Small banks regime: FINMA adjusts circulars

Dr. Günther Dobrauz Partner and Leader Legal, PwC Switzerland 10 Apr 2019

In 2017, the Swiss Financial Market Authority (FINMA) declared its intent to grant certain exemptions and preferential rules to particularly solid small banks. FINMA’s underlying idea is to reduce the regulatory burden, which has been increasing ever since the 2008 financial crisis, for small banks with above-average capitalisation and high liquidity.

To achieve this, the Federal Council’s Capital Adequacy Ordinance (CAO) and six of FINMA’s circulars are to be amended. FINMA published its intended adjustments on 5 April 2019. The draft of the amended CAO is currently under consultation, while the hearing on the adjusted FINMA circulars is taking place simultaneously. Both the consultation and the hearing will end on 12 July 2019.

The amended CAO provisions will set out criteria to define if a bank qualifies as a particularly solid small bank and state specific quantitative reliefs for these banks. Banks fulfilling the following criteria will be able to benefit from exemptions and preferential rules under the small banks regime:

  • Capital requirements: Simplified leverage ratio of at least 9% for category 4 banks and at least 8% for category 5 banks;
  • Liquidity: Average liquidity ratio of at least 120% over the last twelve months; and
  • Funding: Refinancing ratio above 100%.

In addition, FINMA will grant qualitative reliefs to small banks fulfilling the CAO’s qualification criteria. These will also be partially applicable to companies holding a FINMA license under article 1b of the Banking Act (FinTech companies). Based on the amendments of the CAO, FINMA has made the following changes to its circulars:

  • FINMA Circular 18/3 “Outsourcing – banks and insurers”: Small banks have to conduct a risk analysis when outsourcing services to an external service provider. However, they have less strict guidelines than regular banks when it comes to the form of risk analysis and can align it to the operative and economic criteria relevant to them. Additionally, small banks are exempt from the duty to ensure the orderly re-internalisation of outsourced services. Small banks can replace the controlling and monitoring of external service providers with periodical reporting by an independent auditor. Furthermore, the principle of proportionality will be explicitly incorporated into the circular and will be applicable to all institutions. External providers must inform all banks and insurers before they appoint or exchange relevant sub-contractors. However, it will no longer be necessary for the institutions to give permission for such an appointment or exchange.
  • FINMA Circular 08/21 “Operational risks – banks”: To allow for higher flexibility, small banks can apply only the fundamental principles governing data confidentiality when dealing with electronic client data. Risks regarding confidentiality thereby have to be systematically identified and confined, while the supervisory board must ensure the implementation of risk-mitigating measures. In addition, FINMA clarifies with regard to all banks that risk classification is permitted on a purely qualitative basis and that institutions have extensive leeway when defining the form and implementation of their risk management concept.
  • FINMA Circular 17/1 “Corporate governance – banks”: Small banks are granted preferential treatment in the area of risk control: instead of extensive stress tests, scenario analyses are sufficient; the implementation of risk monitoring systems and methods can be simplified; risk control activities can be outsourced. Small banks can also decrease the frequency of the comprehensive risk assessment by the internal audit to two years, provided there are no substantial changes in the bank’s risk profile. With regard to all banks, FINMA declares that no separate risk management framework needs to be created; rather, the institutions are free to choose an appropriate vessel for their risk management and may use existing documents for this purpose, such as internal policies. 
  • FINMA Circular 16/1 “Disclosure – banks”: Small banks must only disclose the so-called key metrics, as set out in detail in the requirements of the circular.
  • FINMA Circular 17/7 “Credit risks – banks” and 19/1 “Risk diversification – banks”: The draft of the CAO and the amended circulars stipulate that it will be permitted for small banks to use the simplified SA-CCR or market value method to evaluate counterparty risks.

In July 2018, FINMA started a pilot regime with 68 qualified small banks. The pilot project is scheduled to run until the end of 2019, allowing the participating banks to start benefitting from the preferential rules and exemptions for the reporting years 2018 and 2019. The target date for the definitive institution of the small banks regime is 1 January 2020.

Does the small banks regime apply to you? PwC can support you in analysing whether your institution can benefit from the preferential rules of the small banks regime.



Dr. Günther Dobrauz

Partner and Leader Legal, Zurich, PwC Switzerland

+41 58 792 14 97


Dr. Jean-Claude Spillmann

Partner, Head Asset & Wealth Management and Banking Regulatory, Legal, Zurich, PwC Switzerland

+41 58 792 43 94


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