FINMA Small Banks Regime: Where Proportionality Stops

Speaking at the Small Bank Symposium in Bern on 7 September 2026, FINMA’s chief executive set out to answer a complaint the supervisor keeps hearing: that Switzerland’s small institutions are watched too closely while the large banks are left alone. His defence rested on the FINMA small banks regime, the voluntary framework that has run since 2020 and now has 56 participating institutions. The regime is the clearest operational expression of proportionality in Swiss prudential supervision, and it decides how much of the capital and liquidity reporting machine a smaller bank actually has to run.

For a compliance or reporting officer at a category 4 or 5 institution, three questions matter: what joining the regime removes from the workload, what keeps that relief in place, and which obligations never move regardless of balance-sheet size. The governing legal basis is split across the Capital Adequacy Ordinance, including Articles 47a to 47e, and Article 17t of the Liquidity Ordinance for the NSFR exemption, with additional qualitative simplifications reflected in FINMA circulars; the speech describes FINMA’s current supervisory view of that framework.

Related reading: our coverage of the Swiss too-big-to-fail consultation on the Banking Act and Liquidity Ordinance.

What the FINMA small banks regime removes from the reporting workload

The regime is anchored in Article 47a of the Capital Adequacy Ordinance (CAO) and took effect on 1 January 2020. It is open only to banks and account-holding securities firms in supervisory categories 4 and 5. Admission is conditional: an institution must run a simplified leverage ratio of at least 8 percent, an average liquidity coverage ratio of at least 110 percent measured over 12 months, and a refinancing rate of at least 100 percent, with all Article 47b criteria met at all times at both single-entity and financial-group level. Meeting those quantitative criteria does not by itself guarantee admission: under Article 47c CAO, FINMA may reject an application where specified supervisory measures or proceedings concern conduct under FinSA, market conduct under FinMIA, money laundering or terrorist financing under AMLA, or cross-border business, or where interest-rate risk management is inadequate or interest-rate risk is unreasonably high.

In exchange, the calculation burden shrinks. Participating institutions do not have to calculate their risk-weighted assets, and they are freed from calculating and complying with the net stable funding ratio. On the qualitative side, the regime brings reduced disclosure obligations, reduced requirements relating to risk-control duties, a lower frequency of comprehensive risk assessment by internal audit, and elimination of specific outsourcing requirements. For an EU reporting team used to running the full standardised and internal-model stack, the closest reference point is the machinery behind COREP own funds reporting, most of which simply falls away for a Swiss institution inside the regime.

The relief is conditional and reversible, and that changes how the underlying systems should be treated. The simplified leverage ratio must remain at least 8 percent, the rolling 12-month average LCR at least 110 percent, and the refinancing rate at least 100 percent; all Article 47b criteria must be met at all times. If the Article 47b criteria cease to be met, FINMA must be notified immediately. Under Article 47d, FINMA grants a period to restore compliance, normally one year and subject to shortening or extension in justified cases; only if the criteria remain unmet when that period expires can the Article 47a simplifications no longer be used.

Risk category, not headcount, drives supervisory intensity

FINMA sorts banks and securities firms into five supervisory categories under Annex 3 of the Banking Ordinance, using total assets, assets under management, privileged deposits and required capital. Category 1 covers the extremely large and complex institutions with very high risk; category 5 holds the small, low-risk firms that make up the bulk of the supervised population. The supervisory category, together with FINMA’s internal risk rating, determines how closely an institution is supervised; FINMA says reporting, direct contact and monitoring intensity differ accordingly. Category 4 or 5 status is also a prerequisite for admission to the small banks regime.

The CEO used the symposium to put numbers behind the claim that smaller does not mean more heavily supervised. FINMA carries out more than 40 on-site inspections at UBS each year; an average small bank sees an on-site inspection only once every eight to ten years. In 2025 the supervisor ran twelve times as many on-site inspections at institutions rated medium or high risk as at low-risk ones. It imposed additional conditions on around 30 percent of applications for the guarantee of irreproachable business conduct from large banks, against less than 10 percent for small banks. And in a ten-year review of enforcement, category 1 and 2 banks accounted for a disproportionate share of investigations and proceedings despite representing only around 2 percent of supervised banks.

Where proportionality stops: AML, market conduct and sanctions

In anti-money-laundering, market conduct and sanctions, FINMA applies the same requirements regardless of the size of an institution. FINMA’s stated reasoning is that a smaller balance sheet does not necessarily make every risk smaller and that, where institution size does not materially change the risk, there is no objective reason to apply different compliance standards.

That distinction matters when a reporting team maps its obligations. Being inside the small banks regime lifts RWA calculation and NSFR calculation/compliance work, but it does not remove AML reporting duties or sanctions obligations; current FINMA sanctions notices require financial intermediaries to implement the applicable prohibitions, freeze sanctioned assets and report affected business relationships to SECO, while AMLA reporting is made to MROS where the statutory conditions are met. Recent FINMA sanctions notices apply to Swiss financial intermediaries; sanctions supervision in Liechtenstein is handled separately by the FMA Liechtenstein under its own framework.

Outsourcing and cyber risk stay with the institution

Smaller banks have the most to gain from outsourcing technology and services, because they can buy capability they could not build. FINMA’s position is that the arrangement leaves the risk where it started: responsibility for managing outsourcing, cloud and cyber exposures remains with the supervised institution. Growing reliance on external technology and cloud providers creates dependency and concentration risk, and the supervisor treats accountability for those risks as non-delegable.

Artificial intelligence cuts both ways: it can help a bank run processes and detect attacks, and it can also make attacks easier to automate and scale, so a small bank’s proportionate response will differ from a large one’s while the underlying duty holds. The logic is familiar from the EU debate over DORA resilience testing for smaller firms, where lighter testing routes coexist with an unchanged obligation to know and manage the key risks. A firm that outsources the technology still owns the outcome.

How the nature-risks circular writes proportionality into the rulebook

Proportionality shows up in individual rules as well as in supervisory posture. FINMA Circular 2026/1 on nature-related financial risks, published in December 2024 and entering into force in stages from 1 January 2026, is the example FINMA reaches for. Institutions inside the small banks regime that are particularly liquid and well capitalised are exempted from the requirement on proportionality grounds, with the circular positioned as guidance for them rather than a binding obligation.

The same thinking reaches smaller banks and securities firms outside the regime, where implementation depends on the firm’s size, complexity, risk profile and business model rather than a fixed threshold. The ECB’s 2026 nature-related risk good-practices material is non-binding and presents practices at different levels of sophistication, including less sophisticated examples intended to support smaller and less exposed banks; it does not establish staged requirements by bank size. The practical read for a Swiss reporting team is that a proportionality carve-out has to be traced to its own legal basis: an exemption tied to small banks regime membership behaves differently from one resting on a broader proportionality assessment.

Frequently Asked Questions

Can an institution be pushed out of the small banks regime once it has joined?

Yes. The Article 47b quantitative criteria have to be met at all times at both single-entity and financial-group level. If an Article 47b criterion ceases to be met, the institution must notify FINMA immediately. If FINMA determines that the institution is no longer in category 4 or 5 or that an Article 47c rejection ground applies, FINMA informs the institution. In either case, FINMA grants a period to restore compliance, normally one year; if the relevant conditions remain unmet at the end of that period, the Article 47a simplifications can no longer be used.

Does joining the regime remove the leverage ratio and the LCR themselves?

No. The continuing Article 47b criteria are a simplified leverage ratio of at least 8 percent, a rolling 12-month average LCR of at least 110 percent and a refinancing rate of at least 100 percent; the Article 47c rejection grounds also apply. The regime removes the heavy calculations built on top, so capital and liquidity adequacy still have to be demonstrated, just with less machinery to produce them.

Is joining the regime the same as being classified in category 5?

No. Categorisation into one of the five supervisory categories is assigned by FINMA under Annex 3 of the Banking Ordinance and is not optional. The small banks regime is a separate voluntary election open to category 4 and 5 institutions that also clear the capital and liquidity thresholds, so a category 5 bank is not automatically inside it.

Related Articles

• Swiss TBTF Consultation: Banking Act and Liquidity Ordinance: How Switzerland’s too-big-to-fail reforms reshape capital and liquidity rules for the largest banks.
• FINMA Russia Sanctions Screening: Switzerland and Liechtenstein: Swiss FINMA sanctions notices alongside Liechtenstein’s separate ISG framework, where the FMA is a competent supervisory authority and the FIU acts as an enforcement authority for financial sanctions.
• DORA Resilience Testing for Smaller Firms: The lighter EU testing routes for microenterprises and smaller financial entities and their limits.
• ECB Nature-Related Risk Good Practices: Non-binding ECB examples at different levels of sophistication, including approaches intended to be useful for smaller and less exposed banks.
• PRA LIAC02/26 Low-Impact Amendments Consultation: A July 2026 consultation on proposed minor amendments to PRA rules and policy materials, including reporting and liquidity changes.
• COREP Reporting Explained: An overview of the separate EU COREP own-funds and own-funds-requirements reporting framework.

Key Takeaways

• The small banks regime sits in Article 47a of the Capital Adequacy Ordinance, has run since 1 January 2020, and had 56 participants as of September 2026.
• Entry is limited to category 4 and 5 banks and account-holding securities firms that hold a simplified leverage ratio of at least 8 percent, an average 12-month LCR of at least 110 percent, and a refinancing rate of at least 100 percent.
• The headline relief is dropping RWA calculation and the NSFR, alongside reduced disclosure, lighter risk-control duties and a lower audit frequency.
• The Article 47b quantitative criteria must be met at all times at single-entity and financial-group level; if one ceases to be met, the institution must notify FINMA immediately. If FINMA determines that category 4 or 5 status has been lost or an Article 47c rejection ground applies, FINMA informs the institution; in either case, FINMA grants a restoration period, normally one year, before the Article 47a simplifications cease if the relevant conditions remain unmet.
• AML, market conduct and sanctions requirements apply regardless of institution size and are not reduced by the small banks regime.
• Responsibility for outsourcing, cloud and cyber risk stays with the institution even when the technology is bought in.
• FINMA Circular 2026/1 on nature-related financial risks enters into force in stages from 1 January 2026 and exempts qualifying small banks regime institutions on proportionality grounds.

Sources and References

• FINMA, “FINMA’s supervision of small banks: proportionality as a guiding principle for effective supervision”, Small Bank Symposium, Bern, 7 September 2026: finma.ch
• FINMA, “Cat. 4 and 5 / Small banks regime” (current admittance criteria and FINMA summary of the SBR simplifications): finma.ch
• FINMA, “FINMA definitively introduces the small banks regime” (entry into force 1 January 2020): finma.ch
• FINMA, “Categorisation of banks and securities firms” (supervisory categories 1-5, Annex 3 of the Banking Ordinance): finma.ch
• FINMA, “FINMA publishes new Nature-related financial risks circular” (Circular 2026/1, staged entry from 1 January 2026): finma.ch
• Swiss Confederation, Capital Adequacy Ordinance (SR 952.03), Articles 47a to 47e: fedlex.admin.ch; Liquidity Ordinance (SR 952.06), Article 17t: fedlex.admin.ch

What the dialogue with small banks turns on

FINMA framed the symposium as a forum for dialogue about where regulatory requirements pose particular challenges for smaller institutions, with breakout sessions on on-site inspections, proportionality in the regulation of small banks and expectations regarding the use of artificial intelligence. For a reporting team the near-term work is concrete: confirm that the institution still clears the SBR criteria and map each simplification to its legal basis. For Circular 2026/1, SBR banks are outside scope and use the circular as guidance; category 3 to 5 institutions that are in scope must implement the climate-risk provisions by 1 January 2027, and all in-scope institutions must implement the circular in full by 1 January 2028.

Disclaimer: The information on RegReportingDesk.com is for educational and informational purposes only. It does not constitute legal, regulatory, tax, or compliance advice. Always consult your compliance officer, legal counsel, or the relevant supervisory authority for guidance specific to your institution.