The Swiss Federal Court recently issued a ruling in relation to the provision of administrative assistance to foreign regulatory authorities. The decision left the Swiss Federal Banking Commission (SFBC) unable to grant administrative assistance to the Securities and Exchange Commission (SEC), one of the US supervisory authorities. Unfortunately, concerns expressed by the SFBC following this decision - the first ever rendered on the subject in Switzerland - have proved well-founded: the Swiss legislation which establishes the conditions under which the SFBC may cooperate with foreign supervisory authorities in matters of insider trading and stock market offences is inadequate for the SFBC to achieve its own objectives.
The case involved the companies Asea Brown Boveri (ABB) and Elsag Bailey Process Automation NV. In summary, the SEC had requested various information on the purchase of Elsag Bailey shares, listed with US stock exchanges, by the intermediary of a Swiss bank right before the public offering of Elsag Bailey shares submitted by ABB. Within this context, the SFBC decided to provide the SEC with the requested information. Many clients who had benefited from the transactions made just before the public offering filed an appeal with the Federal Court against the SFBC's decision. On May 1 2000 the Swiss Federal Court admitted the appeal and repealed the SFBC's decision on the grounds that the SEC did not provide sufficient guarantees that the information would be used in accordance with the requirements of Swiss legislation.
To comply with Swiss legal requirements (Article 38 of the Securities Act), the SFBC is allowed to transmit information to foreign securities regulators provided that the recipients:
- are subject to professional secrecy (principle of confidentiality);
- use the information exclusively for supervisory purposes (principle of speciality); and
- refrain from disclosing the information to third parties without the SFBC's prior approval (arm's length principle).
Following this decision, the SFBC consulted with the SEC in order to obtain sufficient guarantees to satisfy the Swiss Federal Court. The SFBC issued a new decision, again in favour of the SEC, which was followed by another appeal filed against it. On December 20 2001 the Federal Court ruled that the new guarantees offered by the SEC were still insufficient. The main reason for its decision was the principle of public hearings in US district courts. This US constitutional right would remain incompatible with the requirements of the Swiss rules on administrative assistance until such time as the SEC guaranteed to use best efforts towards limiting such publicity in hearings. This also applied to the SEC practice of publishing the name of the parties summoned in a 'litigation release'.
This is a major issue affecting the globalization of financial markets. As national borders become increasingly irrelevant, there is a growing need for adequate cooperation between regulatory authorities. These authorities expect that requested information will be made available to them without delay. Any international financial market must be in a position to cooperate efficiently with its foreign counterparts. If legislation prevents it from doing so, amendment is called for.
As a consequence, the SFBC intends to submit a proposal for a legislative amendment. Such an amendment would serve the interests of the Swiss financial market, promoting Switzerland's reputation and its access to international financial markets.
In the meantime, the SFBC has suggested that the SEC draw on legal assistance in criminal matters as provided before the enactment of the Securities Act; the SFBC will use all means existing under current law in order to satisfy justified requests of foreign regulatory authorities.
For further information on this topic please contact Guy-Philippe Rubeli at Pestalozzi Lachenal Patry by telephone (+41 22 80 94 500) or by fax (+41 22 80 94 501) or by email ([email protected]).