the capital or the votes
of a bank, a financial market infrastructure, a securities dealer, a licence holder under the Collective Investments Schemes Act, an insurance company, or a group or financial conglomerate supervised by FINMA, or whoever could otherwise significantly influence their business activities (qualified participation).
5.
Who is not subject to the proper business conduct requirement?
The requirement primarily concerns the top management of a company supervised by FINMA, in particular those with a strategic, management and operational capacity (see also question 4). It is gener-
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ally not applicable to employees with only limited or no managerial functions. Depending on the specific duties performed, it also concerns persons working in a relevant managerial function, the hierarchical level of their position, the entire organisation of the supervised company (number of employees,
design of control mechanisms), and the type of business. Generally, the requirement does not apply to
many influential management positions at middle-sized and large companies, whereas it does apply to
persons exercising the same function at a very small company.
6.
What exactly is a business conduct letter from FINMA?
From the beginning of the 1990s onwards, the expression "business conduct letter" was increasingly
used by the Swiss Federal Banking Commission, one of FINMA's three predecessors, in its supervisory practice. Following the introduction of the industry ban, FINMA has continued to use this
practice. Where FINMA has possible reservations about proper business conduct following a person’s
possible wrongdoing resulting from an irregularity, a business conduct letter is sent out to the person
involved (see question 7).
7.
When does FINMA issue a business conduct letter?
If the person connected with the irregularity or alleged misconduct is presently not subject to the proper business conduct requirement (i.e. because they were never subject to this requirement or they
relinquished their position), FINMA generally does not investigate whether this person fulfils the requirement. In such cases, there is no reason to do so. Instead, FINMA assesses whether it should
send a business conduct letter to this person and does so where:
 it cannot rule out that the person concerned will in the future be (again) subject to the business
conduct requirement;
 it considers, based on the information at hand (still uninvestigated and generally incomplete), the
incident or the alleged misconduct to be of such a serious nature that it raises doubts about the
person concerned in terms of their fulfilling the proper business conduct requirement; and
 it is deemed necessary to explicitly inform the person concerned.
FINMA foregoes sending such a letter if, from the given circumstances, it can be concluded that the
person concerned will not take up an executive position or acquire qualified participation at one of the
companies it supervises, or if the person is no longer a resident of Switzerland.
8.
What is the content of such a letter?
Generally, a business conduct letter is based on information in FINMA’s possession (which initially
may only be provisional in nature) that may create doubts about whether the person concerned fulfils
the proper business conduct requirement. This letter reflects neither the validity nor the completeness
of the information available. The person concerned may, if they wish, comment on the facts outlined in
the letter. FINMA states clearly that it reserves the right to investigate whether the person concerned is
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capable of fulfilling this requirement should they take up another position subject to this requirement
(see questions 4 and 5). At this stage, the outcome of the investigation is fully open.
9.
Can an appeal be lodged against the business conduct letter?
No. It does not seek to establish any rights or duties, and does not encroach in any way on the legal
status of the person concerned. In the letter to the addressee, FINMA only makes binding comments
on the proper business conduct requirement if the person concerned has been formally offered a position at a supervised company which is subject to the requirement. This may cause FINMA to instigate
proceedings and to gather further evidence. Such proceedings are time-consuming and may entail
considerable costs for the person concerned.
10. I have received a proper business conduct letter. What must I do?
You are not expected to react. If you wish, you may, however, comment in writing at your earliest convenience on the incident or alleged misconduct which was briefly outlined in the letter.
11. Why does FINMA not respond extensively to my comments on the business conduct
letter?
Sending out a letter does not imply that FINMA is instigating proceedings against the person concerned. This does not change even if you send FINMA your comments on the letter. FINMA will keep
your comments on file. If necessary, at a later stage, FINMA will consult these comments if enforcement proceedings are initiated to investigate the person’s compliance with the business conduct requirement. This person would then participate formally as party to the proceedings.
12. For how long is such a letter valid?
Generally speaking, there are no time constraints on such a letter. If you, nonetheless, have doubts
following a time lapse as to whether the (uninvestigated) incidents or alleged misconduct may still
pose difficulties for compliance with the proper business conduct requirement, you are advised to contact FINMA.
13. Does receiving a proper business conduct letter mean that I may no longer work for a
company supervised by FINMA?
No. You may still continue to work for a company supervised by FINMA as long as the position in
question is not subject to the requirement. Only if the position in question becomes subject to such a
requirement could an investigation be initiated (see question 12).
14. What must I do if one of the companies supervised by FINMA offers me a new job?
FINMA recommends you to clarify whether the new position is subject to the proper business conduct
requirement (see questions 4 and 5). You are advised to contact FINMA if certain issues are still unclear. If the new position is subject to the requirement, you are legally entitled to request FINMA, if
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necessary, to issue a decree stating whether or not you fulfil the requirement for the position in question.
15. If I receive such a letter and I do not contact FINMA before starting a new job will I be
penalised?
If you do not clarify the issue of proper business conduct requirement with FINMA and, where applicable, if you fulfil the requirement before taking up a new managerial position at a company supervised
by FINMA, this does not jeopardise your legal position with FINMA (see question 14). The advantage
of clarifying the issue in advance is that you know whether FINMA has decided to investigate the issue
and, if that is the case, whether you fulfil the requirement. If you ignore these recommendations and
take up such a position without notifying FINMA in advance, there is the risk that FINMA, upon hearing
of your new appointment, initiates proceedings to clarify your fulfilment of the requirement. If FINMA
reaches the conclusion, after formal investigations, that you do not fulfil this requirement, it could request the supervised company to remove you from that position. Thus, there is the risk that FINMA
may initiate formal proceedings liable to charges against the supervised company at which you have
taken up a position subject to the requirement and against you.
You should therefore consider informing your new employer about FINMA's proper business conduct
letter, should you decide not to clarify the issue in advance directly with FINMA.
16. Why does FINMA not make a general investigation of my compliance with the proper business conduct requirement after sending out a letter?
FINMA may not generally assess a person’s compliance with the proper business conduct requirement, i.e. irrespective of the specific circumstances pertaining to the position in question at a certain
company. When assessing the fulfilment of the requirement, FINMA is obliged to look into the specific
function a person subject to this requirement would exercise at a company. This is the case since the
person concerned might fulfil the requirement for a certain position, while they do not fulfil it for another
position. For instance, it does make a difference whether the person concerned would be a member of
the executive board, or the CEO, or the sole executive board member, or a member of the board of
directors or its chairman. The scope and type of the future business activities and the company's size
and complexity are also relevant. Where appropriate, other aspects considered are the nature of the
circumstances which led to a person's dismissal or discharge, the relevance of their indiscretions at
the previous position and their possible effect on the new area of responsibilities, the person's activities and conduct following their resignation and before assuming a new position, and the time elapsed
following the incidents.
17. What is the difference between the practice applied by FINMA concerning the proper business conduct requirement and the likelihood of FINMA issuing an industry ban against an
individual?
Under the Financial Market Supervision Act, FINMA may prohibit a person responsible for a serious
violation of supervisory provisions from acting in a managerial capacity at a supervised company subject to its supervision for a period of up to five years (see Article 33 FINMASA). Furthermore, FINMA
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may prohibit an individual responsible for securities trading working for a securities dealer who has
committed a serious breach of the Stock Exchange Act, the implementing provisions or companyinternal rules from practising securities trading on a permanent or short-term basis (see Article 35a
SESTA).
If FINMA instigates proceedings that could lead to an individual being issued with an industry ban, it
clarifies directly whether the incident at hand is a severe breach of supervisory law, if a clearly defined
person is responsible in terms of supervisory law, and how this is to be evaluated with regard to their
future activity in the financial sector. If, on the other hand, FINMA sends a business conduct letter to
the person concerned, this means that it has, at least for the time being, decided to forego investigating the implication that this person has seriously breached supervisory law.
18. Who can I contact if I have additional questions?
[email protected]
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