Licence requirements
Requirements for employees
Comment


This article provides a non-exhaustive analysis of the legal situation regarding trading with natural resources in Switzerland, with a primary focus on new regulations and reference to foreign financial institutions.

Licence requirements

Distinction must be made between trading in physical commodities and transactions with respective financial instruments. Trading in physical commodities is generally not subject to licensing requirements under Swiss law.

Switzerland has fundamentally reviewed its regulatory framework for financial services as a response to the financial crisis in 2008. The creation of a new supervisory regime governing all types of financial institution (including previously unregulated institutions, such as portfolio managers and trustees) and an amendment to the financial market laws during this process has occurred. At the beginning of 2020, a new regulation came into force which also affected trading with natural resources.

The qualification of financial instruments in relation to natural resources as derivatives or securities is decisive. These financial instruments are defined in the Federal Act on Financial Market Infrastructures and Market Conduct in Securities and Derivatives Trading and its implementing ordinance. 'Derivatives' are financial contracts whose value depends on one or several underlying assets and which are not spot transactions. 'Securities' are defined as standardised certificated and uncertificated securities, derivatives and intermediated securities, which are suitable for mass trading.

Acting as a derivatives house (ie, creating and publicly offering derivatives on the primary markets) or underwriting securities and publicly offering them on the primary markets are activities that can be conducted only by licensed banks or securities firms.

A 'securities firm' is an entity that, on a commercial basis, trades in securities:

  • in its own name for the account of clients;
  • for its own account on a short-term basis, operates primarily on the financial market and could thereby jeopardise the proper functioning of the financial market or is a member of a trading venue; or
  • for its own account on a short-term basis and publicly quotes prices for individual securities on request or on an ongoing basis (market maker).

As a general rule, trading in securities on a commercial basis is a regulated activity and requires a licence from the Swiss Financial Market Supervisory Authority (FINMA) if it is carried out in or from Switzerland.

If a securities firm is effectively managed outside Switzerland, but maintains a physical presence in Switzerland, a licence as a branch or representation office of a foreign securities firm is required.

In contrast, foreign financial institutions (eg, foreign securities firms) that have no physical presence in Switzerland are not subject to Swiss licensing requirements (ie, mere cross-border services into Switzerland do not trigger licensing requirements).

If a company wishes to participate in a Swiss stock exchange or multilateral trading facility without having a registered office in Switzerland, an authorisation by FINMA is required.

In case no licence is required, transactions may trigger the applicability of Swiss anti-money laundering laws. The Anti-money Laundering Act requires all financial intermediaries which are not licensed to register with a self-regulated body for anti-money laundering purposes recognised by FINMA, provided that such financial intermediaries conduct the financial intermediation through Swiss-based operations.

Requirements for employees

As part of the new financial market architecture, the Financial Services Act and the Financial Institutions Act were introduced in early 2020. Both acts aim to create uniform competitive conditions for financial intermediaries and improve client protection.

A number of conduct and organisational rules with which financial service providers must comply and an obligation to register so-called 'client advisers' have been introduced. These obligations apply irrespective of licensing requirements and they also apply in cross-border scenarios.

Notably, client advisers of foreign financial service providers must be entered into a register of advisers, unless the foreign financial service provider is subject to foreign prudential supervision and it offers its services to only professional and institutional clients in Switzerland.

In addition, cross-sector rules for offering financial services and distributing financial instruments have been introduced. In terms of content, the rules are largely inspired by EU directives and regulations (eg, the EU Markets in Financial Instruments Directive (2004/39/EC), the EU Prospectus Regulation (2017/1129) and the EU Packaged Retail and Insurance-Based Investment Products Regulation (1286/2014)), with adjustments made to reflect the specific Swiss circumstances. These include:

  • an obligation to categorise clients;
  • point-of-sale information obligations;
  • a limited obligation to assess the appropriateness and suitability of financial services (only in the context of advisory or asset management services);
  • depending on the type of client, duties of care and transparency;
  • best execution obligations; and
  • disclosure of retrocessions, kick-backs and similar payments.

Further, if a securities firm licence is required, the directors and management (and certain other staff) must meet certain professional qualifications.

Comment

In general, trading in physical commodities does not require a licence, whereas trading in securities or derivatives on a commercial basis is subject to licensing requirements. Foreign financial institutions (eg, foreign securities firms) that have no physical presence in Switzerland are not subject to Swiss licensing requirements (ie, mere cross-border services into Switzerland do not trigger licensing requirements). However, they may be subject to the newly introduced conduct and organisational rules.

Employees of these licensed financial intermediaries must comply with a number of conduct and organisational rules which are largely inspired by the EU directives and regulations.

For more information please contact Marcel Meinhardt or Luzius Sidler at Lenz & Staehelin by telephone (+41 58 450 80 00) or email ([email protected] or [email protected]). The Lenz & Staehelin website can be accessed at www.lenzstaehelin.com.