In the first part of its report, the Zimmerli Expert Commission adopted recommendations on the organisation of the Federal Financial Market Supervisory Authority (FINMA) and on the supervisory instruments extending across areas of specialisation. According to the recommendations of the Expert Commission, initially the Swiss Federal Banking Commission (SFBC) and the Federal Office of Private Insurance (FOPI) should be brought together organisationally into the new authority. In the second part of its report, the Expert Commission amends the Federal Act on Financial Market Supervision proposed in the first part of its report (Financial Market Supervision Act [FINMA Act]) through a system of sanctions, demonstrating the sanctioning instruments with which a future FINMA should be equipped.

SFBC report on sanctions (April 2003)

At the request of the Expert Commission, the SFBC has drawn up recommendations on expanding and strengthening the package of sanctions in financial market supervision. In the SFBC report on sanctions published on 3 May 2003, the SFBC concludes that today's scope for imposing sanctions fails to meet the current requirements in terms of financial market supervision. It points out that the system of sanctions is not varied enough and is incomplete and unbalanced. Moreover, the sanctioning procedure has proven cumbersome. FINMA should therefore be able to impose financial sanctions as well as professional sanctions by way of administrative ruling. The procedure should be essentially aligned with the Administrative Procedures Act, but expanded and reinforced by elements of federal criminal procedure. The infractions punishable under administrative law and contained in current supervisory legislation should be reduced to a minimum, and the remaining criminal offences should be punished with administrative sanctions.

The revised system of sanctions

The Zimmerli Expert Commission has examined the SFBC report on sanctions and considers it an innovative basis for discussion. However, it has in part reached different conclusions regarding the actual structure of the sanctioning system based on legal considerations. It proposes renouncing all administrative financial sanctions and continuing to impose fines for breaches of duty under administrative law. Criminal provisions, instead, are prioritised and harmonised, and the range of sentences uniformly lifted. Criminal offences that are not of practical relevance are eliminated. In addition, new harmonised administrative sanctions are proposed.

In criminal law, the following innovations are planned:

• As far as possible, criminal offences that can be formulated uniformly for all special regulations pertaining to the law on financial market supervision are regulated in the FINMA Act. This applies to breaches of duty by auditing companies, criminal offences committed in connection with management of accounts and receipts, examination of annual financial statements and failure to observe the provisions of the supervisory authority.
• All other criminal offences shall remain in the special regulations and be reduced to a minimum, standardised and partly eliminated.
• Offences committed deliberately are categorically punished with a prison sentence of up to three years and a fine without an upper limit (i.e. a maximum of 360 day-sentences and 1,080,000 Swiss francs); offences committed through negligence are punished with a fine of up to 250,000 Swiss francs.
• The FDF, which is already mainly responsible for criminal offences in the supervisory area of the SFBC, is designated as the criminal authority.
• In order to shorten the lengthy process of appealing against the criminal provisions of the FDF, the federal criminal court is appointed as the sole court of first instance for all regulations pertaining to the law on financial market supervision.

For administrative sanctions, the commission presents the following recommendations:

• The declaratory ruling should gain great importance in the system of administrative sanctions: If the supervised institute is accused of a serious violation of supervisory provisions, FINMA has to make an official statement in the form of a contestable provision. This has the nature of a sanction and may be challenged as part of an administrative judicial procedure.
• FINMA should be able to collect profits deriving from serious violations of supervisory provisions. The same applies to avoided losses.
• If FINMA detects a serious violation of the institute's supervisory provisions, it may impose on the person responsible a limited suspension of professional activity in a managerial capacity.
• In the case of serious violations of the supervisory provisions, FINMA may publish its final decision (for example by withdrawing its licence or with a declaratory ruling). By creating a legal basis for the publication of FINMA's sanction-related decisions, FINMA receives the authority to adopt the practice of "naming and shaming" as a means of imposing sanctions. It is also common international practice to announce sanctions.

No recommendations on insider trading or share price manipulation

As far as market supervision is concerned, the Expert Commission will not be taking any further measures. It recommends restricting oneself in this area to the pending revision of Articles 161 and 161bis of the Swiss Criminal Code in connection with the implementation of the anti-money laundering measures of the Financial Action Task Force on Money Laundering (FATF).

Further action for the Expert Commission

Work on expanding prudential supervision has not yet been completed. The Expert Commission is expected to draw up a third report after consulting the head of the FDF.

For more information, please contact Barbara Schaerer, Federal Department of Finance, vice-president of the Expert Commission, telephone: +41 (0) 31 322 60 18

16 Aug 2004