On March 21, the Swiss Financial Market Authority (FINMA) has issued the FINMA Guidance 1/2018 – “Implementation of the requirement for amending financial contracts”.
The document clarifies FINMA’s supervisory practice regarding the implementation of the so-called “stay regulation” in the light of article 12 paragraph 2bis of the Banking Ordinance and articles 56 and 61a of the Banking Insolvency Ordinance-FINMA (BIOFINMA).
What are “stay regulations”?
During the phase resolution proceedings of a bank licensed in Switzerland, FINMA has the power to extend the term of the contracts that exist between the bank and other parties.
In other words, article 12 paragraph 2bis of the Banking Ordinance establishes that if a bank or a securities dealer, licensed in Switzerland, intend to stipulate a contract which is governed by foreign law or contains reference to a foreign jurisdiction, the counterparties have to acknowledge that they accept FINMA’s authority to impose a “stay” on their contract. The article aims at making sure that contract relationships remain in place under “stressful” times and that FINMA’s authority can extend over the Swiss borders.
Articles 56 of the BIOFINMA, introduced in 2017, better specify which contracts require an express acknowledgment of stays.
The duty to include stay clauses in the contracts that are governed by foreign law or refer to foreign jurisdiction must be implemented by April 1, 2018, if the counterparty is a bank licensed in Switzerland, a securities dealer licensed in Switzerland, or if the counterparty would qualify as such if they were domiciled in Switzerland. For contracts with other counterparties, the deadline is October 1.
However, banks have been experiencing some issues in the implementation of the stay clause, which proved to be a time-consuming activity.
In the recent Guidance 1/2018, FINMA declared that it will allow banks to continue trading for 9 more months after the deadline, provided that the banks take appropriate measures to make the necessary amendments to the contracts as quickly as possible.
According to the Guidance, banks must provide FINMA with information about their implementation status, detail the steps which they are taking to ensure compliance, show their progress, and finally, terminate a contract or stop trading if the counterpart refuses to accept a stay clause.