A total of 1,060 institutions comprising portfolio managers and trustees have notified the Swiss Financial Market Supervisory Authority (FINMA) that they will not be submitting a license application as required by the country’s Financial Institutions Act (FinIA) which came into force on January 1, 2020.

This is even as the three-year transitional period granted to these institutions under FinIA to fulfill the licensing conditions and submit a license application elapsed on December 31, 2022. However, a total of 1,699 firms sent in their applications at the end of last year, FINMA said on Monday in a press statement and newly-issued guidance.

FINMA Grants 670 FinIA Licenses in 2022

The Swiss financial regulator said it granted licenses to 670 institutions last year from the application pool, with around 1,000 applications still pending. Of the granted licenses, 642 went to portfolio managers, 22 to trustees and six to institutions acting as portfolio managers and trustees.

The regulator under FinIA requires portfolio managers and trustees to obtain affiliation with a licensed independent supervisory organization (SO) such as FINcontrol Suisse SA before applying for its license. In May last year, the regulator urged concerned institutions to prepare and submit their applications to the SOs by the latest of June 30 in order to meet up with their subsequent FINMA license applications.

Watch the recent FMLS22 session on how regulation will shape the financial industry in 2023.

“FINMA was organizationally prepared for this larger number of applications. However, due to the large number of pending cases, [and] a longer FINMA licensing process in particular, longer (initial) response times must be expected. The processing time as well as the corresponding costs of an individual application remain highly dependent on its quality and complexity,” the Swiss regulator explained.

FINMA to Prosecute Unlicensed Portfolio Managers and Trustees

In the statement on Monday, FINRA noted that it will initiate criminal prosecution against portfolio managers and trustees who missed the submission deadline but continue to operate “on a professional basis” in 2023. However, it added that those that have applied for the license can continue operating until a decision is reached on their licence applications.

“The financial penalties or fines resulting from criminal proceedings could be as high as CHF 250,000,” the Swiss regulator said, adding that since 2020, it has launched 307 investigations against institutions suspected of operating without authorization.

Meanwhile, Sandra Gasser, KPMG Switzerland’s former Attorney at Law and the Head of Asset Management & Consulting, believes that companies that do not apply for the required licensing are likely to seek a merger with another financial institution or discontinue their business in the country.