Synopsis of the most important regulatory developments

Transcription

1 Synopsis of the most important regulatory developments Status as at 1 March 2018 Banking and Asset Management what counts

2 Synopsis of the most important developments (status as at 1 March 2018) Interdisciplinary projects page Auditing FINMA circ. 13/3 'Auditing' 5 Anti-money laundering/compliance Federal Act to Increase the Effectiveness of 5 Combating Money Laundering and Terrorist Financing Anti-Money Laundering Ordinance (AMLO- 5 FINMA) Mise en œuvre des recommandations du 6 Forum mondial relatives à la transparence des personnes morales et à l échange de renseignements émises FINMA circ. 16/7 Video and online 6 identification Organisation of financial market Financial Services Act (FinSA) 6 Financial Services Ordinance (FinSO) 6 Financial Institutions Act (FinIA) 7 Financial Institutions Ordinance (FinIO) 7 Financial Market Infrastructure Ordinance 7 (FinMIO) (revised risk mitigation duties) FINMA Financial Market Infrastructure 7 Ordinance (FMIO-FINMA) (introduction of a clearing obligation) FINMA circular 08/4 Record of securities 7 transactions FINMA circular 08/11 Reporting duty for 8 securities transactions FINMA circ. 18/2 Disclosure require-ments 8 for securities transactions (total revision) FINMA circ. 18/1 Organised trading facility 8 FINMA guidance 02/2017 (FMIA: reporting 8 requirements/trade repositories) Other topics Amendment to the Code of Obligations (Law 9 on companies limited by shares) Amendment of the Gender Equality Act 9 (EqA)(introduction of regular pay analyses) EU General Data Protection Regulation (EU- 9 GDPR) Federal Act on Data Protection (FADP) (total 10 revision) Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Development Consideration by Parliament In force, end of final transition period Hearing/consultation Publication of final regulation Full application Publication results of hearing/consultation/dispatch Referendum deadline Estimated/approximately PwC Synopsis of the most important regulatory developments (as at 1 March 2018) 2

3 Banks/securities dealers Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug page Accounting FINMA circ. 15/1 Accounting banks 10 (ARB) (Expected loss adjustment) Disclosure FINMA circ. 08/22 Disclosure 10 FINMA circ. 16/1 Disclosure (phase I) 11 FINMA circ. 16/1 Disclosure (revision due to 11 new corporate governance requirements) FINMA circ. 16/1 'Disclosure' (clarification on 11 transitional periods) FINMA circ. 16/1 Disclosure (phase II) 12 FINMA circ. 16/1 Disclosure (phase III) 12 Capital adequacy/risk diversification Ordinance on Capital Adequacy and Risk 12 Diversification (CAO) (revision dated 1 June 2012) Ordinance on Capital Adequacy and Risk 13 Diversification (CAO) ('too big to fail) CAO / FINMA circ. 17/7 Credit risks 13 FINMA circ. 17/7 Credit risks (credit risk 14 management requirements) FINMA circ. 17/7 Credit risks' (replicate 14 extensions to SA-CCR and MCA transition periods) CAO / FINMA circ. 19/1 Risk diversification 14 FINMA circ. 08/23 'Risk diversification' 14 CAO (setting minimum requirements for 14 leverage ratio) FINMA circ. 15/3 Leverage ratio (optional 15 use of SA-CRR) CAO / FINMA circ. 08/20 Market risks 15 (fundamental review of the trading book) FINMA circular 11/2 'Capital buffer and 15 capital planning banks' FINMA circ. 13/1 Eligible equity capital 15 bcao k (gone concern requirements) 16 Basel III framework revision (post-crisis 16 reforms) Liquidity Liquidity Ordinance (LiqO) / FINMA circ /2 'Liquidity risks' (quantitative requirements) Liquidity Ordinance (LiqO)(relaxation of 17 LCR) Liquidity Ordinance (LiqO)/FINMA circ /2 Liquidity risks (partial revision of ) PwC Synopsis of the most important regulatory developments (as at 1 March 2018) 3

4 page Organisation/risk management FINMA circ. 17/1 Corporate governance 17 FINMA circ. 10/1 Remuneration schemes 17 FINMA circ. 08/21 Operational risks 18 FINMA circ. 08/6 Interest rate risks 18 FINMA circ. 18/x Interest rate risks 18 FINMA circ. 08/7 Outsourcing' 18 FINMA Banking Insolvency Ordinance 19 (partial revision) Financial groups and conglomerates under 19 the BankA Fintech BankA (reducing the market entry barriers 19 for Fintech companies) BankO (implementation of less stringent 19 licencing requirements for Fintech companies) BankO (reducing the market entry barriers 19 for Fintech companies) FINMA circ. 08/3 Public deposits with nonbanks (amendments due to Fintech 20 provisions) Other topics Strengthening depositor protection 20 FINMA circ. 08/1 'Authorisation and 20 reporting obligations' Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Fund management companies/investment funds/representatives of foreign collective investment schemes Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug page SFAMA guidelines for money market funds PwC Synopsis of the most important regulatory developments (as at 1 March 2018) 4

5 Most important aspects and changes Interdisciplinary projects Regulation Most important aspects/changes Status Auditing FINMA circular 13/3 'Auditing' Greater reliance on the work performed by Internal Audit. Relaxation of the audit cycles within the basic audit: Audit areas with 'medium' net risk: audit every 6 years instead of a 3-year cycle; Focus of regulatory audit for banks with no issues every 3 years (category 5) and every 2 years (category 4). Increased FINMA interventions (on-site audits/supervisory reviews) by means of case-related interventions by FINMA itself or its appointed agent. Audit procedures controlled using the cost estimate to be submitted to FINMA along with the audit strategy. Hearing until 31 January 2018 force: 1 January 2019 Anti-money laundering/compliance Federal Act to Increase the Effectiveness of Combating Money Laundering and Terrorist Financing Anti-Money Laundering Ordinance (AMLO- FINMA) Implementation of recommendations from the 2016 FATF mutual evaluation report of Switzerland. Improving conformity with FATF standards. Verification of the information about the beneficial owner using a risk-based approach even for normal risk clients. Duty to update regularly customer information for all business relationships. Extension and specification of the criteria that indicate business relationships involving higher risks. Specification of the requirements relating to groupwide compliance with the fundamental principles of money-laundering prevention and the overall monitoring of legal and reputation risks by financial intermediaries engaged in activities abroad. Threshold for cash transactions with occasional customers and the subscription of unlisted collective investment schemes lowered from CHF 25,000 to CHF 15,000. Duty to check the information about the client and the beneficiary involved in a payment transaction. Hearing expected from June to September 2018 Hearing until 16 October 2017 force: 2019 PwC Synopsis of the most important regulatory developments (as at 1 March 2018) 5

6 Federal Act to Implement the Recommendations of the Global Forum on the Transparency of Legal Entities and the Exchange of Information for Tax Purposes FINMA circular 16/7 Video and online identification Conversion of bearer shares into registered shares for non-listed companies and companies that do not issue shares as book-entry securities. Introduction of a system of sanctions for breaches of the following duties: Reporting by the shareholders of the beneficial owners; Keeping registers of shareholders and beneficial owners. Right of inspection of authorities and financial intermediaries. Amendments to various laws, incl. Code of Obligations, Criminal Code and Collective Investment Schemes Act. Amendment of the circular to take into consideration rapid technological change. Video identification: Verification using a one-time transaction number (TAN) is no longer required; At least three randomly selected optical security features contained in the identification documentation should now be verified; Online identification: Customer due diligence no longer requires payment transfer from a Switzerland-based bank. Under specific rules, a payment transfer from a bank based in a Financial Action Task Force (FATF) member country will now suffice. Using liveness detection to check photos. Hearing until 24 April 2018 Hearing until 28 March 2018 Transition period: 6 months after publication Organisation of financial market Financial Services Act (FinSA) Financial Services Ordinance (FinSO) Adjustment of behaviour and product rules to the customer segment (private customers/professional customers): Information on financial services provider, services and product, incl. by means of a basic information sheet; Suitability check before transactions with financial instruments (except execution-only ); Suitability check if providing advice and asset management. Obligation for client advisors (relationship managers) to be entered in a public register and to undertake initial and further training. Extension of legal means in favour of customers, incl. right to demand publication of documents. Specification of the implementation provisions relating to the Financial Services Act. Regulations relating to the offering of financial services. Considered by the Council of States on 14 December 2016 and by the National Council on 13 September 2017; next consideration by the Council of States on 7 March 2018 force: 2019 Hearing expected from June to September 2018 PwC Synopsis of the most important regulatory developments (as at 1 March 2018) 6

7 Financial Institutions Act (FinIA) Financial Institutions Ordinance (FinIO) Financial Market Infrastructure Ordinance (FMIO) (revised risk mitigation duties) FINMA Financial Market Infrastructure Ordinance (FMIO- FINMA) (introduction of a clearing obligation) FINMA circular 08/4 Securities journals Supervision of all financial service providers who operate an asset management business in any form whatsoever is to be governed in a uniform piece of legislation. Managers of individual client assets as well as those who manage the assets of Swiss occupational benefits schemes will require a license in the future. Specification of the implementation provisions relating to the Financial Institutions Act. Regulations relating to authorisation and organisational requirements for regulated financial institutions. Alignment of the obligations set out in the FMIA relating to the exchange of collateral for OTC derivative transactions not cleared by a central counterparty. Extension of the exceptions to the collateral duties. New clearing obligation will apply to standardised interest rate and credit derivatives traded over the counter (OTC). Obligation applies to financial and non-financial counterparties whose positions in OTC derivatives transactions exceed the clearing thresholds set forth under art. 88 FMIO (credit/equity derivatives: CHF 1 billion; interest rate/currency/commodity and other derivatives: CHF 3.3 billion). The FMIO-FINMA will enter into force only after FINMA has authorised or recognised the key CCPs for Swiss market participants. After the entry into force of Annex 1 of the FMIO- FINMA, transitional periods ranging from 6 to 18 months will apply to the market participants affected (depending on their classification) before compliance with the clearing obligation becomes mandatory. Formal amendments to the new legal provisions. Extension of the duty to maintain a securities journal to orders and transactions involving derivatives. Obligation to maintain a journal for derivatives that must be disclosed according to FINMA circ. 18/2 Disclosure requirements for securities transactions. Documentation of the beneficial owner. Considered by the Council of States on 14 December 2016 and by the National Council on 13 September 2017; next consideration by the Council of States on 7 March 2018 force: 2019 Hearing expected from June to September 2018 In force since 1 August 2017 Consultation until: 12 February 2018 Publication of final regulation expected in Q January 2018 PwC Synopsis of the most important regulatory developments (as at 1 March 2018) 7

8 FINMA circular 18/2 Disclosure requirements for securities transactions (total revision of previous FINMA circ. 08/11 Disclosure requirements for securities transactions ) FINMA circular 18/1 Organised trading facilities FINMA guidance 02/2017 and 05/2017 (FMIA: reporting requirements/trade repositories) Disclosure required of derivatives with more than one underlying security if the proportion of those securities authorised for trading on a Swiss venue/platform amounts to at least 25%. Definition of the term beneficial owner. Definition of reference for the identification of the beneficial owner in relation to a transaction by means of nationality, date of birth and the internal bank code, or Legal Entity Identifier (LIE). Aggregated orders must now be reported both when they are executed on the stock exchange and upon definitive allocation to clients. Specification of the requirements of art FMIO for the operation of an organised trading facility. Definition of the terms organised trading facility, discretionary/non-discretionary trade, multilateral/bilateral trade and traded financial instrument. Description of the duties of an operator of an organised trading facility. The authorisation of a Swiss trade repository (SIX Trade Repository AG) and the recognition of a foreign trade repository (Regis-TR S.A.) trigger the requirement for Swiss market participants to report derivatives transactions. Open derivatives transactions must be reported from the following dates at the latest: From 1 October 2017, if the counterparty which is required to report is a central counterparty (CCP) or a financial counterparty (FC) which is not small; From 1 January 2018, if the counterparty which is required to report is a small financial counterparty (FC-)2 or a non-financial counterparty (NFC) which is not small; From 1 January 2019, in all other cases; however, transactions between two small non-financial counterparties (NFC-) do not have to be reported. 1 January 2018 Revocation of previous FINMA circ. 08/11: 31 December January 2018 Reports have to be made (depending on the type and size of the persons subject to the reporting requirement) by 1 January 2019, at the latest PwC Synopsis of the most important regulatory developments (as at 1 March 2018) 8

9 Other topics Amendment of the Code of Obligations (Law on companies limited by shares) Amendment of the Gender Equality Act (EqA) (introduction of regular pay analyses) EU General Data Protection Regulation (EU- GDPR) Transfer of the provisions of the Ordinance against excessive remuneration in listed companies limited by shares (ERCO) to federal law. Establishes guidelines for signing-on bonuses and compensation for prohibition of competition. Liberalisation of the incorporation and capital provisions. Better alignment of Company Law to the new Accounting Law, e.g. regarding a company s own shares and the use of foreign currencies in accounting and financial reporting. Gender quotas for the Board of Directors (min. 30% each) and Executive Board (min. 20%) of large listed companies, comply or explain clause. Proposed solutions with regard to shares held that are not recorded in the stock register (so-called dispo shares ). Increased transparency requirements applicable to the commodities sector through the disclosure of payments to state-owned entities. Employers with at least 50 employees must perform a pay analysis every 4 years. Pay analyses performed using standard analysis model provided by the Federal Government or using a scientific and legally compliant method. Review of internal pay analysis by an independent body: Authorised audit firm; Recognised equal pay experts; or Organisations for the representation of employees or the promotion of gender equality. Duty to provide information to shareholders of listed companies and to employees. Significant tightening of the rules regarding the use, collection, storage and sharing of data. Applicable to companies based in Switzerland if they process that personal data of EU citizens and if goods or services are offered in the EU. Serious breaches of the law punished by fines of up to either 4% of group annual turnover or EUR 20 million. Federal Dispatch to Parliament published on 23 November 2016 Consideration by Parliament pending Federal Dispatch published 5 July 2017 Council of States referred the bill for review to the advisory committee; expected to be considered again by Council of States in June May 2016 Transition period until 25 May 2018 PwC Synopsis of the most important regulatory developments (as at 1 March 2018) 9

10 Federal Act on Data Protection (FADP) (total revision) Extended duties to provide information and keep records. Strengthening of the supervisory body and tighter sanctions. Takes into consideration the EU's General Data Protection Regulation (EU-GDPR), which applies as of 25 May 2018, and the Council of Europe's Convention for the Protection of Individuals with regard to Automatic Processing of Personal Data (ETS 108). Companies that have cross-border business in the EU must observe the provisions of EU-GDPR. Federal Dispatch published 15 September 2017 Consideration by Parliament pending Banks/securities dealers Regulation Most important aspects/changes Status Accounting FINMA circular 15/1 Accounting banks (ARB) (expected loss adjustment) Disclosure FINMA circular 08/22 Disclosure banks (FINMA circular dated 20 November 2008, with amendments of 29 October 2014) Parts of the FINMA circular incorporated in a new FINMA ordinance on accounting. Introduction of an expected loss approach to determine value adjustments. Category 1 and 2 banks and IRB banks: modelbased calculation of expected losses; Category 3 banks: simple approach to calculate expected losses not based on models; Other banks: simplified approach for the creation of allowances for latent risks of default based on the rules currently in force. Existing FAQs integrated in the circular with only formal amendments with no material impact expected. Acceptance of requirements concerning qualitative and quantitative disclosure of: Leverage ratio; Liquidity coverage ratio (LCR). From 2015: disclosure of capital adequacy according to the previously applied periodicity: For banks with annual disclosure: until end of April 2016 at the latest (based on year-end 2015 figures); For banks with semi-annual disclosure: until end of August 2015 (based on figures as of end of June 2015). Hearing expected: mid-2018 Transitional deadline for implementation of expected loss approach: 1 January January 2015 Progressively replaced by FINMA circ. 16/1 PwC Synopsis of the most important regulatory developments (as at 1 March 2018) 10

11 FINMA circular 16/1 Disclosure banks (phase I FINMA circ. dated 28 October 2015) FINMA circular 16/1 Disclosure banks (revision due to new corporate governance requirements) FINMA circular 16/1 Disclosure banks (specification of transition periods) Total revision and replacement of former FINMA circular 08/22 Disclosure banks, with focus on standardising certain tables in order to improve comparability. Exemption from detailed disclosure requirements according to the Basel standards for smaller institutions (FINMA supervisory categories 4 and 5). Significant, one-off conversion costs expected for about 30 institutions of supervisory categories 1 to 3. First annual disclosure for banks in: Regulatory category 1, by end of April 2017 latest for the financial year ending 31 December 2016; Regulatory categories 2 & 3, by end of April 2018 latest; Regulatory categories 4 & 5, by end of April 2019 latest. Banks that apply the consolidation discount and foreign-owned banks exempted from the detailed disclosure obligations: publication of at least 6 key figures in the management report, for the first time as of 31 December Regulatory requirements concerning disclosure bundled in FINMA circular 16/ Disclosure requirements for corporate governance specified. Organisation, committees, composition, experience and independence of the BoD; Composition, professional experience and training of BoD members; Duty to disclose certain aspects according to SIX Directive on Information relating to Corporate Governance for category 1 to 3 banks. Duty to update information on internet site within 3 months. Amendment of mn 59 and 60 in the transitional provisions of the circular. Clarification that the first-time disclosures in accordance with Appendix 7 (corporate governance) shall be in 2017 annual reports For category 4 and 5 banks; and For banks that continue to apply SA-CH. 1 January 2016 Transition period until January 2017 First-time implementation of disclosure requirements as of the 2017 annual report 21 September 2017 PwC Synopsis of the most important regulatory developments (as at 1 March 2018) 11

12 FINMA circular 16/1 Disclosure banks (phase II) FINMA circular 16/1 Disclosure banks (phase III) Capital adequacy/risk diversification Ordinance on Capital Adequacy and Risk Diversification (CAO) (total revision of 1 June 2012) Partial revision of the circular aiming to enhance comparability by standardising requirements for the content of disclosures. The key amendments are: Summary table of key regulatory indicators (key metrics); Tables of revised standards on interest rate and market risks; Tables for global systemically important banks with regard to TLAC requirements; Tables on remuneration and prudential value adjustments; No requirement to explain why reasons if information is not published because it is not material. Expected to be applicable to disclosures as of 31 December 2018; earlier adoption is permitted. Extension of the duties of disclosure. Comprehensive revision of capital adequacy, risk diversification and liquidity rules due to changes to the Basel III rules. More stringent requirements concerning quality and amount of equity. Swiss finish discontinued (Swiss standard approaches to credit risk measurement and risk diversification), with a transitional period running until 31 December 2018 at the latest. Hearing until: 31 January 2018 Expected enactment of the regulations in April 2018 force: 31 December 2018 In preparation 1 January 2013 Extensive transitional period from 2013 until 2018 PwC Synopsis of the most important regulatory developments (as at 1 March 2018) 12

13 Ordinance on Capital Adequacy and Risk Diversification (CAO) (amendment of too big to fail provisions) Newly calibrated overall requirements for going-concern capital of systemically important banks: Basic requirement: 4.5% leverage ratio % of risk-weighted assets; Progressive component depending on market share; Progressive component depending on total commitment. Extension of counter-cyclical buffer for large banks with significant accounts receivable in the foreign private non-banking sector: Capital buffers calculated as the weighted average of the buffers in effect in the member states of the Basel Committee to which banks have significant credit exposure; The extended counter-cyclical capital buffer is limited to 2.5% of the weighted exposure. Transfer from FINMA circ. 11/2 Capital buffer and capital planning banks of: Capital ratios and capital buffer in the Capital Adequacy Ordinance (CAO); and Categorisation of banks in the Banking Ordinance (BankO). 1 July 2016 Various transitional periods until 2019 latest Ordinance on Capital Adequacy and Risk Diversification for Banks and Securities Traders (CAO) FINMA circular 17/7 Credit risks banks (total revision of FINMA circular 08/19) Adaptation of calculation of credit equivalents for derivatives: Introduction of a standard approach to calculate the credit equivalent amount of derivatives (SA- CCR); Simplified SA-CCR for institutions of supervisory categories 4 and 5; Simplified SA-CCR for category 3 institutions under certain conditions. Adaptation of methodology and risk weight rates for the coverage of unit shares in collective investment schemes: Introduction of various approaches to calculate the capital adequacy requirements: Lookthrough approach LTA, mandate-based approach MBA or fall-back approach FBA; Institutions in supervisory categories 4 and 5 are allowed to apply the fallback approach FBA with a risk weight of 250% instead of 1,250%, if the fund has a synthetic risk indicator of 1 to 4; Fallback approach permitted for category 3 institutions under certain conditions. Revision of regulatory capital for securitisation positions on the banking book. Revisions to the Ordinance published on 23 November 2016 Revisions to FINMA circular published on 19 December January 2017 with transition period until 1 January 2020 (Extended with the publication of the revised CAO dated 22 November 2017) PwC Synopsis of the most important regulatory developments (as at 1 March 2018) 13

14 FINMA circular 17/7 Credit risks banks (eligibility of life insurance policies/shares in MCA) FINMA circular 17/7 Credit risks banks (replicate extensions to SA-CCR and MCA transition periods) Ordinance on Capital Adequacy and Risk Diversification for Banks and Securities Traders (CAO) FINMA circular 19/1 Risk diversification banks (amendments to risk diversification rules) Ordinance on Capital Adequacy and Risk Diversification (CAO) (setting minimum requirements for leverage ratio) Definition of the eligibility of spouses' life insurance policies. Extension of simplified risk-weighting approach of unit shares in managed collective assets (MCA) for instruments with a risk indicator >4. Replicate in the circular the transition periods from the revision of the Capital Adequacy Ordinance dated 22 November 2017: Extension of transition period for applying SA- CCR instead of the current exposure method from January 2018 to January 2020; Extension of transition period for applying the new capital adequacy rules for shares in managed collective assets (MCA) held in the banking book from 1 January 2018 to 1 January Use of freely available capital to cover exposures higher than the 25% limit is discontinued, except with regard to the processing of client payments for a maximum period of five bank working days and corporate affiliations. Exceptions to the 25% upper threshold limited mainly to positions with central banks and central governments and central counterparties. Receivables due from mortgage bond institutions weighted at 10%. Modification of reporting method. Obligation to report by end of May 2018 large exposures likely to exceed the 25% upper threshold when the new rules enter into force. Extension of transition period for the introduction of SA-CCR and the weighting of shares in managed collective assets from 12 to 36 months. New circular replaces FINMA circ. 08/23 Risk diversification banks. Rules relaxed for category 4 and 5 banks. Minimum requirements relating to the leverage ratio set at 3% of core capital divided by unweighted total exposure. Hearing until: 31 January 2018 Expected enactment of regulations: April 2018 force: January 2019 Hearing until: 15 February 2018 Entry into force: 1 January January 2018 PwC Synopsis of the most important regulatory developments (as at 1 March 2018) 14

15 FINMA circular 15/3 Leverage ratio (optional use of SA-CRR) Ordinance on Capital Adequacy and Risk Diversification for Banks and Securities Traders (CAO) FINMA circular 08/20 Market risks banks (fundamental review of the trading book modifications) FINMA circular 11/2 'Capital buffer and capital planning banks' FINMA circular 13/1 Eligible equity capital banks (partial revision) Introduction of optional use of SA-CRR (standardised approach for measuring counterparty credit risk) in accordance with art. 57 CAO instead of the current exposure method to include derivative positions in the calculation of the leverage ratio. If SA-CCR is used as an option: Category 1 to 3 banks: obligation to report to FINMA information about the impact; Category 3 and 4 banks: no reporting obligation; Disclosure of the methodology when SA-CCR used as an option. Implementation of the results of the fundamental review of the trading book (FRTB) for the market risk conditions of the Basel Committee on Banking Supervision (BCBS). Implementation requires further revision of the Capital Adequacy Ordinance (CAO) and FINMA circular Market risks banks. Due to the delay in implementation in other jurisdictions, especially the European Union, the law will enter into force in Switzerland as of 31 December 2020 at the earliest. Further delay expected until 2022 due to the postponement of implementation by the Basel Committee. Removed provisions on bank categories and capital buffers as included in new provisions of the CAO. Definition of the calculation of the target capital amount (=total capital ratio + countercyclical buffer + institution-specific capital buffer). Established percentage equity capital shortfall requiring measures to be taken. Implementation of rules valid from 2019 relating to the treatment for capital adequacy purposes of TLAC instruments Specification of valid practice for the recognition of value adjustments for latent default risks: Recognised in Tier 2 capital; or Deducted from related balance-sheet or off-balance-sheet item. Revision of the regulatory filter due to the change in IFRS. Hearing until: 15 February 2018 Expected hearing: Q Expected enactment of the regulations in December 2019 force: January 2022 Hearing until: 31 January 2018 Expected enactment of the regulations in April 2018 force: 1 January 2019 Hearing until: 31 January 2018 Expected enactment of regulations: April 2018 force: 1 January 2019 PwC Synopsis of the most important regulatory developments (as at 1 March 2018) 15

16 Capital Adequacy Ordinance (CAO) (gone concern capital, deduction of financial interests in subsidiaries and other amendments) Introduction of gone concern capital requirements for domestic systemically important banks (D-SIBs). Stakes in group companies active in financial services: deduction of financial interests from capital (in an individual company perspective) replaced by a financial interest risk-weighting for group companies based in: Switzerland: 250% Abroad: 400% Group companies that provide the services necessary for the continuation of a bank's business processes will now be subject to consolidated supervision by FINMA. Consultation expected until 30 May 2018 force: 1 January 2019 Basel III framework revision (post-crisis reforms) Revisions to the standardised approach for weighting credit risks: Greater differentiation of risk weights rather than using flat rates, especially for exposures secured by residential or commercial property depending on the loan.to-value ratio; Further assessment requirements for the application of external ratings. Use of the advanced IRB approach not allowed for certain exposure classes, especially exposures to corporates and to financial institutions. Revisions to the calculation methodology of credit valuation adjustments (CVAs). Replacement of previous approach to minimum capital requirements for operational risk (basic indicator, standardised and advanced measurement approaches) by standardised approach based on earnings and historical losses. Revision of the calculation methodology of the leverage ratio and introduction of a leverage ratio buffer for global systemically important banks (G-SIBs). Output floor set for the internal model-based approaches at minimum of 72.5% of risk-weighted assets calculated using the standardised approaches. Entry into force of the requirements for calculating minimum capital requirements for market risks (FRTB) postponed from 2019 to 1 January Implementation of most of the Basel Committee s reforms by 1 January 2022 Phased increase of output floors for internal model-based approaches from 2022 to 2027 PwC Synopsis of the most important regulatory developments (as at 1 March 2018) 16

17 Liquidity Liquidity Ordinance (LiqO) (adaptation of quantitative requirements) FINMA circular 15/2 Liquidity risks banks (qualitative requirements for liquidity risk management and quantitative requirements for liquidity maintenance of 3 July 2014) Liquidity Ordinance (LiqO) FINMA circular 15/2 Liquidity banks (relaxation of LCR) Liquidity Ordinance (LiqO)/FINMA circular 15/2 Liquidity risks banks (partial revision of NSFR) Replacement of present regulation total liquidity with compliance with Liquidity Coverage Ratio (LCR) as of 1 January 2015 with in principle monthly duty to report within 20 working days: From 1 January 2015, non-systemically important banks compliance set at 60 %, with gradual increase in the percentage up to full compliance as of 1 January Introduction of Net Stable Funding Ratio (NSFR) as well as further observation ratios: Test reporting in 2015; Mandatory reporting as of Q to end FINMA given the authority to implement relaxations for category 4 and 5 banks with regard to evidence that the LCR has been maintained. Discontinuation of additional audit of the recognition as HQLA of securities held abroad and denominated in foreign currencies recognised by the SNB as acceptable for repo transactions. Principle of proportionality not extended in general to category 3 banks. Simpler method to evidence liquidity for category 4 and 5 banks. Enactment of mandatory requirements relating to the Net Stable Funding Ratio (NSFR). Postponement of decision on introduction of NSFR in Switzerland until end of 2018 due to significant international delays. 1 January 2015 Various transitional periods up to 1 January 2019 at the latest 1 January 2018 Hearing until: 10 April 2017 Reassessment of further action: end 2018 Organisation/risk management FINMA circular 17/1 Corporate governance banks (total revision of FINMA circular 08/24 Supervision and internal control banks ) FINMA circular 10/1 Remuneration schemes Obligation to comply in full with the revised circular as of 1 July Transition period until 30 June 2018 for: One third rule on the independence of the Board of Directors; The drafting and approval of a framework for institution-wide risk management; The establishment of an audit committee and a separate risk committee for institutions in supervisory categories 1 to 3, with possibility to combine the committees for category 3 institutions; The maintenance of a separate CRO position, also as part of the executive board, for systemically important institutions. Applicability is limited to banks required to maintain equity capital in the amount of at least CHF 10 billion (previously CHF 2 billion). Clawback clause waiver. 1 July 2017 Individual transitional periods end 30 June July 2017 PwC Synopsis of the most important regulatory developments (as at 1 March 2018) 17

18 FINMA circular 08/21 Operational risks banks FINMA circular 08/6 'Interest rate risks banks' FINMA circular 18/x Interest rate risks banks (total revision) FINMA circular 18/3 Outsourcing banks and insurers (total revision) Category 4 and 5 banks are classed as small banks with regard to the qualitative requirements. FINMA decides whether an institution is a small or a large bank and not the auditor as previously. Integration of principles and requirements for IT risk and cyber risk management concepts. Requirements concerning the maintenance of critical services in cases of insolvency (applies to systemically important banks). Integration of the principles for risks relating to cross-border services. Repeal of the circular, which is replaced by the new FINMA circular 'Interest rate risks banks'. Measurement of interest rate risks using internal interest rate stress and shock scenarios as well as standard interest rate shock scenarios required by supervisory law. Scenarios for small banks in categories 4 and 5 may be relaxed under certain conditions. Specifications concerning the duties of the governing body, internal reporting, risk appetite, data integrity and validation as well as internal risk capacity. Disclosure of information on interest rate risk. Threshold to identify institutions with threatening interest rate risks (15% of Tier 1 capital). Replaces FINMA circular 08/7 Outsourcing banks. Obligation to maintain a record of all outsourced services. Requirements of the circular apply to intra-group outsourcing. However, rules may be relaxed if risks are proven not to exist or requirements are not relevant. In case of outsourcing abroad, all the necessary data required in the event of restructuring, resolution and liquidation must be accessible in Switzerland at all times. Extension of the area of application to include insurance companies. 1 July 2017 Expected repeal as of 31 December 2018 Hearing until: 31 January 2018 Expected enactment of the regulations: April 2018 force: 1 January 2019 Entry into force: 1 April 2018 After entry into force: immediate application to new or modified outsourcing arrangements Transition period of five years to amend pre-existing outsourcing arrangements PwC Synopsis of the most important regulatory developments (as at 1 March 2018) 18

19 FINMA Banking Insolvency Ordinance (BIO- FINMA) (partial revision) FINMA FAQ Consolidated supervision of banks and securities dealers Fintech Banking Act (BankA) (reducing the market entry barriers for Fintech companies) Banking Ordinance (BankO) (implementation of less stringent licencing requirements for Fintech companies) Banking Ordinance (BankO) (reducing the market entry barriers for Fintech companies) Specifying the regulations that entered into force as of 1 January 2016 in art. 30a BankA and art. 12 para. 2 bis BankO requiring banks to accept amendments to contracts or conclude new contracts that are subject to foreign law or a foreign place of jurisdiction only if the contracting party acknowledges a postponement of the termination of contracts in accordance with art. 30a BankA. Only applies to conventional contracts used for financial market transactions. Clarification that the revision has to be undertaken only for amendments to contracts or new contracts. FAQ Consolidated supervision of banks and securities dealers deleted without replacement. Current FAQs on financial groups and conglomerates and on consolidated supervision will not be moved into a new circular. Current FINMA practice to continue unchanged. Less stringent authorisation and operating requirements for institutions not active in lending and investing activities and with non-interest-bearing deposits up to CHF 100 million and as well as lower requirements concerning minimum capital, equity and liquidity. Amendments to the BankA occur within the scope of the consultation of the Financial Services ACT (FinSA) and the Financial Institutions Act (FinIA). Implementation of less stringent authorisation for Fintech companies, expected to be inserted in the Banking Act by Parliament within the context of consultations on the Financial Services Act and the Financial Institutions Act. Extension of deadlines for settlement accounts from 7 to 60 days. Permitted to take deposits from the public up to a total of CHF 1 million without requiring a licence. 1 April 2017 Transition periods up to 12 or 18 months after entry into force of the provisions Deletion of the previous FAQ as of the end of January 2018 Considered by the Council of States on 14 December 2016 and by the National Council on 13 September 2017 force: 2019 Hearing expected from June to October August 2017 PwC Synopsis of the most important regulatory developments (as at 1 March 2018) 19

20 FINMA circular 08/3 Public deposits with non-banks (amendments due to Fintech provisions) Other topics Amendment of the circular in light of the modifications to the Banking Ordinance that entered into force 1 August Details added to the definition of settlement accounts. Additional explanation of whether taking public deposits represents a commercial activity. Requirements concerning the obligation to inform clients if the undertaking operates in a sandbox by indicating that: No supervision is performed by FINMA; and No deposit insurance is in place. 1 January 2018 Banking Act (BankA) (strengthening depositor protection) FINMA circular 08/1 Measures to improve depositor protection: Period in which payments are made of insured deposits in the event of bankruptcy shortened to 7 working days; Securities deposit required equivalent to 50% of the payment obligation; No requirement to hold liquidity for potential cash outflows to the depositor protection scheme; The scheme s upper system limit is to be increased to 6% of the total amount of insured deposits and at least CHF 6 billion. Introduction of the obligation to segregate proprietary assets and customers assets recorded in custody accounts throughout the entire domestic custody chain. Circular has been repealed. The authorisation and reporting requirements set out in the circular will continue to remain intact. Hearing expected from August to November 2018 Repealed as of 8 September 2017 PwC Synopsis of the most important regulatory developments (as at 1 March 2018) 20

21 Fund management companies/investment funds/ representatives of foreign collective investment schemes Regulation Most important aspects/changes Status SFAMA Guidelines for Money Market Funds (adaptation of 4 May 2016) Introduction of rules for valuation and liquidity management of money market funds. Regulation of potential postponement of redemption in fund contracts and statutes. Introduction of rules for creditworthiness of money market instruments. For money market papers held before 1 October 2016: Transition period of 300 days after entry into force of guideline for certain valuation rules. 1 January 2017 Transition period until 28 October 2017 to adapt certain valuation rules This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. It does not take into account any objectives, financial situation or needs of any recipient; any recipient should not act upon the information contained in this publication without obtaining independent professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it PricewaterhouseCoopers. All rights reserved. PricewaterhouseCoopers refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity. PwC Synopsis of the most important regulatory developments (as at 1 March 2018) 21