Partial revision FINMA Circular 2018/3 (Outsourcing banks and insurers)

The Swiss Financial Market Supervisory Authority FINMA announced on 27 November 2019 that it is definitively implementing the small banks regime at circular level as of 1 January 2020 . Small, particularly liquid and well capitalised banks are to be exempted from certain regulatory requirements. FINMA is adjusting eight FINMA circulars for this purpose.

On the occasion of the revision, FINMA makes a generally binding adjustment to the regulation with regard to subcontractors in Circular 2018/3 – Outsourcing Banks and Insurers. This concerns not only small banks, but all addressees of the circular; ie banks, insurers and securities dealers.

The now definitively adopted adjustments are to be welcomed both from the providers as well as the regulated institutes’ point of view, since they give more flexibility with regard to the inclusion of relevant subcontractors.

These are the generally binding changes in short:

. The regulated institution must ensure that it is informed about the use or replacement of subcontractors for significant functions at an early stage (margin note 33). This obligation replaces the previous rule, which required that the regulated entity pre-approve the subcontractor’s involvement.

. The purpose of the prior information at an early stage is to ensure that the regulated institution, if necessary (that is, if it concludes that exit from a risk point of view is unavoidable), has the opportunity to either backsource the outsourcing or transfer it to another service provider. This obligation was already regulated in the existing circular in margin no. 18 and is now only marginally adjusted in the context of the revision (and after intervention by various market participants) (margin nos. 18 and 18.1).

As part of the consultation process, various industry associations and market participants (in particular the IT industry associations ICTswitzerland, SWICO, SwissICT and asut) have criticized the originally proposed amendments. LAUX LAWYERS AG also took part in the consultation with its own input.

After the publication of the definitive new text of the Outsourcing Circular, it can be said that FINMA responded to the expressed concerns and largely implemented the suggestions put forward by the ICT industry.