1The Confederation shall legislate on the banking and stock exchange system; in doing so, it shall take account of the special function and role of the cantonal banks.
2It may legislate on financial services in other fields.
3It shall legislate on private insurance.
Overview
Art. 98 Federal Constitution gives the Confederation the power to enact legislation on banks, stock exchanges and insurance. This constitutional provision is the legal foundation for the entire Swiss financial market regulation.
What does the provision regulate?
The Confederation may issue regulations for three areas: First, it must regulate banking and stock exchange activities (paragraph 1). In doing so, it must take into account the special role of cantonal banks. Second, it may regulate other financial services such as asset management or payment transactions (paragraph 2). Third, it must regulate private insurance business (paragraph 3).
Who is affected?
All banks, stock exchanges and insurance companies in Switzerland are affected. This includes major banks like UBS and Credit Suisse, regional institutions, cantonal banks and new financial service providers like cryptocurrency platforms. Foreign providers must also comply with Swiss rules when conducting business here.
What are the legal consequences?
The Confederation may enact comprehensive legislation: licensing requirements (who may operate banks or insurance companies), capital requirements (how much money institutions must hold as security) and supervisory measures. The most important consequence is the creation of the Swiss Financial Market Supervisory Authority FINMA, which supervises all financial institutions.
Concrete example:
A new company wants to issue credit cards in Switzerland. It needs a banking licence from FINMA, must demonstrate minimum capital of several million francs and report all business activities to the supervisory authority. Without a licence, it commits a criminal offence.
The cantons may continue to operate their own cantonal banks or public insurance companies. However, they must ensure fair competition and may not displace private providers.
Art. 98 Federal Constitution ensures that Switzerland as a financial centre remains stable and trustworthy. At the same time, regulation protects savers, investors and insured persons from disreputable providers.
N. 1 Art. 98 BV largely corresponds to Art. 31bis para. 2 aBV (banks and stock exchanges) as well as Art. 34 para. 2 aBV (private insurance). The provision was systematically incorporated into the economic section during the total revision of 1999. According to Kaufmann/Utz (BSK BV, Art. 98 N. 1), the Federal Council stated: "In practice, nothing changes", since the Confederation was already previously authorized under Art. 31bis para. 2 aBV to issue regulations on the "practice of commerce and trades".
N. 2 The emergence of Swiss financial market law was significantly shaped by crises. The Banking Act of 1934 arose as a reaction to the banking crisis of the early 1930s (BBl 1934 I 171 ff.). The creation of the integrated financial market supervision FINMA in 2009 followed the financial crisis of 2008 (BBl 2006 2829 ff.).
N. 3 The extension to "financial services in other areas" (para. 2) was newly inserted in 1999 to account for technological development and new forms of financial intermediaries. The Message stated that this was intended to enable a flexible reaction to market developments (BBl 1997 I 1 ff., 326).
N. 4 Art. 98 BV is part of the 3rd section "Economic Order" and is closely connected to Art. 97 BV (consumer protection) as well as Art. 94 para. 4 BV (principle of economic freedom). The provision grants the Confederation comprehensive legislative competence in the financial market area.
N. 5 The provision is not an organizational norm, but a pure competence norm. The institutional design of financial market supervision was implemented through the FINMAG (SR 956.1). Kaufmann/Utz (BSK BV, Art. 98 N. 32–35) explain that FINMA is conceived as a public law institution with its own legal personality.
N. 6 For the relationship to cantonal law, → Art. 49 BV applies (precedence of federal law). However, the cantons retain competences for public law insurance institutions, as BGE 138 I 378 clarified. The cross-connections to → Art. 122 BV (civil law) and → Art. 123 BV (criminal law) are relevant for private law and criminal law aspects of the financial market.
N. 7Banking (para. 1): The Federal Court defines in constant jurisprudence (BSK BV, Art. 98 N. 12): "An acceptance of public deposits occurs when a person commercially enters into obligations towards third parties, such that they become a debtor for repayment". The definition encompasses traditional commercial banks, savings banks, private banks and new forms such as crowdfunding platforms.
N. 8Stock exchange business (para. 1): Not only traditional securities exchanges are covered, but also multilateral trading facilities (MTF) and organised trading facilities (OTF). Kaufmann/Utz (BSK BV, Art. 98 N. 17–21) emphasize the technology-neutral interpretation in view of electronic trading platforms.
N. 9Special position of cantonal banks (para. 1): This formulation enables differentiated regulations, but does not prohibit equal treatment. According to Kaufmann/Utz, the special nature is primarily justified by ownership and potential state guarantees, not by a constitutional special position.
N. 10Financial services in other areas (para. 2): This general clause covers asset management, investment advice, payment services and new business models such as cryptocurrency trading. The "may" formulation grants the legislator discretion whether and how to regulate.
N. 11Private insurance business (para. 3): The competence encompasses the entire private insurance industry. According to Kaufmann/Utz (BSK BV, Art. 98 N. 52), the Federal Court identifies five core characteristics: "Risk, performance of the insured, performance of the insurer, independence of the operation and compensation of risks according to the laws of statistics".
N. 12 The competence norm authorizes the Confederation to issue all regulations in the designated area: licensing requirements, organizational regulations, supervisory measures, sanctions. The legislation can be designed preventively (ex ante) or reactively (ex post).
N. 13 The exercise of competence is optional. The Confederation need not regulate, but may. However, once it has legislated, federal law takes precedence over cantonal law (→ Art. 49 BV). The cantons may not issue contradictory regulations.
N. 14 The fundamental rights obligation of FINMA is disputed. Kaufmann/Utz (BSK BV, Art. 98 N. 39) refer to → Art. 35 para. 2 BV, according to which fundamental rights must also be observed when private parties fulfill state tasks. FINMA as a public law institution is subject to full fundamental rights obligation.
N. 15Legal nature of listing regulations: The newer view, represented by Weber (Stock Exchange Law Commentary, 2nd ed. 2013) and Böckli (Swiss Company Law, 4th ed. 2009), qualifies listing regulations as legal norms that were issued by the stock exchange based on a delegation norm. According to Kaufmann/Utz (BSK BV, Art. 98 N. 43), the Federal Court has so far left this question open.
N. 16Scope of supervisory duties: Breining-Kaufmann/Weber (HAVE 2008, 89 ff.) advocate extensive state liability for inadequate financial market supervision. In contrast, Biaggini (FS Zobl 2004, 585 ff.) and Nobel (Financial Market Law, 3rd ed. 2010, N. 234) argue that supervision primarily addresses systemic risks, not the protection of individual investors.
N. 17Relationship to Art. 122 BV: It is disputed to what extent public law interventions in private law relationships are permissible. Hänni/Stöckli (Economic Administrative Law 2013, § 25 N. 8) represent a narrow interpretation, while FINMA practice shows extensive supervisory intervention.
N. 18 When establishing new financial intermediaries, it should be examined early whether a licensing requirement exists under the Banking Act, SESTA, Insurance Supervision Act or other financial market laws. FINMA publishes circulars for the interpretation of indeterminate legal concepts.
N. 19 For cross-border situations, the territoriality principle must be observed. Swiss financial market law basically applies to all financial services provided in Switzerland, regardless of the provider's domicile (BGE 108 Ib 286).
N. 20 Cantonal competence for public insurance remains. BGE 138 I 378 confirmed that cantonal building insurance companies may also operate in the competitive area, provided competitive neutrality is maintained. A strict separation of monopoly and competitive areas is required.
N. 21 Technological development (blockchain, cryptocurrencies, DeFi) poses new challenges. FINMA applies existing categories in a technology-neutral manner. New business models are to be qualified based on their economic function, not their technical design (FINMA ICO Guidelines 2018).
N. 22 The relationship to EU regulation is gaining importance. Although Switzerland is not bound by EU financial market directives, legislation factually often orients itself to European standards (autonomous nachvollzug). This applies particularly to MiFID II, Solvency II and Basel III.
In this landmark decision on state insurance activity, the Federal Court examined the compatibility of a cantonal property insurance institution with economic freedom. The case concerned the expansion of the business activities of the Cantonal Property Insurance of Glarus (Glarnersach) from its previous monopoly area to the competitive area.
«Entrepreneurial activity by the state is compatible with the principle of economic freedom (Art. 94 para. 4 Federal Constitution) provided there is a formal legal basis, the activity is in the public interest and proportionate, and the principle of competitive neutrality is maintained.»
The Federal Court held that Art. 98 para. 3 Federal Constitution empowers the Confederation to issue regulations on private insurance, but this regulatory competence does not cover public insurance institutions. A public insurance institution is not subject to the Insurance Supervision Act, even in the competitive area.
#Competitive Neutrality and Cross-Subsidisation Prohibition
The judgment clarified the requirements for competitive neutrality of state insurance activity:
«Competitive neutrality of entrepreneurial state activity prohibits systematic cross-subsidisation between monopoly and competitive areas.»
The Court required calculatory separation of business areas, but accepted that this need not occur within a separate legal entity. What is decisive is the appropriate allocation of costs according to comprehensible keys.
The Federal Court addressed the limits of banking secrecy in the context of international administrative assistance. The case concerned a German request for information from Swiss banks in the context of an insider investigation.
«Banking secrecy does not preclude administrative assistance if the requirements of Art. 38 Stock Exchange Act are met. The protection of banking secrecy could only count among the essential interests of Switzerland within the meaning of Art. 1a International Administrative Assistance Act (applied by analogy) if it were virtually undermined by the requested information.»
The decision clarified that federal regulation of financial market supervision takes precedence over cantonal banking secrecy insofar as the legal requirements for administrative assistance are met.
The Federal Court clarified the supervisory legal status of cantonal banks without state guarantee:
«Insofar as Art. 13 para. 3 Banking Ordinance grants cantonal banks for whose liabilities the canton is not liable the same legal status as other banks, it remains within the framework of the delegation provision of Art. 4 para. 2 Banking Act.»
The decision confirmed that Art. 98 para. 1 Federal Constitution empowers the Confederation to create different regulations for different types of banks, whereby the special position of cantonal banks must be taken into account.
Judgment 2A.254/2000 of 2 April 2001
The Federal Court addressed the tax law aspects of a privatised cantonal bank. Berner Kantonalbank AG had been partially exempted from direct federal tax because the canton still held the majority.
The judgment illustrated the practical effects of the special position of cantonal banks in the tension between the public and private sectors.
The Federal Court clarified the concept of "insurance institution" within the meaning of the Insurance Supervision Act and the requirements for exceptions from the supervisory duty. The case concerned a financial company without a banking licence.
BGE 108 Ib 286 of 13 May 1982
In this early decision on insurance supervision, the Court held:
«A foreign insurance company that concludes an insurance contract with a policyholder domiciled in Switzerland regarding the latter's professional liability risk is in principle subject to Swiss insurance supervision.»
This case law established the territoriality principle of Swiss insurance supervision.
Since the creation of FINMA in 2009, various proceedings before the Federal Administrative Court have developed that illustrate the practical application of Art. 98 Federal Constitution:
B-2091/2014 of 23 March 2015 (Federal Administrative Court)
The Federal Administrative Court addressed financial market supervision in a complex banking procedure and confirmed FINMA's extensive supervisory powers within the framework of Art. 98 Federal Constitution.
The opinion of the Federal Office of Justice of 2 September 2009 (VPB 150000203) discussed in detail the interpretation of Arts. 92, 98 and 99 Federal Constitution in the context of a possible PostBank:
«Due to the federal division of competences (Arts. 3 and 42 Federal Constitution) and due to the principle of a state-free economy (partial content of Arts. 27 and 94 Federal Constitution), the Confederation would need a constitutional basis to operate a PostBank. However, such a basis does not exist today.»
The opinion illustrated the narrow interpretation of competence norms in the financial sector and the necessity of explicit constitutional bases for new state activities.
The case law on Art. 98 Federal Constitution shows a continuous development from the early decisions on insurance supervision in the 1980s through the banking secrecy case law of the 1990s to modern FINMA practice.
Particularly influential was BGE 138 I 378, which clearly defined the constitutional limits of state economic activity in the financial sector and developed the examination scheme that remains authoritative today: legal basis, public interest, proportionality and competitive neutrality.
The case law confirms that Art. 98 Federal Constitution grants the Confederation comprehensive but not exclusive regulatory competence. Cantons can continue to operate their own financial institutions, but must observe federal legal requirements regarding economic freedom.