FINMA only supervises institutions it has authorised to engage in financial market activity. This supervisory function is prudential in respect of banks, securities firms, 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, securities firms, insurance companies, collective investment schemes and self-regulatory organisations (SROs) 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 the institutions subject to prudential supervision by FINMA, although these ratings are not made public. If any ratings drop into negative territory, FINMA subjects the respective companies to more intensive supervision.
Portfolio managers and trustees are also subject to prudential supervision. However, FINMA does not perform ongoing supervision of portfolio managers and trustees, as that is the responsibility of the supervisory organisations (SO) licensed and supervised by FINMA.
The SOs have various supervisory instruments. They may notably give members a deadline by which to make improvements if they identify failings. If the portfolio manager or trustee fails to meet the deadline, the SO must inform FINMA accordingly without delay. FINMA, as opposed to the SO, is responsible for case-related supervision of portfolio managers and trustees and enforcing financial market law.
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 FINMAʼs instructions 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:
The registration body for the adviser register and the reviewing bodies for prospectuses are authorised by FINMA. They must submit an activity report to FINMA annually, however they are not subject to ongoing supervision by FINMA.
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.