The legislator gave FINMA powerful tools to enforce its interpretation of the financial market acts against regulated companies and individuals. Practitioners noticed that FINMA has been intensifying the use of such tools recently. At the same time FINMA’s willingness to settle disputes diminished. This article discusses from a practitioner’s viewpoint the rules FINMA has to follow during enforcement procedures and the appeal stages available to entities and individuals confronted with an adverse order by FINMA.
By Andreas Rüd (Reference: CapLaw-2012-51)
1) The Enforcement Process
If the Swiss Financial Market Supervisory Authority FINMA (FINMA), after preliminary investigations, reaches the conclusion that the financial market acts may have been violated it will communicate the opening of administrative proceedings to the affected parties (article 30 of the Financial Market Supervisory Authority Act (FINMASA)). In cases which already had press coverage or which are considered to be of public interest FINMA will also publicly announce the opening of administrative proceedings. Such announcement can already have a severe impact on the reputation of the involved parties.
The administrative proceedings itself are governed by the Swiss Federal Act on Administrative Proceedings (SFAAP) (article 53 FINMASA). The SFAAP grants to the parties some basic procedural rights e.g. the right to be heard (article 29 SFAAP), the right of access to records (article 26 SFAAP), the right to attend witness hearings and to ask supplementary questions (article 18 SFAAP) and the right to an impartial composition of the deciding body (article 10 SFAAP).
FINMA does not always respect party rights during administrative proceedings. Often the intervention of counsel is necessary to remind FINMA of its duties. Counsel should also pay special attention to the facts relevant to the case by making motions for admission of additional evidence where appropriate.
If the administrative proceedings involve both, a company and members of its management, it is important due to possible conflicts of interest and as well for tactical reasons that the parties retain individual counsel. Counsel must be able and willing to closely work together. Mutual recriminations should be avoided at all cost and a common strategy should be defined at the outset of the administrative proceedings.
The affected parties are usually well advised if they rectify obvious deficiencies within their organization during the administrative proceedings as this will improve their chances of a favorable outcome, e.g. FINMA may deem a declarative order sufficient if measures have already been taken to ensure that no future violations of supervisory provisions will occur.
The parties have a statutory duty to assist FINMA in its investigations (article 29 FINMASA and article 13 (1) (c) SFAAP). According to FINMA’s interpretation the duty to assist also applies to individuals resulting in a possible conflict with the provisions against self-incrimination. The question has not yet been decided by the Courts.
2) The Order
Following a practice of its predecessor SBC FINMA circulates in less severe cases a draft of its intended order among the parties. This is sometimes done to offer affected individuals a face-saving way out by resigning from their positions. In cases where more severe measures like confiscation (article 35 FINMASA) or a professional ban (article 33 FINMASA) are considered a resignation will not end the administrative procedure and, thus, no draft order will be circulated.
FINMA has the power to declare its order partially or in full as immediately enforceable. This can entail severe consequences since precedents can be created which cannot be altered even when an appeal is successful, e.g. if members of the management are removed from office or a liquidation of a company is ordered by FINMA. An abstract of the order will be published if FINMA has publicly announced the opening of administrative proceedings or, if severe violations of the regulatory laws have been found (article 34 (1) FINMASA).
3) The Appellate Process
An appeal against an order by FINMA can be filed within 30 days after receipt with the Federal Administrative Court (article 50 SFAAP; article 33 of the Swiss Federal Administrative Court Act (FACA)). The appeal will suspend FINMA’s order (article 55 (1) SFAAP) unless declared immediately enforceable by FINMA. The Federal Administrative Court has the authority to revoke an immediate enforceability (article 55 (3) SFAAP) however it rarely does so. Especially in complex cases the statutory period of 30 days, which is non-extendable, is very short and parties considering an appeal in case of an unfavorable outcome of the administrative proceedings are well advised to instruct their counsel to timely commence the work on the appellate brief.
The Federal Administrative Court has the power to fully review the facts and the legal issues of the case including FINMA’s administrative discretion (article 49 SFAAP). However, the Federal Administrative Court follows the practice not to second-guess FINMA’s discretionary decisions as FINMA is considered an agency with specialized know-how.
After receipt of the appellate brief and after payment of a deposit for court fees the Federal Administrative Court will invite FINMA to file an answer to the appellate brief. Contrary to other government agencies FINMA takes an active role in the procedure and defends its orders vigorously. Additional exchanges of briefs can be ordered by the Federal Administrative Court (article 57 (2) SFAAP). The procedure before the Federal Administrative Court usually takes approximately 6 to 12 months depending on the complexity of the case and the number of briefs exchanged.
In its judgment the Federal Administrative Court can remand, affirm or change FINMA’s order. The judgment is subject to appeal to the Federal Supreme Court within 30 days (article 100 (1) of the Swiss Federal Supreme Court Act (FSCA)). An appeal to the Federal Supreme Court will only suspend the judgment if this is especially ordered by the Federal Supreme Court (article 103 (1) and (3) FSCA). The Federal Supreme Court’s power of review is limited to legal issues. The facts are not revisited unless they seem arbitrary (article 105 (1) FSCA).
4) Conclusions
When it comes to an enforcement process supervised entities and individuals are not entirely but to a large extent at the mercy of FINMA. The remedies available to the parties are of limited use since they cannot cure the negative impact of public announcements by FINMA. FINMA’s power to declare its orders immediately enforceable combined with the Federal Administrative Court’s reluctance to revoke immediate enforceability may render the entire appellate process futile. In addition, the Federal Administrative Court’s practice not to second-guess FINMA’s discretionary decisions and the Federal Supreme Court’s limited power of review make it difficult for any appellant to prevail in the Courts. This unsatisfactory situation may have encouraged FINMA to increase the use of its powerful tools recently. Legislative action is necessary to strengthen party rights and to assure an effective judicial control of FINMA’s actions.