I. Self-regulatory organization

A. Concept of self-regulation

1 Self-regulation refers to the direct or indirect establishment and enforcement of rights, duties and responsibilities by private individuals in the exercise of a legally granted area of autonomy. A distinction is made between voluntary (genuine) and state-directed (fake) self-regulation: Voluntary (genuine) self-regulation occurs when private individuals, in the exercise of their economic freedom and on the basis of private autonomy, issue statutes, such as rules of professional ethics, or conclude contracts. In the case of state-directed (pseudo) self-regulation, on the other hand, the state lays down the foundations for private self-regulation in a legal enactment. Voluntary or genuine self-regulation is generally considered to be a private autonomous (industry) agreement. By contrast, state-directed (pseudo) self-regulation raises questions of demarcation, particularly with regard to its classification as a private-law agreement or as an actual legislative act of public or private law based on delegated legislative powers.

B. The significance of self-regulation in the AMLA

2 The concept of self-regulation in the fight against money laundering originated in the banking sector: the Agreement on the Swiss banks' code of conduct with regard to the exercise of due diligence (CDB), which has been in force since 1977, is regularly cited as an example of voluntary (genuine) self-regulation. When the Anti-Money Laundering Act was drafted, the legislator relied “heavily on the proven” CDB. In the message on the Anti-Money Laundering Act, it was stated that the law “[...] is based on the principle of self-regulation” and “[...] is characterized by the idea of self-regulation”. Nevertheless, the concept that the legislator introduced for monitoring compliance by financial intermediaries with the duties under the second chapter of the Anti-Money Laundering Act is an application of state-controlled (pseudo) self-regulation: FINMA grants and withdraws recognition of self-regulatory organizations (SROs) by law, supervises them and approves their self-regulatory regulations. In addition, FINMA ensures that the SROs effectively enforce the statutory and regulatory requirements with respect to their affiliated financial intermediaries. As the public role of self-regulation and the public interest associated with combating money laundering have become increasingly important over the past few decades, the fight against money laundering in Switzerland has developed from its initial form of purely private self-regulation into an essential public duty.

C. Organization

3 The law does not prescribe any particular legal form for SROs: they are not even required to be a separate legal entity. As of July 1, 2024 (cut-off date), eleven SROs were authorized by FINMA, which are either organized as an association under Art. 60 et seq. CC or form an organizational unit within an industry association.

II. Recognition: Concept and Legal Nature

4 The term “authorization” is generally used for the power to exercise an activity granted by the FINMA. However, the legislator uses the term “recognition” in this instance, presumably because it is not only about the permission to exercise an operational activity, but also about the transfer of supervisory powers. Nevertheless, “recognition” is indisputably a police authorization, and as such an order in accordance with Art. 5 APA. If the conditions of Art. 24 are met, the SRO is therefore entitled to recognition. An appeal may be lodged with the Federal Administrative Court against the corresponding decision of FINMA (Art. 44 APA).

III. Conditions (Para. 1)

5 An SRO is entitled to recognition if the conditions set out in para. 1 let. a-d are met cumulatively.

A. Regulations in accordance with Art. 25 AMLA (let. a)

6 Art. 24, para. 1, let. a AMLA requires that an SRO has regulations in accordance with Art. 25 AMLA: these regulations must define the duties of due diligence of the affiliated financial intermediaries in accordance with Art. 3–11a AMLA and specify how these are to be fulfilled (Art. 25, para. 2 AMLA). In addition, the regulations must (a) define the conditions for the admission and exclusion of financial intermediaries, (b) specify how compliance with the obligations under Art. 3–11a AMLA is to be monitored and (c) set out appropriate sanctions (Art. 25 para. 3 AMLA). As part of the recognition procedure, FINMA is therefore obliged to check compliance with the conditions set out in Article 25 AMLA and to approve the regulations.

B. Supervision of affiliated financial intermediaries (lit. b)

7 Pursuant to Art. 24 para. 1 let. b AMLA, as part of the recognition procedure an SRO must demonstrate that it is able to supervise the affiliated financial intermediaries to ensure that they comply with their duties under Art. 3–11a AMLA. Since recognition by FINMA is constitutive for an SRO, it cannot carry out any supervisory activities before it is recognized. The examination of the guarantee of supervision is therefore initially carried out hypothetically as part of the recognition procedure. Compliance with the conditions is only examined in practice after the point of recognition. From the perspective of doctrine, the guarantee of supervision includes adequate organization, sufficient personnel and sufficient financial resources.

C. Guarantee, expertise and independence (c)

8 Article 24, para. 1, let. c AMLA requires that both the SRO and the persons entrusted with the control and the audit companies offer a guarantee of irreproachable business and auditing activities. The persons entrusted with the control and the audit companies must also have the necessary expertise and be independent.

9 Regarding the addressees of these requirements, the applicable provision makes it clear that the SRO itself must also guarantee proper business conduct. It is assumed in legal doctrine that this was already implicit in the previous wording, so that the adapted formulation merely represents a clarification. “Audit firms” refers to those within the meaning of Art. 24a AMLA. The term “persons entrusted with control” encompasses all persons who are formally or materially entrusted with control. These include, among others, those who assess the admission of supervised persons, commission the audit, accept audit reports or order and carry out measures and/or sanction proceedings, as well as those who can impose sanctions up to and including exclusion. Persons who carry out purely administrative activities are not included. It should not be assumed that the term “persons entrusted with control” is interpreted broadly.

1. Guarantee

10 Art. 24 para. 1 let. c AMLA requires that the SRO itself provides “guarantees of proper business conduct” and that the persons and audit firms entrusted with the control provide “guarantees of proper auditing conduct”. The guarantee requirement was originally enshrined in the Banking Act (Art. 3 para. 2 let. c BankG) to ensure that a bank is managed by “reliable and professionally competent persons”. In the meantime, the guarantee requirement can be found in most financial market laws. It is an indeterminate legal concept. It is questionable whether the practice developed in banking and stock exchange law can be used for interpretation: the wording of Art. 24 para. 1 let. c AMLA requires that the SRO generally provides “guarantee of proper business conduct”, in contrast to Art. 14 para. 2 lit. b and c AMLA, which only requires financial intermediaries to ‘guarantee the fulfillment of their obligations under the AMLA’. However, since an SRO does not carry out any “business activity” in the sense of a commercial activity, but rather performs a sovereign supervisory function, the scope of the SRO's guarantee requirement is limited to “guaranteeing compliance with legal obligations”. This was already provided for in the message on the AMLA. Consequently, the guarantee requirement imposed on the SRO is to be interpreted by analogy with Art. 14 AMLA: according to the Federal Court, the guarantee requirement in terms of a person's “ability to comply with the law” can be called into question if regulations other than those of the AMLA are violated. However, serious violations of the law are required in order to assume that the guarantee of compliance with the AMLA is no longer fulfilled. In contrast to the guarantee requirement imposed on the SRO, the guarantee requirement for the persons entrusted with the control and audit companies is limited to “proper auditing”. The scope of this requirement must therefore be interpreted narrowly and refers exclusively to the area of auditing. According to legal doctrine, the persons entrusted with the control activity, in particular the lead auditors, must meet increased legal and ethical requirements. In contrast to the guarantee requirement for SROs, however, “serious legal violations” can only cast doubt on the guarantee of these persons if there is a connection between these violations and their professional activity, i.e. AMLA audit activity.

2. Expertise

11 The persons and audit firms entrusted with the audit must have the necessary specialist knowledge. According to the dispatch, it is not possible to provide a general answer as to what requirements are to be set in this regard. From a teaching point of view, the persons entrusted with the audit must have knowledge of Swiss financial market law, in particular in the area of the Anti-Money Laundering Act (AMLA), as well as in-depth knowledge of the industry. In particular, industry SROs require specific knowledge and skills in the respective industry, while cross-industry SROs need the broadest possible technical coverage.

12 However, the necessary professional expertise and industry proximity sometimes conflict with the requirement for independence. Since industry-specific knowledge can generally only be acquired through activities in the respective industry, a certain degree of industry proximity is inevitable. The legislator has stipulated that the recruitment of persons associated with affiliated financial intermediaries is not prohibited in principle; however, it must be ensured that the usual recusal requirements are adhered to. In case of doubt, however, FINMA regularly places more emphasis on independence than on industry-specific knowledge. The requirements for the expertise of audit firms are set out in Art. 24a AMLA.

3. Independence

13 The persons and audit firms entrusted with the audit must be independent of the management and administration of the financial intermediaries to be audited. This is to ensure that the auditors can act with as little influence as possible from the interests of the supervised financial intermediaries and concentrate on the aspects of the audit. Therefore, any constellation that could restrict the freedom of decision should be avoided. According to doctrine, the requirement of independence encompasses legal, personnel and economic aspects. Independence prohibits the controllers, for example, from accepting mandates from supervised financial intermediaries or from holding direct or larger indirect participations in such financial intermediaries. This requirement of independence applies only to the “financial intermediaries to be controlled”; there are no restrictions on financial intermediaries supervised by another SRO.

14 However, complete, unconditional independence – both formal and material – of the control persons is not always possible. The vested interests of the members of the SRO's board of directors, who may be dismissed or not re-elected by the supervised financial intermediaries, are unavoidable. Even if, as proposed by Neese, board members refrain from operational activities and appoint a managing director, there remains an unavoidable residual influence on the employed supervisors due to the relationship of subordination and the obligation to follow instructions. Furthermore, it is in line with the legislator's intention not to demand absolute independence: the message does not require “the recruitment of persons who are not associated with any of the affiliated financial intermediaries in every case. It must merely be ensured that the usual duties of confidentiality are maintained”. While the increasing independence requirements in FINMA's supervisory practice are understandable from a corporate governance perspective, there is a risk that these requirements will outweigh the expertise and industry experience that the system of self-regulation is actually intended to ensure.

D. Ensuring compliance with Art. 24a AMLA (lit. d)

15 Art. 24 para. 1 let. d AMLA requires for the recognition of SROs that the audit firms and lead auditors they appoint to carry out inspections must meet the requirements of Art. 24a AMLA. This means that the SRO is not only responsible for verifying compliance with the admission requirements at the time of admission, but must also ensure the ongoing supervision of the audit firms and lead auditors with regard to their continued compliance with these requirements.

IV. SROs of licensed transport companies (para. 2)

16 Based on Article 24 paragraph 2 AMLA, the recognition of SROs of licensed transport companies under the Passenger Transport Act of 20 March 2009 is subject to the condition that the SROs must be independent in terms of organization and personnel “from the management” of these companies. Two SROs were affected by this regulation: “SRO Post” and “SRO SBB”. PostFinance AG, a wholly-owned subsidiary of Swiss Post Ltd, received a banking license in 2013 and has since been under the direct supervision of FINMA. The “SRO SBB” was replaced by the “SRO VÖV” (Association of Public Transport), and ceased its supervisory activities in 2018. The AMLA members were either taken over by other SROs or placed themselves under the direct supervision of FINMA. Since none of the SROs concerned still exists, this provision is currently redundant.

Bibliography

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Materials

Botschaft zum Bundesgesetz zur Bekämpfung der Geldwäscherei im Finanzsektor (Geldwäschereigesetz, GwG) vom 17.6.1996, BBl 1996 III 1101, abrufbar unter https://www.fedlex.admin.ch/eli/fga/1996/3_1101_1057_993/de, besucht am 23.8.2024 (zit. Botschaft GwG 1996).

Botschaft des Bundesrates an die Bundesversammlung über die Revision des Bankengesetzes vom 13.5.1970, BBl 1970 1144, abrufbar unter https://www.fedlex.admin.ch/eli/fga/1970/1_1144__/de, besucht am 23.8.2024 (zit. Botschaft BankG 1970).