Partially revised circular on interest rate risk: FINMA draft reinforces a profit-oriented perspective

Objectives

On 4 November 2026, the Swiss Financial Market Supervisory Authority (FINMA) published the previously announced draft version of the partially revised Circular 2019/2 ‘Interest rate risks – banks’.¹ The consultation on this version was launched at the same time and will run until 15 January 2027.

According to FINMA, the partial revision of the interest rate risk circular – the current version of which came into force on 1 January 2019 – pursues two main objectives:

• Firstly, it adopts the interest rate shock scenarios recalibrated by the Basel Committee in July 2024 for the standardised measurement of interest rate risk in the banking book.
• Secondly, it is implementing the findings from the ex-post evaluation of FINMA Circular 2019/2, published in November 2025.

The partial revision takes account of FINMA’s current supervisory practice regarding interest rate risks in the banking book and focuses in particular on the earnings-oriented perspective, as FINMA emphasises in its press release of 4 November 2026².

Content

The draft of 4 November 2026 largely confirms the existing requirements set out in Circular 2019/2. It clarifies certain requirements, such as those relating to option risk, credit spread risk or model validation. The draft consistently emphasises proportionality in implementation, providing, in particular, relief for banks in categories 4 and 5 and for banks in category 3 with ‘low income from interest-bearing business’.

The draft contains two significant changes:

1. Adoption of the interest rate shock scenarios recalibrated by the Basel Committee
2. Greater consideration of the earnings-oriented perspective

In the draft version, FINMA adopts the interest rate shock scenarios recalibrated by the Basel Committee in July 2024, which specify slightly higher interest rate changes – and thus more stringent scenarios – for the Swiss franc, the euro and many other currencies. Further information on the recalibrated interest rate shock scenarios can be found in the blog post ‘Recalibration of IRRBB interest rate shocks – BCBS has published the final paper’.

The second significant change also follows the Basel Committee’s guidelines: FINMA places the earnings-based perspective on an equal footing with the present value perspective. This is reflected, for example, in Principle 3, which calls …

Accordingly, the circular also expands the existing present-value outlier tests to include two earnings-based outlier tests. Furthermore, the identification of outlier banks in Annex 1 of the circular has been supplemented by a quantitative, income-based outlier criterion that complies with the EBA guidelines for the EU. The assessment of outlier banks has been clarified.

An interesting clarification regarding the supervisory expectations for dynamic simulations of returns can be found in RZ 36:

Timetable

Impact

It is expected that the public consultation will not result in any further significant changes to the current draft version. In this case, Swiss banks will primarily face requirements relating to profit-oriented interest rate risk measurement and management.

In future, many banks will face the challenge of integrating risk measurement more closely with business planning and dynamic hedging decisions. In particular, the simulation of dynamic hedging strategies will, in many cases, require existing solutions to be adapted.

In future, asset-liability management must manage present value and earnings-based risks in a more integrated manner and take into account the often opposing effects of measures from both perspectives.

Banks should simulate the effects of the new prescribed interest rate shock scenarios as early as possible. For many institutions, the reported interest rate risks will increase. As a result, they may exceed either the present value or the new earnings-oriented outlier criterion.

The implications may therefore go well beyond a mere adjustment to the risk management solution and require management decisions. The consequences may range from an increase in limits, through changes to hedging strategies, to higher capital requirements.