Precious Metal Assayers and the New Regulatory Framework for the Swiss Financial Market

How to comply with the upcoming obligations of the Financial Institutions Act-, the Anti-Money Laundering Act- and the Precious Metals Control Act.

The changes introduced by the new regulatory framework for the Swiss financial markets impact trade assayers. They will be supervised by new institutions and will need to introduce organisational measures, and some will need to apply for authorisation with FINMA. This paper gives an overview on how trade assayers are embedded in the new regulatory framework and how to cope with the upcoming duties.

Executive Summary

The new regulatory framework will differentiate between trade assayers trading in banking precious metals and trade assayers not trading in such metals.

Trade assayers trading in banking precious metals will need to:

• Notify the Financial Market Supervisory Authority by 30 June 2020;
• Submit an application to a self-regulatory organisation for anti-money laundering by end-2020;
• Fulfil the obligations and organisational requirements imposed by the new regulations by end-2021; and
• File an authorisation application with the Financial Market Supervisory Authority by end-2021.

Trade assayers that do not trade in banking precious metals and are currently directly subordinated to the Financial Market Supervisory Authority will need to:

• Submit an application to a self-regulatory organisation for anti-money laundering by end-2020.

Trade assayers are well advised to start preparing for the upcoming changes sooner rather than later to avoid both non-compliance and rash changes to their corporate governance.

Background

The new Swiss Financial Institutions Act (FINIA) forms part of an extensive reform of the Swiss financial market regulatory landscape. This act and its associated ordinance are expected to enter into force on 1 January 2020. Other acts, such as the Precious Metals Control Act (PMCA) and the Anti-Money Laundering Act (AMLA) will be amended by the FINIA.

Trade assayers (Trade assayers according to Art. 41 ff. PMCA (DE: “Handelsprüfer”, FR: “Essayeurs Du Commerce”, IT : “Saggiatori Del Commercio”)) are financial intermediaries in the sense of the AMLA. (Art. 2 para. 3 let. C AMLA) Such companies are currently often directly subordinated to the Swiss Financial Market Supervisory Authority (FINMA). This status of the directly subordinated financial intermediaries will be repealed by the new financial market regulation. Therefore, trade assayers either will have to register with a self-regulatory organisation (SRO) or will have to be authorised by FINMA and supervised by a supervisory organisation (SO). Whether the former or the latter applies depends on the trade assayer’s business activity.

The two types of trade assayers

The new regulatory framework will differentiate between two types of trade assayers. These will be subject to different requirements and supervised by different institutions.

The distinguishing criterion will be whether a trade assayer trades on a commercial basis (An independent economic activity pursued on a permanent, for profit basis (Art. 3 FINIA)). in banking precious metals. (Banking precious metals are: (i) ingots and granules of gold with a minimum fineness of 995 parts per thousand, (ii) ingots and granules of silver with a minimum fineness of 999 parts per thousand, (iii) ingots and sponges of platinum or palladium with a minimum fineness of 999.5 parts per thousand (Art. 178 PMCO)) Both trade assayers trading in such metals themselves and through a group company fulfil this criterion.

SOs will supervise trade assayers trading in banking precious metals. Being subject to state supervision is a precondition for admission to most international marketplaces for precious metals, such as the London Bullion Market Association (LBMA). International precious metal marketplaces are expected to recognise the SOs as state supervision. Admission to international marketplaces should be ensured through this.

Trade assayers not trading in precious banking metals will need to register with an SRO and will not be supervised by SOs. These SROs are expected not to be recognised as state supervision by international marketplaces.

The new requirements

The requirements imposed on trade assayers by the new financial market regulation vary depending on whether or not they trade in banking precious metals.

Not trading in banking precious metals
Trade assayers (Art. 41 PMCA) falling into this category are currently either affiliated to an SRO or directly subordinated to FINMA. In the former case, they can stay with the SRO. In the latter case, they will need to affiliate with an SRO to comply with the AMLA. (Art. 14 AMLA and Art. 2 para. 3 AMLA as amended by FINIA) This will require:

• Filing an application with an SRO;
• Drafting an AMLA policy;
• Setting up a client onboarding process including know-your-customer (KYC) checks;
• Defining owners for the anti-money laundering duties (AMLA officer and deputy);
• Appointing an AMLA auditor.

Trade assayers that are currently not affiliated with an SRO but directly subordinated to FINMA may leverage their existing anti-money laundering framework. However, the transition from being directly subordinated to FINMA to being affiliated with an SRO will require changes to the documentation and processes related to anti-money laundering. Each trade assayer will need to assess individually which SRO it prefers, to what extent their existing anti-money laundering set-up meets the SRO’s requirements, and which AMLA auditor they will appoint.

Trading in banking precious metals
Trade assayers trading in banking precious metals (Art. 42bis PMCA as amended by FINIA) themselves or through a group company will need to be authorised by FINMA and will be subject to the ongoing supervision of an SO. (Art. 43a para. 1 Financial Markets Supervision Act (FINMASA) as amended by FINIA) A group company trading in banking precious metals of a trade assayer requires authorisation as well. In order to be authorised a trade assayer needs to:

• Establish appropriate corporate management rules;
• Organise itself to be able to fulfil its statutory duties;
• Identify, measure, control and monitor risks and organise appropriate internal controls;
• Be effectively managed from Switzerland; (General directives and decisions within the context of group supervision are excluded if the trade assayer forms part of a financial group that is subject to appropriate consolidated supervision.)
  
• Provide a guarantee of irreproachable business conduct;
• Maintain minimum capital of CHF 100,000 that is fully paid up in cash. (Art. 34b ff. PMCO-Draft as amended by FINIO-Draft)
  

Qualified participants (Qualified participants are persons who directly or indirectly hold at least 10% of the share capital or votes or who can significantly influence the business activity in another manner.) in a trade assayer and persons responsible for its administration or management are subject to the requirements listed below.

• Persons responsible for administration and management have to:
  • Provide a guarantee of irreproachable business conduct;
  • Uphold a good reputation and have the specialist qualifications required for their functions.

• Persons responsible for management in addition have to:
  • Be resident in a place from which they may effectively exercise management.

• Qualified participants have to:
  • Uphold a good reputation and ensure that their influence is not detrimental to prudent and sound business activity. (Art. 34c ff. PMCO-Draft as amended by the FINIO-Draft)

The trade assayer’s authorisation application will need to set out that the aforementioned criteria are fulfiled.

After being authorised trade assayers need to:

• Notify FINMA in case of any changes in the facts on which the authorisation is based;
• Request prior authorisation from FINMA in case of material changes. (Art. 34a PMCO-Draft as amended by FINIO-Draft)
  

Timeline

Trade assayers should start preparing for the regulatory changes sooner rather than later to avoid both non-compliance and rash changes to their corporate governance.

FINIA and the related amendments of AMLA and PMCA as well as the respective ordinances are expected to come into force on 1 January 2020. The below deadlines are based on this assumption.

Not trading in banking precious metals
Trade assayers that do not trade in banking precious metals and are currently affiliated with an SRO can stay with this SRO. Trade assayers directly subordinated to FINMA will need to submit an application to an SRO in 2020. The business activity may be continued until the SRO has decided on the application. (Art. 42 AMLA as amended by FINIA) The SRO will verify whether the trade assayer has complied with its AMLA duties since the last FINMA audit. (Transitional provisions AMLO-Draft as amended by the FINIO-Draft)

Trading in banking precious metals
Trade assayers that trade in banking precious metals and are affiliated with an SRO have to stay with this SRO until they are supervised by an SO and authorised by FINMA. Such trade assayers need to:

• Notify FINMA by 30 June 2020;
• Fulfil the obligations imposed by FINIA by end-2021; and
• File an authorisation application with FINMA by end-2021.

The business activity can be continued until a decision has been made on the application. (Final provision PMCA as amended by FINIA)

The same applies to trade assayers that trade in banking precious metals and are directly subordinated to FINMA. In addition, such trade assayers would need to be affiliated with an SRO on a temporary basis before becoming subject to SO supervision. This transitory supervision by an SRO can be avoided if the trade assayer:

• Receives confirmation of being supervised by an SO by end-2020; and
• Files an authorisation application with FINMA by end-2020.

The SO will verify whether the due diligence under AMLA has been observed since the last FINMA audit. (Final provision PMCO-Draft as amended by the FINIO-Draft)

No client advisor registry or ombudsman requirement

Trade assayers are, however, not financial service providers and must thus not be registered in the client advisor register according to FINSA and must not be subscribed to an ombudsman. In addition, public offers of bankable and non-bankable gold do not require a prospectus that must be reviewed by the Swiss prospectus office.