Federal Council Adopts Adjustment on the Partial Revision of Banking Act

On its meeting on June 19, 2020, the Federal Council adopted the dispatch on the partial review of the Banking Act. The purpose of the legislative amendment is to strengthen depositor and customer protection as well as to promote the stability of the system.

The Banking Act governs only the main features of the restructuring procedure for banks. Other details are provided in the FINMA Banking Insolvency Ordinance. The Federal Council aims to keep at the legislative level such instruments as capital measures, that encroach on the rights of the bank's owners and creditors. This is done to strengthen legal certainty. An adjustment to the Mortgage Bond Act should enhance the functioning of the Swiss mortgage bond system in case of a member bank's insolvency or bankruptcy.

Moreover, to improve the depositor's protection, banks will no longer secure half of their obligatory deposit insurance in the form of additional liquidity. According to the changes, that will be done by depositing securities or Swiss francs in cash with a custodian. The term for paying out deposit insurance funds is to be shortened. Instead of the existing 20 days, they should reach the bankruptcy liquidator within seven days. Once the bankruptcy liquidator has received bank clients' payment instructions, clients will receive their secured deposits within seven days.

Finally, the Federal Council is proposing to amend the Intermediated Securities Act. It is offered that the custodians of intermediated securities should be obliged to separate their holdings from the clients' ones. If the custody chain goes abroad, the last Swiss custodian needs to take measures to protect the intermediated securities placed with the foreign custodian. Clients should be informed about these procedures.

It will not come into force until the start of 2022 at the earliest.