FINMA clarifies attitude to insolvency regulation

Chris Hamblin

10 April 2018

Swiss banks may agree new financial contracts or amendments to existing financial contracts which are governed by foreign law or a foreign jurisdiction only if the counterparty recognises a stay on termination of contracts by FINMA in accordance with article 30a Banking Act, according to the regulator.

Under article 61a FINMA Banking Insolvency Ordinance, phase 1 of this requirement came into force on 1 April for contracts with domestic and foreign banks and securities dealers. Phase 2, for contracts with other counterparties, will come into force on 1 October.

The amended Banking Ordinance (article 12 para 2) that came into force on 1 January 2016 says that Swiss banks and securities dealers can only sign new contracts under foreign law or with a foreign place of jurisdiction with counterparties that contractually recognise FINMA's power to order a stay on early termination rights. Any such stay is intended to ensure the continuation of crucial contractual relationships in a financial crisis.

FINMA is asking banks to contact 'phase 2 counterparties' at an early stage. Each must:

be able to provide FINMA with detailed information about its preparations for compliance;
be able to show that it is making progress;
terminate a contractual relationship or halt trading, after issuing a warning, if a counterparty "definitively refuses" to accept a contractual amendment.