The Swiss financial market laws provide for a number of regulatory notification and approval requirements which must be adhered to in the context of M&A deals involving entities prudentially supervised by FINMA. This article provides an overview of the relevant regulatory requirements applicable to an acquisition of a qualified participation in a Swiss regulated financial institution.
By Alexander Wherlock (Reference: CapLaw-2024-85)
1) Introduction
In the past two years the number of M&A deals in the Swiss financial market has vastly increased. There has been M&A activity in the public markets, such as most notably the recent merger of UBS and Credit Suisse as well as the well-publicized public take-over battle between Liontrust Asset Management plc and the investor group NewGAMe regarding the listed Swiss fund manager, GAM Holding AG, which ultimately led to NewGAMe acquiring a 27% stake in the company. There has, however, also been a number of transactions in the private M&A market, such as the acquisition of Kaleido Privatbank AG by Bank Richelieu or the acquisition of Sociéte Génerale Private Banking (Suisse) SA by Union Bancaire Privée.
As with any M&A deal, transactions involving regulated Swiss financial institutions will pose a number of legal, tax and structuring issues which need to be adequately reflected in the relevant transaction documentation. In addition, the Swiss financial market laws provide for a number of regulatory notification and approval requirements which need to be adhered to in the context of M&A deals relating to entities prudentially supervised by the Swiss Financial Market Supervisory Authority FINMA (FINMA). This article provides an overview of the relevant regulatory requirements which must be complied with when acquiring a qualified participation in Swiss regulated financial institutions under a share deal. Asset deals under which a portfolio of assets is acquired by and/or from a Swiss regulated entity may be subject to different regulatory requirements under the Swiss supervisory framework. Whilst not covered in this article, the author will be providing an overview of the regulatory requirements to be observed in the context of an asset deal involving Swiss regulated entities in “M&A Transactions in the Swiss Financial Market – Part II: Asset Deals Involving Regulated Entities” which will be published in the next edition, CapLaw 1/2025.
The considerations outlined herein focus on the regulatory requirements applicable to banks regulated under the Federal Act on Banks and Savings Institutions (Banking Act). However, where appropriate, reference is made to the relevant requirements applicable to other financial institutions, i.e. securities houses, fund management companies, asset managers for collective assets, trustees and asset managers within the meaning of the Federal Act on Financial Institutions (Financial Institutions).
2) Acquisition of a Qualified Participation in a Swiss Regulated Entity
a) Regulatory Framework – Overview
Article 3 of the Banking Act sets out the licensing requirements applicable to Swiss banks. Pursuant to article 3(2) Banking Act, any person who directly or indirectly holds at least 10% of the equity capital or voting rights in a Swiss bank, or who can significantly influence such bank’s business activity in another manner (Qualified Participation) must ensure that their influence is not detrimental to the prudent and sound business activity of the respective bank (Gewähr für eine einwandfreie Geschäftstätigkeit).
Article 3(5) Banking Act provides for a corresponding notification requirement in case of a sale and/or acquisition of a Qualified Participation in a Swiss bank. Thereunder, each person must notify the FINMA before directly or indirectly acquiring or disposing of a Qualified Participation in a Swiss bank. This notification requirement also applies if a Qualified Participation is increased or reduced in such a way as to reach, exceed or fall below the thresholds of 20%, 33% or 50% of the equity capital or voting rights in a Swiss bank.
As a consequence, any M&A transaction resulting in (i) the acquisition or a disposal of a Qualified Participation in a Swiss bank or (ii) an increase and/or decrease of a holding in a Swiss bank above or below the relevant thresholds referred to above, will trigger a notification requirement under article 3(5) of the Banking Act. The notification requirement applies both to the selling and the acquiring party in a respective transaction. Therefore, from a regulatory perspective a separate notification must be submitted to FINMA by each party. In addition, pursuant to article 3(6) Banking Act, the bank itself must notify FINMA of the transaction and the change in the holders of a Qualified Participation.
Article 11(5) of the Swiss Financial Institutions Act (FinIA) provides for a corresponding notification requirement in case of transactions relating to Qualified Participations in Financial Institutions (other than asset managers and trustees, see below at 2) f)).
b) Covered Transactions
Whilst in certain constellations it may be evident that the notification requirement applies, such as in case of an acquisition of all shares or the majority of all shares in a Swiss bank, other constellations may not be quite as clear leading to uncertainties as to the applicability and the scope of the notification requirement pursuant to article 3(5) of the Banking Act:
– Acquistion of an Indirect Qualified Participation: From a regulatory perspective, the notification requirement applies to both direct and indirect acquisitions of a Qualified Participation in a Swiss bank. As a consequence, the transaction parties may be subject to the relevant notification requirement in constellations in which the target itself is not a Swiss regulated entity, the target, however, holds a direct and/or indirect Qualified Participation in a Swiss bank within the relevant group structure. As a consequence, from a Swiss regulatory perspective, the notification requirement under article 3(5) and (6) Banking Act will also apply in case of an acquisition of an unregulated parent entity holding a (direct or indirect) Qualified Participation in a Swiss bank.
In particular, in the context of group structures, it should also be noted that pursuant to FINMA’s practice when determining whether a particular shareholding qualifies as a Qualified Participation, within a multi-level shareholding structure, the participations are not multiplied. This practice (which in the author’s view is not necessarily consistent with the reasoning underlying the notification duties in the Banking Act) intends to prevent a person from artificially establishing a multilevel shareholding structure in relation to a Swiss bank in which numerous majority participations are layered on top of each other, which would permit such person to control the Swiss bank, whereas if the various participations were multiplied the relevant indirect participation would be below 10%. This means that in a group constellation any entity holding a 10% participation in an entity which itself holds a direct and/or indirect Qualified Participation in a Swiss bank, is deemed to qualify as a (indirect) qualified participant within the meaning of article 3(2) of the Banking Act. This practice of FINMA can, in particular, in the context of multilevel holding structures, lead to overly burdensome notification requirements for a large number of qualified participants which in practice have a neglectable influence on the Swiss bank.
– Corporate Reorganizations: The notification requirement under article 3(5) and (6) Banking Act also applies to internal corporate reorganizations, to the extent that the transaction leads to a change in the shareholding structure in the Swiss bank, irrespective of whether a third-party entity is involved. Under article 3(5) and (6) Banking Act, even the transfer of a direct or indirect Qualified Participation in the Swiss bank will trigger the notification requirement. Depending on the respective thresholds which are affected by the reorganization, even the mere re-balancing of shareholdings within a financial group that holds a Qualified Participation in the Swiss bank, may lead to a regulatory notification requirement under article 3(5) and (6) Banking Act, to the extent that the transaction leads to a relevant change of the shareholdings previously notified to FINMA.
– Other Forms of Control: Pursuant to the Banking Act, a Qualified Participation may result from a direct and/or indirect holding of at least 10% of the equity capital or voting rights in a Swiss bank, or from other arrangements permitting a person to significantly influence such bank’s business activity in another manner. Neither the Banking Act nor the pertaining Ordinance on Banks and Savings Institutions (Banking Ordinance) clarify which other constellations may lead to a person significantly influencing such banks business activity in another manner. However, in practice significant financing arrangements, potentially combined with wide-ranging collateral agreements, leading to a dependency on the financing party by the Swiss bank or other contractual arrangements, such as shareholder agreements or joint ventures which permit a person or a group of persons acting in concert to exert influence on the Swiss bank may also qualify as a Qualified Participation and ultimately lead to a notification requirement under article 3(5) and (6) Banking Act. As a consequence, even in transactions that do not qualify as typical M&A deals but permit a party to exert significant influence on the business of a Swiss bank, an assessment will be required whether the notification requirement under article 3(5) and (6) Banking Act applies.
The considerations outlined above apply mutatis mutandis to Financial Institutions under the FinIA.
c) Notification of FINMA – Formalities
As outlined above, in case of a disposal over a Qualified Participation in a Swiss bank, a separate notification requirement will apply to the acquiring entity, the selling entity and the bank itself. The notification by the selling entity and the bank (including an update of the FINMA Form A1 and A2 – Declaration regarding the Holders of Qualified Participations) are somewhat straight forward and can from a regulatory perspective be limited to informing FINMA of the intended transaction.
In contrast, as the notification and the documentation to be submitted to FINMA by the acquiring entity will form the basis of FINMA’s regulatory fit-and-proper test, the buy-side notification is more extensive. Pursuant to article 8 of the Banking Ordinance, an entity acquiring a Qualified Participation in a Swiss Bank must submit the following documentation to FINMA (Fit-and-Proper Documentation):
(a) Articles of Association;
(b) Excerpt from the Commercial Register (or foreign equivalent);
(c) Description of the business activities, financial status and group structure chart;
(d) Information regarding pending and past civil, criminal and/or administrative proceedings (FINMA Form B1 ñ Declaration regarding Pending and Past Proceedings);
(e) Information regarding other participations in the financial sector (FINMA Form B2 ñ Declaration regarding Qualified Participations);
(f) Declaration on whether the qualified participation is held on behalf of a third party or on its own behalf (FINMA Form A3 ñ Declaration of Direct Qualified Participants or FINMA Form A4 ñ Declaration of Indirect Qualified Participants, as applicable); and
(g) natural persons holding a Qualified Participation in a Swiss bank must additionally submit information regarding their nationality and domicile and an excerpt from the debt enforcement register and a criminal record (instead of articles of association and a commercial register excerpt as required for legal entities).
The Fit-and-Proper Documentation to be submitted to FINMA is fairly extensive and the compilation thereof can – in particular in complex holding structures – be time consuming and burdensome considering that the relevant documents must be submitted by each person or entity holding a direct or indirect Qualified Participation in a Swiss bank.
Finally, whilst article 3(5) and (6) Banking Act from a legal perspective stipulate separate notification requirements for the selling entity, acquiring entity and the bank, in recent cases FINMA has requested that all notifications and the Fit-and-Proper-Documentation are submitted by the bank via FINMA’s EHP-Platform. In particular, in unfriendly take-over proceedings or in cases of rival bids, this can from an operational perspective be challenging. In order to facilitate the cooperation with FINMA, it is in practice advisable to accommodate this collaborative approach. However, despite FINMA’s practice, any notification and Fit-and-Proper Documentation submitted to FINMA in another permissible manner, i.e. by serving the documents to FINMA by post, must be considered validly submitted from a legal perspective.
The considerations outlined above apply mutatis mutandis to Financial Institutions.
d) Fit-and-Proper Test by FINMA
Based on the Fit-and-Proper Documentation, FINMA will, in relation to each new qualified participant on the buy-side of a transaction conduct the regulatory fit-and-proper test (the Fit-and-Proper-Test) and assess whether the influence potentially exerted by the person or entity directly or indirectly acquiring a Qualified Participation may be detrimental to the prudent and sound business activity of the respective Swiss bank.
The standard FINMA applies under the Fit-and-Proper-Test in relation to a qualified participant is not as strict as under the corresponding test applied in relation members of the board of directors and/or the executive committee of Swiss banks under article 3(2)(b) Banking Act. Neither the Banking Act nor the Banking Ordinance define clear criteria for the Fit-and-Proper Test, generally, however, the Fit-and-Proper Test will not be met in the following cases:
– Sanctions against the entity/person acquiring a Qualified Participation;
– Criminal conviction of the respective entity/person which disqualify such person and/or entity from holding a Qualified Participation in a Swiss bank, such as money-laundering, tax evasion, forgery, fraud and/or embezzlement (conversely convictions with no link to the relevant business activities of a bank, such as traffic related convictions, should not negatively impact the Fit-and-Proper Test); and
– Exploiting the dependency of the Swiss bank for personal gains.
From a formal perspective, article 3(5) and (6) Banking Act stipulate a notification requirement. In practice, however, FINMA under the regulatory Fit-and-Proper Test has a de-facto approval authority. In principle, upon submitting the relevant notifications to FINMA, the transaction parties will from a formal perspective have satisfied their regulatory duties under article 3(5) and (6) Banking Act, and could proceed to the closing of the transactions ultimately leading to the acquisition of the Qualified Participation. However, under its general regulatory powers, FINMA could, to the extent it concludes that the acquiring party does not satisfy the regulatory Fit-and-Proper Test, implement various regulatory measures ranging from a suspension of the voting rights attached to the Qualified Participation to ordering the acquiring entity to sell the Qualified Participation to a third party. Due to the invasive nature of such measures, in practice, it should be ensured that formal FINMA approval or a no-objection statement can be obtained prior to closing to ensure legal certainty under the transaction. As a consequence, share purchase agreements relating to a regulated Swiss bank typically include a closing condition that FINMA has not objected to the transaction. In view of this de-facto approval requirement and in consideration of a bank’s general information duties under article 29(2) of the Financial Market Supervisory Act it is generally advisable to informally reach out to FINMA at an early stage of a transaction to ensure an efficient handling of the approval process. This may also allow informal discussions with FINMA as to the expected timing and the form of FINMA’s approval and/or no objection decision.
The considerations outlined above apply mutatis mutandis to Financial Institutions under FinIA.
e) Asset Managers and Trustees – in particular
As outlined above, the notification requirements relating to the acquisition of a Qualified Participation also apply to Financial Institutions, such as securities houses and fund management companies. Trustees and asset managers must provide the Fit-and-Proper Documentation for each person holding a Qualified Participation to FINMA in the context of the initial licensing procedure. However, pursuant to article 11(7) FinIA, the notification requirement pursuant to article 11(5) and 11(6) in case of a change to the holders of a Qualified Participation does not formally apply to asset managers and trustees within the meaning of FinIA.
Article 8 FinIA sets out a notification requirement applicable to all Financial Institutions, including asset managers and trustees, under which FINMA must be notified of any change in the facts underlying its regulatory license. Pursuant to article 10(d) and (e) of the implementing Financial Institutions Ordinance (FinIO), facts that may lead to the conclusion that a holder of a Qualified Participation no longer satisfies the Fit-and-Proper Test, are considered substantial changes of the facts underlying the regulatory license within the meaning of article 8(2) FinIA and as a consequence must be notified to and approved by FINMA. In contrast, neither article 8 FinIA nor article 10 FinIO reference changes to the qualified participants as changes which must be notified to FINMA. However, pursuant to FINMA’s regulatory practice published on it’s website (see; https://www.finma.ch/en/authorisation/portfolio-managers-and-trustees/aenderungen/), a change in the Qualified Participations in a trustee and/or asset manager is considered to be a relevant change covered by the notification and approval requirement under article 8 FinIA. In effect, despite not being specifically provided for under the FinIA and FinIO, trustees and asset managers are pursuant to FINMA practice also required to notify FINMA of any changes relating to its qualified participants (which in the author’s view is not necessarily consistent with the reasoning underlying article 8 FinIA).
3) Additional Regulatory Considerations
Whilst the acquisition of a Qualified Participation in a Swiss bank will trigger a notification requirement under the Banking Act, depending on the transaction structure additional regulatory requirements may also have to be adhered to in the context of M&A transactions involving Swiss banks and Financial Institutions.
(a) Additional License as a Bank Subject to Foreign Control: Pursuant to article 3bis Banking Act, a Swiss bank which is subject to foreign control requires an additional license as a bank subject to foreign control. A bank is considered to be subject to foreign control if a person and/or entity domiciled or incorporated outside of Switzerland can directly and/or indirectly exercise the majority of the voting rights in the Swiss bank and/or can exert a controlling influence over the Swiss bank in another manner. As a consequence, to the extent an entity and/or person domiciled outside of Switzerland acquires a majority stake in a Swiss bank, in addition to completing the Fit-and Proper-Test outlined above, the Swiss bank itself must obtain an additional license pursuant to article 3bis of the Banking Act, prior to the completion of the transaction.
As a so called “police license” (Polizeibewilligung), FINMA must grant the additional license pursuant to article 3bis Banking Act if the following licensing requirements are satisfied:
– The home jurisdiction of the acquiring entity grants reciprocity to FINMA which is generally the case for all jurisdictions that are party to the General Agreement on Trade in Services (GATS) of the World Trade Organization;
– The corporate name of the bank does not imply a Swiss character. In practice, this is ensured by adding the term “(Switzerland)” to the corporate name of the bank subject to foreign control; and
– To the extent that upon such acquisition, the Swiss bank becomes subject to the consolidated supervision of a foreign supervisory authority, the competent foreign authority must approve the acquisition of the majority stake in the Swiss bank.
Pursuant to article 43 FinIA, the same applies to securities houses subject to foreign control (but not to other Financial Institutions).
(b) Implications on Consolidated Supervision: Pursuant to article 3d Banking Act, FINMA can subject a financial group to its consolidated supervision and define specific regulatory requirements applicable to the financial group on a consolidated level. The scope of the consolidated supervision and the consolidated regulatory requirements are defined by FINMA in a consolidation decree and as such, the relevant requirements are typically tailored to the respective financial group.
The sale or the acquisition of a Qualified Participation in a Swiss bank may have implications on the consolidated supervision, i.e. if the respective bank becomes subject to another financial group subject to FINMA’s consolidated supervision. Therefore, in M&A transactions relating to a Swiss bank it will have to be assessed on a case-by case-basis what the specific regulatory implications will be under the applicable consolidation decree. This assessment will typically require an additional engagement with FINMA to ensure regulatory compliance from a consolidated perspective.
The considerations outlined above apply mutandis mutatis to Financial Institutions under FinIA.
(c) Additional Changes to the Bank: Typically, upon acquiring a majority stake in a Swiss bank, the acquiring entity will intend to make various changes to the governance structure and potentially the business model of the acquired Swiss bank. In this context, it should also be noted that changes to the board of directors or the executive committee of the bank are subject to FINMA approval, with the new members of the management bodies having to go through the regulatory fit-and-proper-test pursuant to article 3(2)(b) Banking Act prior to being appointed by the new shareholder. In addition, any changes to the articles of association and/or the organizational regulations requested by the acquiring entity will need to be pre-approved by FINMA. Finally, certain changes to the business model of the bank may require an amendment to the underlying banking license which would need to be approved by FINMA and may be subject to increased regulatory scrutiny.
The considerations outlined above apply mutandis mutatis to Financial Institutions under FinIA.
4) Summary
As outlined above, the acquisition of a Qualified Participation in a Swiss regulated bank or Financial Institution is subject to a de-facto approval requirement of FINMA and may – depending on the transaction structure – have additional regulatory implications. In addition to adhering to these regulatory requirements, in order to ensure legal certainty with regard to the respective transaction it seems advisable to adequately address these regulatory requirements as conditions to closing in the applicable transaction documentation, ensuring that the respective acquisition is only closed to the extent that all regulatory approvals are obtained and/or no objections are raised.
Alexander Wherlock (alexander.wherlock@homburger.ch)