I. Withdrawal of recognition (Para. 1)

A. Legal basis

1 Until the entry into force of the FINMASA on January 1, 2009, the conditions for withdrawing the recognition of a self-regulatory organization (SRO) were governed exclusively by Article 28 paragraph 1 AMLA. With the introduction of the FINMASA as an umbrella law for the various areas supervised by FINMA, the supervisory instruments that had previously been regulated by special laws, in particular the withdrawal of licenses, recognitions or admissions, were standardized and harmonized in Art. 37 FINMASA. Since then, Art. 28 AMLA no longer contains the requirements for the withdrawal of an SRO's recognition, but instead refers to Art. 37 FINMASA in para. 1, while para. 2 exclusively regulates the consequences of a withdrawal of recognition for the supervised financial intermediary. The only requirement from the original version of Art. 28 para. 1 AMLA that was retained is the requirement to issue a prior warning of withdrawal.

B. Requirements under Art. 37 FINMASA: grounds for withdrawal

2 FINMA orders the withdrawal of recognition in accordance with Art. 37 para. 1 FINMASA if the SRO either (1) “no longer fulfills the requirements for the activity” or (2) “seriously violates supervisory provisions”. The reasons for the withdrawal of recognition are alternatively, i.e. it is sufficient if the SRO either no longer fulfills the recognition requirements or has seriously violated supervisory provisions.

1. Failure to meet the operating conditions

3 The operating conditions are the recognition conditions for an SRO in accordance with Art. 24 AMLA: (1) The SRO must have regulations in accordance with Art. 25 AMLA; (2) it must prove that it is able to monitor whether the affiliated financial intermediaries are complying with their obligations under Art. 3–11a AMLA; (3 ) the SRO itself and the persons and audit firms entrusted with the control must guarantee irreproachable business and auditing activities; and (4) the audit firms and lead auditors entrusted by the SRO with the control must meet the requirements of Article 24a AMLA.

4 These requirements for recognition must not only be met at the time of recognition, but must be permanently complied with. If, for example, an SRO refuses to adapt its regulations, which were originally approved as part of the recognition process, to the amended requirements of FINMA (AMLO-FINMA), the conditions for recognition are no longer met. If certain conditions were not met at the time of granting the recognition and the administrative act of recognition was thus flawed from the outset, this defect is not remedied retrospectively by the granting of recognition. In such a case, the original recognition can be withdrawn at any time.

5 Furthermore, the recognition requirements must be met cumulatively, so that the elimination of even one requirement would generally be sufficient to call the recognition into question. According to the doctrine, however, it must be an essential requirement; the elimination of a subordinate requirement can be corrected in another way under supervisory law.

2. Serious violation of supervisory provisions

6 As an alternative to the loss of the license conditions, a serious violation of supervisory provisions can also justify the withdrawal of the license. In this context, a broad definition of the supervisory provisions is to be assumed, which, in addition to the FINMASA and the associated ordinances, also includes the AMLA and the ordinances and circulars issued by FINMA.

7 The “seriousness of” a violation of supervisory provisions is an indeterminate legal concept, and FINMA has a certain technical leeway in its interpretation. The principle of proportionality requires that the more serious the measure ordered, the higher the requirements for classifying a violation as “serious”. Since the withdrawal of recognition under Article 37 FINMASA is the ultima ratio under supervisory law, the decision depends to a large extent on the severity of the violation and the significance of the violated provision: a minor violation of an essential provision justifies the withdrawal no more than a serious violation of a subordinate duty does. The severity of the violation must always be assessed on a case-by-case basis, taking into account the specific circumstances.

C. Subsidiarity

8 Art. 28 para. 1 AMLA stipulates that the withdrawal of recognition under Art. 37 FINMASA “shall not be made without prior warning”. This mandatory prior warning of the withdrawal of recognition goes beyond the wording of Art. 37 FINMASA. It remains questionable whether this additional requirement and thus Art. 28 para. 1 AMLA as a whole has any independent significance, since, as explained below, the subsidiarity of the withdrawal of recognition already follows from Art. 31 FINMASA and from the basic principles of administrative law, which must be observed when withdrawing recognition. These basic principles include, in particular, the principle of proportionality enshrined in constitutional law (Art. 5 para. 2 FC), which ensures that state intervention is only permissible if it is appropriate, necessary and proportionate in the strict sense.

9 The legislator regards the withdrawal of recognition under Art. 37 FINMASA as the ultima ratio of the supervisory system. According to the principle of proportionality, this may only be ordered if no suitable, milder measure is available. The proportionality test therefore requires that the withdrawal of recognition is only justified if it appears to be suitable, necessary and proportionate in view of the objective pursued. This means that a less severe measure that is equally suitable for safeguarding the public interest must be given priority. Since the withdrawal of recognition is the most serious measure in the supervisory system, FINMA must first take the necessary supervisory measures in accordance with Article 31 FINMASA to restore compliance and rectify the irregularities. The prior threat of withdrawal should be combined with a demand to rectify the unlawful situation, whereby the threat also implies a reasonable period of time to restore compliance with the law in accordance with Art. 31 FINMASA. One possible measure, for example, could be to demand the removal of the responsible bodies of a legal entity whose organs have violated legal requirements or supervisory provisions.

10 The withdrawal of recognition is to be understood under administrative law as the revocation of an originally granted (police) license in the sense of a ruling under Art. 5 APA. This revocation in turn constitutes a new ruling that is subject to the requirements of a proper administrative procedure. The procedure for the withdrawal of recognition is based on the provisions of the APA. In addition to the formal procedural principles, as regulated in Art. 7 ff. APA, the fundamental principles of administrative law must be observed, including the principle of proportionality, the prohibition of arbitrariness and the right to be heard.

11 When a ruling is revoked, a weighing of interests must be carried out if there is no clear legal regulation or if there is room for interpretation. In this context, the interest in the correct application of objective law must be weighed against the interest in legal certainty and the protection of legitimate expectations. In cases such as the withdrawal of an SRO's recognition, the public interest in the protection of the financial market, for example ensuring market integrity, is on the one hand. On the other hand, there are the private interests of the SRO, whose activities would be completely terminated without recognition. While the proportionality test examines the suitability and necessity of the measure, the weighing of interests ensures that the public interest outweighs the private interest and that less severe measures would be insufficient. Each decision must therefore be based on a careful consideration of the specific circumstances.

D. Legal consequences of the withdrawal for the SRO

12 With the withdrawal of recognition, the SRO loses the right to continue its activity under Article 24 AMLA in accordance with Article 37 para. 2 FINMASA. For the other consequences of the withdrawal, Article 37 para. 2 FINMASA refers to the corresponding financial market laws that apply in the specific case. It should be noted that Art. 28 AMLA does not provide for any additional legal consequences in the event of withdrawal of recognition, unlike other financial market laws, which generally require the authorized company to be dissolved. Even if the purpose of the association is exclusively to act as an SRO, the impossibility of fulfilling this purpose does not constitute a compelling reason for dissolution. The members of the SRO therefore remain bound by their membership for as long as the association continues to exist. However, they are free to leave the association or to decide to dissolve the association at an extraordinary general meeting, if one is convened. The situation is different for SROs that are not a separate legal entity but are part of an industry association. In such cases, the industry association continues to exist but no longer operates any SROs.

II. Consequences for affiliated financial intermediaries (para. 2)

13 Art. 28 para. 2 AMLA requires that all financial intermediaries must submit an application for admission to another SRO within two months if their previous SRO has had its recognition withdrawn.

14 With the entry into force of the FinIA on January 1, 2020, the option to choose between FINMA direct supervision and affiliation to an SRO was eliminated. In this context, the legislator has merely provided that financial intermediaries whose SRO has had its recognition withdrawn must join another SRO. However, practical issues arising from the termination of an SRO's activities – in particular, how to deal with the supervisory gap between the date of the withdrawal of recognition and the date of the financial intermediaries' affiliation to a new SRO – remain unregulated by law.

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Materialis

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.

Botschaft zum Bundesgesetz über die Eidgenössische Finanzmarktaufsicht (Finanzmarktaufsichtsgesetz; FINMAG) vom 1.2.2006, BBl 2006 2829, abrufbar unter https://www.fedlex.admin.ch/eli/fga/2006/303/de, besucht am 23.8.2024.