SWITZERLAND Law and Practice Contributed by: Judith Raijmakers and Florian Thomas Willi, Loyens & Loeff
products or major transactions and plays a criti - cal role in defining risk limits. The compliance function conducts an annual assessment of compliance risks, creating a risk-oriented activity plan that requires executive board approval. It promptly reports significant changes in compliance risks to the executive board and annually updates the board of direc - tors on compliance assessments and activities. In cases of serious compliance breaches, the compliance function informs both the executive board and the board of directors, assisting in determining appropriate actions. Internal Audit Every bank needs to establish an independent internal audit function. In limited circumstances, a delegation of the internal audit is possible. The internal audit reports to the board of directors (or its audit committee) and delivers independ - ent assessments and audits of the company’s organisation and business processes (in par - ticular with respect to the ICS and risk manage - ment). Further, it needs to, inter alia, carry out an annual comprehensive risk assessment of the institution’s significant risk categories. Internal audit publishes a report that sets out its key find - ings and important activities per audit period. This report is to be submitted to the board of directors (or its audit committee), the executive board as well as the regulatory audit firm. The compensation system for members of the inter - nal audit function needs to be designed in a way that does not lead to conflicts of interest. 4.2 Registration and Oversight of Senior Management Senior management of banks must adhere to strict business conduct requirements, com - monly known as “fit and proper” standards, to maintain public trust and protect the reputation
of the financial sector. These standards apply to both the board of directors and executive man - agement. Fitness pertains to the competence and experi - ence individually and of the management body as a whole. The assessment does not solely consider whether an individual, such as the Chairman of the Board or the CEO, possesses all the necessary experience; instead, it evaluates whether the management team collectively has the required expertise. FINMA assesses strate - gic and operational management capabilities at the institutional level. Propriety, on the oth - er hand, relates to an individual’s integrity and reputation. Each member of senior management must independently fulfil the propriety require - ment, as integrity cannot be delegated. FINMA continuously monitors both individuals and the management body as a whole to ensure compli - ance with these standards. Any changes to the board of directors or exec - utive management must be reported to and approved by FINMA prior to implementation. FINMA collects and reviews detailed personal, professional, financial, and legal information, including identification details, qualifications, financial standing, and auditor reports, to evalu - ate the suitability of individuals for key roles. To that extent, FINMA also manages a database to assess compliance with proper business con - duct requirements in accordance with financial market law. FINMA further assesses fitness and propriety based on specific roles, taking into account the institution’s size and complexity. If an individual is deemed unfit, FINMA has the authority to mandate his/her removal (as part of enforcement proceedings), thereby ensuring that leadership upholds the standards for effective governance. Procedures against individuals may
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