FINMA only supervises institutions it has authorised to engage in financial market activity. This supervisory function is prudential in respect of banks, insurance companies and other financial service providers: these institutions must always have adequate capital buffers and liquidity, and should have their risk exposure under control. FINMA must also ensure that their senior management comply with the professional and personal requirements set out in financial market legislation. FINMA monitors these requirements regularly and thoroughly, whilst also taking a proactive perspective. A risk-based approach is pursued by FINMA to ensure that its priorities in respect of prudential supervision are correct.
FINMA's level of supervision is most intensive in areas in which risk is greatest. Thus it assigns banks, insurance companies, collective investment schemes, self-regulatory organisations (SROs) and directly subordinated financial intermediaries (DSFIs) to six different supervisory categories depending on their size, complexity and risk structure.
Category 1 includes large, complex, networked companies which engage in risk-prone activities that, under certain circumstances, could threaten the stability of the financial system. Smaller, low-risk financial service providers are subject to less intensive supervision. Category 6 comprises market participants who are authorised by FINMA but are not subject to prudential supervision.
FINMA also operates a rating system used to perform regular evaluations on all institutions subject to prudential supervision, although these ratings are not made public. If any ratings drop into negative territory, FINMA subjects the respective companies to more intensive supervision.
FINMA performs many supervisory activities itself, but private audit firms also play an important role in the area of auditing. They regularly undertake assessments on behalf of FINMA to establish compliance with the supervisory regulations, thus serving to extend FINMA’s reach. Audit firms draw up an annual risk analysis on all institutions subject to prudential supervision, which is provided to FINMA. Every regulatory audit performed results in an audit report which is submitted to FINMA by the audit firm. In the event of case-related audits, FINMA may appoint additional mandataries- if, for example, specialist expertise or an independent opinion is required.
Prudential supervision is the most comprehensive form of supervision performed by FINMA, but certain financial market participants may be subjected to partial, non-prudential supervision or no supervision at all:
Independent asset managers affiliated to an SRO and financial intermediaries directly subordinated to FINMA (DSFIs) are only supervised to ensure that they comply with the due diligence requirements in respect of the avoidance of money laundering.
Distributors of collective investment schemes are authorised by FINMA, but are not subject to ongoing prudential supervision.
Insurance intermediaries with no tie to any specific insurance company are required to register with FINMA. However, these entities are not subject to ongoing supervision by FINMA.
As provided for in the legislation, intensity of supervision depends on the types of licences issued by FINMA and on its risk assessment.