According to a 2002 Financial System Stability Assessment (FSSA) by the International Monetary Fund (IMF), Switzerland has a high degree of compliance with the 1997 Basel Core Principles (BCPs). Moreover the report notes that Switzerland is a member of the Basel Committee on Banking Supervision and is a key player in international standards-setting bodies. As a follow-up to its 2002 assessment, the IMF prepared a factual update of Switzerland's compliance with the BCPs in 2007, and found that the Swiss Federal Banking Commission (SFBC) - the banking supervisory authority - had since addressed most of the recommendations. As noted in the IMF's 2007 FSSA Update, the SFBC has substantially improved its supervisory practices, doubled its staff, and strengthened its policies in the areas of risk management, external audit review, Basel II, and consolidated supervision. Weaknesses remain regarding the SFBC's budgetary independence and liquidity monitoring. According to the IMF's 2007 FSSA, organizational and supervisory practices are expected to be further improved after the establishment of an integrated financial supervisory authority, the Financial Market Supervisory Authority (FINMA), under the 2007 FINMA Act. The report also indicates that although the SFBC, the Federal Office of Private Insurance (FOPI), and the Anti-Money Laundering Control Authority will be integrated into FINMA, they will retain their regulatory and supervisory roles under existing sectoral legislation. The FOPI website discloses that the FINMA Act is expected to enter into force on January 1, 2009.

General Overview

In 2002, the International Monetary Fund (IMF), published a Financial System Stability Assessment (FSSA) that included coverage of Switzerland's compliance with the 1997 Basel Core Principles (BCPs). The report concluded that the country was either "compliant" or "largely compliant" with the BCPs. The FSSA found that Switzerland is a member of the Basel Committee on Banking Supervision and a key player in international standards-setting bodies. As a follow-up to its 2002 assessment, the IMF prepared a factual update of Switzerland's compliance with the BCPs in 2007 and found that the Swiss Federal Banking Commission (SFBC) - the banking supervisory authority - had since addressed most of the recommendations. According to this FSSA Update, the supervisory practices of the SFBC have been substantially improved through the implementation of continuous supervision for the large banking groups and the adoption of a more risk-based approach for the supervision of the other banks. The SFBC has also doubled its staff and strengthened its policies in the areas of auditing, anti-money laundering (AML) and Combating the Financing of Terrorism (CFT), Basel II, and consolidated supervision. Furthermore, important functional areas, including risk management, on-site review, and external audit review, have been put in place. Weaknesses remain, however, in the SFBC's budgetary independence and liquidity monitoring.

The basic legal framework for banking supervision is contained in the 1934 Federal Banking Act (Banking Act), and related rules, regulations, and circulars, as noted in the 2002 IMF report. Under the Banking Act, the SFBC is given powers to "supervise credit institutions and permit the exchange of information with the Federal Office of Private Insurance (FOPI)" (p. 47). The SFBC issued circulars in the areas of "corporate governance, internal controls, large bank supervision, supervisory reporting, audit, audit companies, anti-money laundering and self-regulation" (p. 7), as noted in the IMF's 2007 Financial Sector Assessment Program (FSAP) Update. On January 1, 2007, the SFBC enacted a new circular on "Supervision and Internal Control" to improve corporate governance for banks, securities traders, financial groups, and financial conglomerates, as noted in a 2007 Global Survey of the Institute of International Bankers (IIB). The IMF's 2007 FSAP Update reported that the SFBC's organizational and supervisory practices are expected to further improve after the establishment of a new integrated financial supervisory authority - the Financial Market Supervisory Authority (FINMA) - under the 2007 Federal Financial Market Supervision Authority Act, 2007 (FINMA Act). Although the SFBC, FOPI, and Anti-Money Laundering Control Authority (AMLCA) will be integrated into FINMA, they will retain their regulatory and supervisory roles under existing sectoral legislation. The FINMA Act is expected to enter into force on January 1, 2009, as noted on the FOPI website.

According to the IMF's 2007 FSSA Update, the banking system in Switzerland is characterized by a dualistic structure, leading to important differences in the risk profile and exposure of institutions. The two large banks - UBS and Credit Suisse - are important financial market intermediaries, both domestically and globally, and are systemically important. Conversely, the other small-and-medium-sized banks mainly have domestic operations, and are not individually of systemic importance. In terms of bank assets, the report ranks Switzerland fifth, worldwide, and the two large banks are ranked among the top ten.

The Principles

1. (1) Clear responsibilities and objectives for each supervisory agency.

II

According to the 2002 IMF report, the SFBC is empowered to license as well as "supervise credit institutions, and permit the exchange of information with the FOPI" (p. 47) under the Banking Act. Furthermore, the IMF's 2007 FSAP Update noted that the SFBC is the supervisory authority for all banks, securities firms, exchanges, and investment funds in Switzerland. The SFBC is integrated under the Federal Department of Finance (FDF), and organized into two main departments: the Large Banking Groups Department and the Banks/Securities Firms Department. The former supervises Switzerland's two large banking groups. The latter is responsible for the other banks. The SFBC's organizational and supervisory practices are expected to be further improved after the enactment of the 2007 FINMA Act, which establishes a new integrated financial supervisory authority, FINMA. The FINMA will incorporate the SFBC, the FOPI, and the AMLCA. The Act is expected to enter into force on January 1, 2009, as noted on the FOPI website. Despite the above descriptive information, there is little information publicly available addressing Switzerland's actual compliance with this Principle.

1.(2) Operational independence and adequate resources.

CP

According to the 2002 IMF report, Switzerland was only "largely compliant" (p. 46) with regard to budgetary independence of the supervisory authority, due to the incorporation of SFBC's budget into the Federal Department of Finance's (FDF) budget. The SFBC had a relatively small staff and operates according to a three-tier supervisory process - internal controls, external audit, and supervision. The IMF report recommended providing the SFBC with legally mandated, full budgetary independence and increased staffing. In its 2007 FSAP Update, the IMF reported that the SFBC has since doubled its staff. The same report recommended further deepening its staff expertise and skills and found that weaknesses remained regarding the SFBC's budgetary independence. The SFBC is still part of the expense calculation of the central government's budget. This shortcoming is expected to be addressed following the adoption of the 2007 FINMA Act. The IMF expressed concern about provisions in the draft law that might affect the operational and budgetary independence of the FINMA. Following the 2007 FSAP Update, the Swiss authorities responded that these provisions would not impair the operational independence of the FINMA but improve cooperation with the government.

1.(3) A suitable legal framework for authorization and ongoing supervision.

II

The basic legal framework for banking supervision is contained in the 1934 Federal Banking Act and related rules, regulations, and circulars, as noted in the 2002 IMF report. Under the Banking Act, the SFBC is empowered to "supervise credit institutions and permit the exchange of information with the FOPI" (p. 47). The 2007 IMF FSAP Update noted that the SFBC has since issued circulars in the area of "corporate governance, internal controls, large bank supervision, supervisory reporting, audit, audit companies, anti-money laundering, and self-regulation" (p. 7). Nonetheless, there is insufficient information publicly available as to Switzerland's compliance with this Principle.

The 2007 FSAP report also stated that "Switzerland incorporates all of the approaches in Basel II and the three pillars into its regulation" (p. 7). On January 1, 2007, the SFBC issued a new circular on "Supervision and Internal Control" to improve corporate governance for banks, securities traders, financial groups, and financial conglomerates, as noted in a 2007 Global Survey of the IIB. The 2007 FINMA Act establishes a new integrated financial supervisory authority - the FINMA - into which the FOPI and the AMLCA have been folded, according to the 2007 FSAP Update. The Act is expected to enter into force on January 1, 2009, as noted on the FOPI website. The IMF, however, worried that the draft legislation might incur more regulatory costs than benefits, undermining FINMA's regulatory effectiveness. The report recommended revising provisions in Article 7 of the FINMA Act to avoid giving excessive leverage to the banking industry in opposing regulation.

1.(4) A suitable legal framework to address compliance with laws as well as safety and soundness concerns.

II

Refer to Principle 1.(3)

1.(5) Legal protection for supervisors.

II

There is insufficient information publicly available that directly addresses Switzerland's compliance with this principle.

1.(6) Arrangement for sharing of information between supervisors and protection of confidentiality of shared information.

II

There is insufficient information publicly available that directly addresses Switzerland's compliance with this principle. However, according to the 2002 IMF report, under the Banking Act the SFBC is empowered to "supervise credit institutions and permit the exchange of information with the FOPI" (p. 47). The report suggested "formalizing the exchange of information and on-site visits" (p. 51), notably through Memoranda of Understandings (MoUs). The Swiss authorities responded that, while the existence of MoUs may be useful in some cases, informal cooperation can be as efficient and allow more flexibility. Furthermore, there are no legal obstacles or objections for the SFBC to enter into formal co-operation arrangements. According to the IMF's 2007 FSAP Update, seven different home-country supervisors have conducted on-site supervision in Switzerland. Furthermore, the SFBC has significantly improved its cooperation with supervisors by formalizing MoUs or exchange of letters and enhanced its contacts with external auditors involved in audit functions. The SFBC, as noted on its website, has regular contacts with the Swiss FDF and the Swiss National Bank (SNB. It also communicates with various associations, including the Swiss Bankers Association (SBA), the Swiss Funds Association (SFA), and the Swiss Institute of Certified Accountants and Tax Consultants.

2. Clearly defined permissible activities for banks and control of the use of the word 'bank'.

II

The Banking Act clearly defines the term 'bank' and the permissible activities, as noted in the 2002 IMF report, with an exception that permits "nonbank employer sponsored deposit-taking entities that are not licensed or regulated as financial institutions" (p. 51). The IMF report recommended eliminating this exception to mitigate systemic risks. The IMF's 2007 FSAP Update reported that, in 2005, the Swiss Federal Council and Parliament had concluded that the systemic risk emanating from "nonbank employer sponsored deposit-taking entities" was negligible and that the exception would be maintained. Furthermore, the 2007 report noted that these entities are in line with the Basel methodology, as long as they do not hold a significant proportion of deposits. Despite the above information there is little information publicly available as to Switzerland's compliance with this Principle.

3. Criteria for structure, directors, operating plan, controls, financial condition and capital base.

II

The 2002 IMF report noted that in the licensing process, the SFBC is given all relevant information by the applicant, including strategic and operations plans, fitness and propriety of management, suitability of shareholders. According to the IMF's 2007 FSAP Update, the licensing regime has not been subject to substantial changes, with eight to ten licenses being granted by the SFBC on an annual basis. However, there is insufficient information publicly available regarding Switzerland's compliance with this Principle.

4. Authority to review and reject transfer of ownership.

II

Under the Banking Act, as noted in the 2002 IMF report, the SFBC has the "authority to grant authorization for acquisitions or increases of qualifying holdings" (p. 48). However, there is insufficient information publicly available regarding Switzerland's compliance with this Principle.

5. Authority to review major acquisitions and investments.

II

The 2002 IMF report noted that under the Banking Act, the SFBC has the right to review major acquisitions. Furthermore, investments in non-financial companies are limited to "15 percent of the net own funds per non-financial company, up to a total of 60 percent of the net own funds" (p. 48). However, there is insufficient information publicly available regarding Switzerland's compliance with this Principle.

6. Minimum capital adequacy requirements (meet Basle Capital Accord for internationally active banks).

CP

According to the 2002 IMF report, legislation regarding capital adequacy is in line with the BCPs and EU Directives on Solvency and Own Funds, except for cantonal banks which benefit from a capital discount of 12.5 percent of the requirements. The IMF report recommended eliminating the capital reduction for cantonal banks to ensure sound competition. The capital adequacy ratio in Swiss banks is well above the 8 percent requirement. In practice, the SFBC applies a 20 percent capital adequacy threshold, and closely monitors banks that fall below this buffer. Furthermore, Swiss authorities plan to gradually phase out the 12.5 percent capital reduction for cantonal banks upon implementing Basel II on January 1, 2007, and to fully eliminate it by 2011. As noted in the same report, circulars related to Basel II, which, inter alia, cover capital adequacy disclosure, as well as the Swiss Federal Banking Commission's Ordinance Concerning Capital Adequacy (Capital Adequacy Ordinance) also entered into force on January 1, 2007.

7. A method exists for the evaluation of procedures related to loans, investments and portfolio management.

II

In its 2002 report, the IMF noted that insufficient information was gathered by the SFBC regarding renegotiated, past due, and internally classified credits. The report suggested providing such information, together with provisions, charge-offs, and recoveries to ensure adequate monitoring of asset quality in the banking sector. However there is insufficient information publicly available directly addressing this principle.

8. Policies, practices and procedures for evaluating the quality of assets and the adequacy of loan loss provisions and reserves.

II

According to the 2002 IMF report, the SFBC's requirements are generally more conservative than the Basel Accord and EU directives, "except for the risk weightings on commercial real estate loans" (p. 48). Furthermore, there is limited information on asset quality and provisions in the monthly and quarterly prudential reports. Banks are not required "to disclose in their annual published reports a breakdown of asset quality by categories, nor other asset quality indicators" (p. 48). The report recommended establishing a consistent standard to ensure more detailed reporting of asset quality information. Nonetheless, there is insufficient information publicly available directly addressing this principle.

9. Prudential limits and management information system on concentration of exposure.

FC

According to the 2002 IMF report, credit standards, including large exposures, are consistent with the BCPs. As noted in the IMF's 2007 FSAP Update, circulars related to Basel II, which cover credit, market, and large exposures entered into force on January 1, 2007.

10. Arm's length rule and monitoring for connected lending.

FC

According to the 2002 IMF report, credit standards, including lending to affiliates, are consistent with the BCPs.

11. Policies and procedures for country risk and transfer risk.

II

There is insufficient information publicly available addressing Switzerland's compliance with this principle.

12. Measuring and monitoring market risk. Limit and/or specific capital charge on market risk exposure.

II

As of January 1, 2008, as noted in the IMF's 2007 FSAP Update, the two large Swiss banks and some of the larger banks will adopt Basel II's advanced approaches to operational, credit, and market risk. Most of the other banks will apply the simpler approaches to measuring risk under Basel II. However, there is insufficient information publicly available addressing Switzerland's compliance with this principle.

13. Comprehensive risk management processes.

II

There is insufficient information publicly available addressing Switzerland's compliance with this principle. However, according to the 2002 IMF report, external auditors of banks "assess the adequacy of provisions and reserves during their annual bank examination and audit and ensure that the methodology used to determine the provision amount is justifiable" (p. 48). Furthermore, in the event of insufficient allocations, external auditors require corrective action, and inform the SFBC. The IMF report noted that risk management processes were supported by good earnings and strong capital in the banking sector. However, the prudential reporting process did not require filing a "gap report" (assessing the bank's earnings exposure to interest rate movements), and liquidity monitoring as part of off-site supervision was under review. The report suggested improving the supervisory system for monitoring liquidity to be in line with the "Basel Committee's paper on managing liquidity in banking organizations" (p. 51). According to the IMF's 2007 FSAP Update, the SFBC has been collecting additional data on gap reports. Furthermore, the 2007 IMF FSSA Update added that the SFBC has been using a more risk-based approach for the supervision of small- and medium-sized banks. Weaknesses remain regarding liquidity monitoring. The Swiss authorities responded that they had not addressed this issue due to limited resources and other priorities, but intended to do so. The 2007 FSSA recommended developing an advanced supervisory framework for liquidity risks specific to banks.

14. Adequate internal controls.

II

According to the 2002 IMF report, the SFBC requires all licensed bank in Switzerland to have an internal audit function, as well as an approved and licensed external auditor that also assesses the adequacy of internal controls and audit. Exceptions exist for subsidiaries, whose internal audit function may be outsourced to the audit department of the group. The 2007 IMF FSAP Update reported that the SFBC has issued circulars in the area of corporate governance, internal controls, and audit. Nonetheless, there is little information publicly available addressing Switzerland's compliance with this principle.

15. Strict "know-your-customer" rules and high ethical and professional standards.

II

According to a 2007 U.S. Department of State (DoS) International Narcotics Control Strategy report, the Federal Act on Combating Money Laundering in the Financial Sector came into effect in 1998, and established the Financial Intelligence Unit, the Money Laundering Reporting Office Switzerland (MROS). Furthermore, provisions of the Swiss Penal Code relating to terrorist financing entered into force on October 1, 2003. The Financial Action Task Force conducted a mutual evaluation in 2005, as noted in the same report, and found that Switzerland's anti-money laundering (AML) and combating the financing of terrorism (CFT) framework was "at least partially compliant in most areas." The report also noted that Switzerland was less than compliant with regards to correspondent banking and cash couriers. According to the 2007 U.S. DoS report, although Switzerland has significant AML legislation in place, several types of criminal offenses are not recognized under the Swiss regulation, including "illegal trafficking in migrants, counterfeiting and pirating of products, smuggling, insider trading, and market manipulation." The adoption of AML regulations in 2007 should cover these issues. The IMF's 2007 FSAP Update reported that the SFBC has issued circulars regarding AML The 2007 IMF FSSA Update added that the SFBC has doubled its staff, and strengthened its policies with regards to AML/CFT issues. Despite the above information, there is little information publicly available addressing Switzerland's actual compliance with this principle.

16. Effective supervisory system consisting of on-site and off-site supervision.

II

According to the IMF's 2007 FSAP Update, the SFBC uses a two-tier supervision system. Under this system, the SFBC is responsible for overall supervision and enforcement measures, whereas audit companies approved by the SFBC conduct on-site examinations. According to the same report, external auditors perform on-site reviews for all small- and medium-sized banks, while the SFBC conducts an annual on-site review program for the two large banks. In its 2002 report, the IMF recommended developing and implementing a "formal quality assurance program" (p. 51) to supervise and monitor the activities of external auditors. The 2002 report also advised the SFBC to develop an early warning system, and gather more detailed data. It further recommended using more off-site data, as well as information from meetings with foreign supervisors, insurance supervisors, management, and external auditors. The 2007IMF FSAP reported that the SFBC has developed and implemented an early warning system for small-and medium-sized banks. It has also improved its data collection, and is gathering additional information on asset quality and gap reports. An Audit Firms Department was established to evaluate the activities of external auditors in small-and medium-sized banks. According to the 2007 IMF FSSA Update, the supervisory practices of the SFBC have been substantially improved through the implementation of continuous supervision for the large banking groups, and a more risk-based approach for the supervision of the other banks. Important functional areas, including risk management, on-site review and external audit review, have been put in place. Despite the above information, there is little information publicly available addressing Switzerland's actual compliance with this principle.

17. Regular contact with bank management and understanding of bank's operations.

II

According to the 2002 IMF report, the SFBC collects monthly, quarterly and annual returns, and contacts the banks periodically during their off-site monitoring "when deviations from established trends are noted" (p. 49). Furthermore, the SFBC meets quarterly with Switzerland's two largest banks, and at least every three years with other banks, to discuss financial data, new business activities, and other important issues. The IMF report recommended arranging annual meetings between the SFBC and all Swiss banks. Since the 2002 IMF assessment, the SFBC has improved its contact with bank management, and focuses on higher risk banks. The 2002 report further noted that the frequency of meetings with small- and medium-sized banks depends on their risk profile. Nonetheless, there is little information publicly available addressing Switzerland's actual compliance with this principle.

18. Analytical reports and statistical returns on solo and consolidated basis.

II

Under the Banking Act, as stated in the 2002 IMF report, the SFBC has the authority to supervise credit institutions on a consolidated basis, and there are "signs of comprehensive consolidated supervision" (p. 50). The 2007 IMF FSAP Update added that the SFBC has issued circulars regarding supervisory reporting. Nonetheless, there is little information publicly available addressing Switzerland's actual compliance with this principle.

19. Independent validation of supervisory information through on-site examination or external auditors.

II

There is little information publicly available addressing Switzerland's actual compliance with this principle. However, according to the IMF's 2007 FSAP Update, the SFBC uses a two-tier supervision system. Under this system, the SFBC is responsible for overall supervision and enforcement measures, whereas audit companies approved by the SFBC conduct on-site examination. According to the same report, external auditors perform on-site reviews for all small- and medium-sized banks, while the SFBC conducts an annual on-site review program for the two large banks. In its 2002 report, the IMF recommended developing and implementing a "formal quality assurance program" (p. 51) to supervise and monitor the activities of external auditors. The 2007 FSAP Update added that an Audit Firms Department was successfully established to evaluate the activities of external auditors in the small- and medium-sized banks.

20. Ability to supervise on a consolidated basis.

II

The 2002 IMF report stated that the Banking Act authorizes the SFBC to supervise credit institutions on a consolidated basis, and there are "signs of comprehensive consolidated supervision" (p. 50). A proposed amendment to the Banking Act would set a more comprehensive legal framework for the supervision of groups of banks, securities dealers, and financial conglomerates. The IMF report recommended developing a framework to supervise insurance groups. In its 2007 FSAP Updated, the IMF noted that the Banking Act was amended on January 1, 2006 to establish formal legal rules for financial groups, insurance groups, and financial conglomerates. According to the 2007 IMF FSSA Update, the SFBC has strengthened its policies with regards to consolidated supervision. Nonetheless, there is little information publicly available addressing Switzerland's actual compliance with this principle.

21. Consistent accounting policies and practices that provide a true and fair view of the financial condition of the bank.

II

There is little information publicly available addressing Switzerland's actual compliance with this principle. However, according to the 2002 IMF report, reporting requirements are based on the Banking Act, the Implementing Ordinance on Banks and Savings Banks Banking Ordinance, and the Respective Guidelines of the SFBC. Furthermore, accounting standards are in line with the International Accounting Standards (IASs) and US GAAP. As noted in the IMF's 2007 FSAP Update, the SFBC depends heavily on external auditors to audit financial statements and verify compliance with legal and regulatory requirements, and requires annual financial statements to be fully audited on an annual basis. The SFBC also approves the audit companies and lead auditors. Auditors rotate every seven years, whereas audit companies are not required to rotate. According to the 2007 report, the SFBC should "involve different international experts and audit firms for special audits" (p. 10), and audit firms should rotate periodically. Furthermore, important functional areas, including risk management, on-site review, and external audit review, have been put in place. Writing in 2005, Schweizer stated that the revision of accounting and reporting legislation is under way, and the Federal Accounting and Auditing Act was expected to enter into force in 2007. However, as of early 2008 there is little further information as to whether this Act has been passed. Under the revised accounting rules, financial statements, valuation provisions, and consolidated accounting will be based on international standards, including the International Financial Reporting Standards (IFRSs). Furthermore, Swiss accounting and auditing rules will be harmonized in accordance with EU directives.

22. Adequate supervisory measures to ensure timely corrective action.

II

Under the Banking Act, the SFBC has the authority to "issue the decisions necessary to restore rightful conditions, remove abuses, and develop a practice of corrective action and early intervention" (p. 50), according to the 2002 IMF report. The Act also includes a range of remedial actions. However, according to the same report, the SFBC lacks a proper system for the automatic imposition of administrative or penal sanctions, as well as "a legal basis for publicly disclosing enforcement actions, naming institutions and individuals involved" (p. 50). The IMF report recommended giving legal powers to the SFBC to impose monetary penalties on banks or management, and to publish enforcement activities. Furthermore, the SFBC should have the legal enforcement authority to "publish the identities of banks and individuals involved in money laundering activities" (p. 51). The proposed amendment to the Banking Act should cover these issues by giving more powers to the SFBC and codifying its practices. Amendments were made to the Banking Act in 2004, which specify when "protective measures" (p. 10) can be taken by the SFBC against a bank or individual. However, the SFBC still lacks direct authority to impose civil monetary sanctions, and this authority is not provided under the 2007 FINMA Act. The 2007 IMF FSAP report recommended giving SFBC the powers to impose these penalties on banks, directors, or managers. Despite the above information, there is little information publicly available addressing Switzerland's actual compliance with this principle.

23. Banking supervisors must practice global consolidated supervision over their internationally-active banking organizations.

II

The 2002 IMF report stated that under the Banking Act, the SFBC has the authority to supervise credit institutions on a consolidated basis, and there are "signs of comprehensive consolidated supervision" (p. 50). However, there is insufficient information publicly available addressing Switzerland's actual compliance with this principle.

24. International exchange of information with other supervisors.

II

There is insufficient information publicly available addressing Switzerland's actual compliance with this principle. According to the 2002 IMF report, although informal arrangements have not undermined the SFBC's ability to supervise on a consolidated basis, the conclusion of MoUs would facilitate on-site inspections, which are expected to increase after the implementation of the new Basel Capital Accord. The Swiss authorities responded that, while the existence of MoUs may be useful in some cases, informal cooperation can be as efficient and allow more flexibility. Furthermore, there are no legal obstacles or objections for the SFBC to enter into formal co-operation arrangements with a foreign counterpart. The 2007 FSAP Update by the IMF reported that the SFBC has significantly improved its cooperation with foreign supervisors by formalizing MoUs or exchange of letters, and enhanced contacts with external auditors involved in audit functions. The SFBC notably collaborates with host supervisors of the Federal Reserve Bank of New York (FED) and the Financial Services Authority (FSA), as well as Basel and international working groups. It also follows developments in the EU that have an impact on financial institutions.

25. Supervision of local operation of foreign banks and information sharing with home country supervisors.

II

There is insufficient information publicly available addressing Switzerland's actual compliance with this principle. However, according to the 2002 IMF report, the SFBC has the authority to request information and documents from foreign banks and financial supervisory authorities, as well as the powers to supervise the local operation of foreign banks. The report suggested "formalizing the exchange of information and on-site visits" (p. 51), notably through MoUs. Following the report, the Swiss authorities responded that, while the existence of MoUs may be useful in some cases, informal cooperation can be as efficient and allow more flexibility. Furthermore, there are no legal obstacles or objections for the SFBC to enter into formal co-operation arrangements with a foreign counterpart. The 2007 IMF FSAP Update added that seven different home country supervisors have conducted on-site supervision in Switzerland.