Capital Adequacy Ordinance (CAO)
English is not an official language of the Swiss Confederation. This translation is provided for information purposes only and has no legal force.
Chapter 1 Purpose, Scope and Definitions
Art. 1 Principles
1 To protect creditors and the stability of the financial system, banks and account-holding securities firms must mitigate their risks appropriately and hold adequate capital commensurate with their business activities and risks. 2 They must provide capital backing for credit risks, market risks and operational risks.
Para. 1 — Amended by Annex 1 No II 10 of the Financial Institutions Ordinance of 6 Nov. 2019, in force since 1 Jan. 2020 (AS 2019 4633). Para. 2 — Amended by No I of the O of 29 Nov. 2023, in force since 1 Jan. 2025 (AS 2024 13).
Art. 2 Subject matter
1 This Ordinance governs: a. eligible capital; b. the risks to be backed with capital and the level of capital backing; c. risk diversification, i.e. the upper limits for risk concentrations and the treatment of intra-group exposures; d. the special requirements for systemically important banks. 2 ...
Para. 1 let. c — Amended by No I of the O of 29 Nov. 2023, in force since 1 Jan. 2025 (AS 2024 13). Para. 2 — Repealed by No I of the O of 29 Nov. 2023, with effect from 1 Jan. 2025 (AS 2024 13).
Art. 3 Scope
This Ordinance applies to banks in accordance with the BankA and account-holding securities firms pursuant to the FinIA (hereinafter banks).
Art. 3 — Amended by Annex 1 No II 10 of the Financial Institutions Ordinance of 6 Nov. 2019, in force since 1 Jan. 2020 (AS 2019 4633).
Art. 4 Definitions
1 In this Ordinance: a. regulated stock exchange means an institution that is appropriately regulated and supervised according to internationally recognised standards, whose purpose is to enable the simultaneous purchase and sale of securities among several securities firms and that also ensures this by means of sufficient market liquidity; b. main index means an index comprising all securities traded on a regulated stock exchange (total market index) or a selection of key securities on such an exchange, or an index comprising the key securities of various regulated stock exchanges; c. regulated entity means an entity operating in the financial sector that must comply with appropriate capital adequacy requirements, particularly with regard to business risks, and that is regulated according to internationally recognised standards and supervised by a banking, securities or insurance supervisory authority; d. equity security means a security representing a financial interest in the share
Para. 1 let. a — Term in accordance with Annex 1 No. II 10 of the Financial Institutions Ordinance of 6 Nov. 2019, in force since 1 Jan. 2020 (AS 2019 4633). This amendment has been made throughout the text. Para. 1 let. dbis — Inserted by No I of the O of 29 Nov. 2023, in force since 1 Jan. 2025 (AS 2024 13). Para. 1 let. f — Amended by No I of the O of 29 Nov. 2023, in force since 1 Jan. 2025 (AS 2024 13). Para. 1 let. f — The CAP is listed in Annex 1 No 2. Para. 1 let. fbis — Inserted by No I
Art. 4a Basel Minimum Standards
1 In this Ordinance, Basel Minimum Standards are those documents of the Basel Committee on Banking Supervision that this Ordinance declares to be relevant, in particular for calculating capital requirements and with respect to the disclosure requirements. 2 The relevant authoritative version of the Basel Minimum Standards is stipulated in Annex 1.
Art. 4a — Inserted by No I of the O of 29 Nov. 2023, in force since 1 Jan. 2025 (AS 2024 13).
Art. 4b Banking book
The following instruments must be assigned to the banking book: a. unlisted equity securities; b. securitisation exposures; c. direct real estate holdings; d. loans and loan commitments to small and medium-sized enterprises (SMEs) under Article 70 paragraphs 3 and 4 and retail exposures under Article 71; e. units in managed collective assets, unless at least one of the conditions under Article 5 paragraph 3 letter c is met; f. hedge funds; g. derivative instruments and managed collective assets that have the instruments under letters a to f as the underlying asset, except if at least one of the conditions under Article 5 paragraph 3 letter c is met; h. instruments held for the purpose of hedging the risk of the instruments under letters a to g; i. other instruments that are not assigned to the trading book in accordance with Article 5.
Art. 4b — Inserted by No I of the O of 29 Nov. 2023, in force since 1 Jan. 2025 (AS 2024 13).
Art. 5 Trading book
1 Instruments may be assigned to the trading book only if there is no legal impediment against trading or fully hedging the instrument. 2 Instruments held for one of the following purposes must, when first recognised on the entity's books, must be assigned to the trading book, unless they are instruments under Article 4b letters a to h: a. short-term resale; b. profiting from short-term price movements; c. locking in arbitrage profits; d. hedging risks arising from the instruments held for the purposes under letters a to c. 3 The following instruments must be assigned to the trading book, unless they are instruments under Article 4b letters a to h: a. instruments held as accounting trading assets or liabilities; b. instruments resulting from market-making activities; c. units in managed collective assets that meet at least one of the following conditions: 1. the bank is able to look through the fund to its individual components, and has access to sufficient and frequent information on
Art. 5 — Amended by No I of the O of 29 Nov. 2023, in force since 1 Jan. 2025 (AS 2024 13). Para. 4 — The RBC is listed in Annex 1 No 3.
Art. 5a Banking book and trading book: reassignments and internal risk transfers
1 If a reassignment of instruments between the two books results in a reduction of the minimum capital calculated across all trading and banking book positions, the difference shall be treated as a surcharge on minimum capital. 2 FINMA shall issue technical implementing provisions on reassignments and internal risk transfers. It shall base these on the RBC. For banks in categories 3 to 5 under Annex 3 of the Banking Ordinance of 30 April 2014 (BankO) and with respect to the requirement to obtain approval for reassignments under paragraph 25.16 RBC, FINMA shall make provision for less stringent requirements.
Art. 5a — Inserted by No I of the O of 29 Nov. 2023, in force since 1 Jan. 2025 (AS 2024 13). Para. 2 — The RBC is listed in Annex 1 No 3. Para. 2 — SR 952.02
Art. 5b Banking book and trading book: prudent valuation
1 Trading book positions must be calculated daily and any valuation change must be recognised in the profit and loss account. 2 For the purpose of calculating regulatory capital, banking book positions that are estimated at fair value in accordance with the applicable accounting standards, as well as trading book positions, shall be valued prudently for individual positions. 3 If the prudent valuation leads to valuation adjustments over and above those performed in accordance with the applicable accounting standards, these additional valuation adjustments shall result in a reduction of eligible CET1 capital. 4 FINMA shall issue technical implementing provisions on prudent valuation. It shall base these on the CAP.
Art. 5b — Inserted by No I of the O of 29 Nov. 2023, in force since 1 Jan. 2025 (AS 2024 13). Para. 4 — The CAP is listed in Annex 1 No 2.
Art. 6 Rating agencies
1 FINMA may recognise a rating agency if the criteria under paragraphs 21.2 to 21.4 of the Basel Minimum Standard on the calculation of RWA for credit risk (CRE) and the Code of Conduct Fundamentals for Credit Rating Agencies of 24 March 2015 of the International Organization of Securities Commissions (IOSCO) are met, especially if: a. the rating methodology and ratings are objective; b. the rating agency and its rating procedure are independent; c. the rating agency makes its external ratings and the underlying information available; d. the rating agency discloses its rating methodology, its code of conduct, its method of dealing with conflicts of interest, its compensation arrangements and the main characteristics of its ratings; e. the rating agency has sufficient resources; f the rating agency and its ratings are credible; g. the rating agency does not use unsolicited ratings to put pressure on rated entities into obtaining solicited ratings; and h. the rating agency declares its w
Art. 6 — Amended by No I of the O of 29 Nov. 2023, in force since 1 Jan. 2025 (AS 2024 13). Para. 1 — The CRE is listed in Annex 1 No 4. Para. 1 — The Code of Conduct Fundamentals for Credit Rating Agencies can be downloaded free of charge at www.iosco.org > Publications > Public Reports
Chapter 2 Consolidation
Art. 7 Consolidation requirement
1 The capital adequacy and risk diversification requirements must be met not only at the level of the individual entity, but also at the level of the financial group and financial conglomerate (consolidation requirement). 2 Consolidation shall include all group entities operating in the financial sector in accordance with Article 4 in conjunction with Article 22 of the BankO, with the following exceptions: a. subject to Article 12, participations in the insurance sector shall be consolidated only within the framework of the risk diversification requirements; b. the management of collective investments on behalf of investors or the holding of the initial capital of investment companies shall not imply a requirement to consolidate the collective investment. 3 If the bank holds equity instruments in an unconsolidated entity under paragraph 2 letter a, these shall be subject to the corresponding deduction approach. 4 If the bank holds equity instruments in an unconsolidated entity under pa
Para. 2 — SR 952.02 Para. 2 — Amended by No I of the O of 29 Nov. 2023, in force since 1 Jan. 2025 (AS 2024 13).
Art. 8 Consolidation types and options available to the bank
1 Majority interests in entities subject to consolidation must be fully consolidated. 2 In the case of participations held jointly with a second shareholder or partner where each holds 50% of the voting rights (joint ventures), the bank may choose full consolidation, proportionate consolidation or the corresponding deduction approach. 3 In the case of minority interests of at least 20% in entities subject to consolidation over which the bank directly or indirectly exerts a controlling influence together with other shareholders, the bank may opt for proportionate consolidation or the corresponding deduction approach. 4 The corresponding deduction approach shall be applied for all other minority interests. 5 With proportionate consolidation, eligible and required capital and risk concentrations must be recognised in proportion to the participation in question. 6 Participations recognised under the corresponding deduction approach shall not be included in risk diversification. 7 The deduc
Art. 9 Deviation in treatment with the consent of the audit firm
1 With the audit firm's consent, the following participations may be treated as exempt from the consolidation requirement: a. participations in entities which, due to their size and business activities, are insignificant for compliance with the capital adequacy requirements; b. significant group entities held for less than a year. 2 Participations conferring more than 50% of the voting rights may exceptionally be consolidated on a proportionate basis with the audit firm's consent if it is contractually stipulated that: a. the support for the entity subject to consolidation is limited to the bank's proportionate share; and b. the other shareholders or partners are obliged to provide support to the extent of their proportionate share and are legally and financially capable of fulfilling that obligation. 3 Participations that are exempt from the consolidation requirement in accordance with paragraph 1 shall be subject to the corresponding deduction approach without application of a thresh
Art. 10 Special provisions
1 In special cases, FINMA may fully or partially exempt a bank from compliance with the capital and risk diversification requirements at the level of the individual entity, in particular if the criteria under Article 17 BankO are met. 2 In the context of the capital requirements to be met at the level of the financial group or financial conglomerate, FINMA may impose additional requirements regarding the capital adequacy of an entity which is at the head of a financial group or financial conglomerate and which is not supervised as an individual entity. 3 In special cases, FINMA may permit bank group entities that operate in the financial sector to be consolidated by the bank at the level of the individual entity (solo consolidation), owing to their particularly close relationship with the bank.
Para. 1 — SR 952.02 Para. 1 — Amended by Annex 2 No. 4 of the Banking Ordinance of 30 April 2014, in force since 1 Jan. 2015 (AS 2014 1269).
Art. 11 Subordinate financial groups
1 The consolidation requirement shall apply to every financial group, even if a higher-level financial group or financial conglomerate is already supervised by FINMA. 2 FINMA may exempt a subordinate financial group from the consolidation requirement in special cases, particularly if: a. its group entities operate exclusively in Switzerland; and b. the higher-level financial group or financial conglomerate is itself subject to appropriate consolidated supervision by a financial market supervisory authority.
Art. 12 Captives for operational risk
Subject to approval by FINMA, group entities with the sole purpose of insuring operational risk within the group may be fully consolidated at financial group level in the same way as group entities operating in the financial sector and, if appropriate, solo consolidation may be used (Art. 10 para. 3).
Art. 13 Participations in non-financial entities
The upper limits for a bank's qualifying participations in a non-financial entity under Article 4 paragraph 4 of the BankA shall not apply if: a. such participations are acquired temporarily as part of the restructuring or rescue of an entity; b. securities are acquired for the standard underwriting period; or c. the difference between the upper limits applicable to these participations and the carrying amounts of the participations that exceed the upper limit is weighted at 1,250%.
let. c — Amended by No I of the O of 29 Nov. 2023, in force since 1 Jan. 2025 (AS 2024 13).
Chapter 3 Demonstration and Disclosure of Capital
Art. 14 Capital statement
1 Banks shall demonstrate their capital adequacy on a quarterly basis. FINMA shall determine what the statement must include. 2 The consolidated capital statement must be provided every six months. 3 The statements shall be submitted to FINMA within six weeks of the end of the quarter or half-year.
Para. 3 — Amended by No I of the O of 29 Nov. 2023, in force since 1 Jan. 2025 (AS 2024 13).
Art. 15 Calculation basis
When calculating the eligible and required capital for the capital statement, the bank shall rely on the financial statements prepared in accordance with the accounting standards prescribed by FINMA. FINMA shall regulate the exceptions to this principle.
Art. 16 Disclosure
1 The banks shall inform the public in appropriate form about their risks and capital. The calculation of eligible capital must be clearly derived from the financial statements. 2 Private bankers who do not actively seek deposits from the public are exempt from this obligation. 3 FINMA shall issue technical implementing provisions. It shall base these on the Basel Minimum Standards on disclosure requirements (DIS). Further, it shall define, in particular, which information is to be disclosed in addition to the annual or interim financial statements, especially with regard to corporate governance and climate-related financial risks, and which information must be disclosed by systemically important banks with regard to the requirements under Title 5 and compliance with them. It shall make provision for less stringent requirements for non-systemically important banks, provided that this is justified for reasons of proportionality.
Para. 3 — The DIS is listed in Annex 1 No 11 Para. 3 — Amended by No I of the O of 29 Nov. 2023, in force since 1 Jan. 2025 (AS 2024 13).
Chapter 4 Simplified Application
Art. 17
1 The banks may opt for simplified application of individual provisions of this Ordinance and of FINMA's technical implementing provisions that provide detail thereto if: a. they thereby avoid disproportionate effort; b. they ensure risk management that is appropriate to their business activities; and c. the ratio of minimum capital to the bank's eligible capital is at least maintained as a result. 2 They shall ensure that these requirements are met and shall document the type of simplification.
