In This Issue: "Additional Guidance on the New Federal Financial Services Act and New Financial Institutions Act" Client Alert June 2015 Additional Guidance on the New Federal Financial Services Act and New Financial Institutions Act After the conclusion of the consultation procedure regarding two important drafts of legislation which are expected to significantly affect the financial market infrastructure of Switzerland, i.e. the Federal Financial Services Act (FFSA) and the Federal Financial Institutions Act (FinIA), the Federal Council has provided additional guidance on where these two Acts will be heading to. The proposals will impact the responsibilities of financial intermediaries, the risks related to financial services litigation and the current Swiss regulatory regime as a whole. The following is a short summary of the additional guidance regarding three specific areas given by the Federal Council on June 24, 2015 (for a general overview, see our client alert of July 2014). Training and Continued Professional Development of Advisors The draft FFSA provides that individuals working as advisors to clients of a financial service provider (FSP) have to be able to demonstrate proper education for their task on a continuing basis and to register as client advisor in a public registry. The Federal Council has now extended this requirement to be part of the responsibility of the FSP itself. An FSP needs to ensure that its advisors have the necessary training and engage in continued professional development. It will be up to the individual industry sectors to determine the training and the scope and frequency of continued professional development in the form of self-regulation. Decreased financial burden on clients initiating legal proceedings The FFSA aims at strengthening the position of private clients in legal proceedings against FSPs by various means: The current mediation procedure before the "Ombudsman (for banks)" shall be improved. The Federal Council has, however, discarded both previous suggestions of either a new arbitration body to deal with litigation in the financial sector or the introduction of a new fund to support the financing of proceedings against FSPs. Instead, the Federal Council proposes to exempt clients from the requirement of paying a deposit on court costs or providing similar securities. This shall remove one of the main obstacles to initiating legal proceedings against FSPs. In addition, the risk of litigation cost shall be further reduced for clients by – provided certain conditions are met – having the FSP bear its own legal costs even if the FSP wins the dispute. Such conditions shall include that the relevant value in dispute does not exceed CHF 250'000 and that the proceeding has previously been conducted before the Ombudsman. This shall strengthen the OmbudsFor further information please contact: Dr. Markus Affentranger +41 44 384 12 86 firstname.lastname@example.org Dr. Marcel Giger +41 44 384 13 16 email@example.com Theodor Härtsch +41 44 384 12 11 firstname.lastname@example.org Dr. Anette Waygood +41 44 384 13 36 email@example.com Baker & McKenzie Zurich Holbeinstrasse 30 8034 Zurich Switzerland 2 June 2015 man and foster an efficient completion of proceedings. Finally, provided certain conditions are met, it shall be in the discretion of the court to allocate the court costs among the client and the FSP. Specific Supervisory Organization for Non-Qualified Asset Managers The draft FinIA provides that asset managers of individuals (private clients) and of Swiss occupational benefit schemes will require a license. While qualified asset managers (i.e. managers of collective investment scheme or of Swiss occupational benefit schemes) will be supervised by and will, therefore, need a license from FINMA, the draft legislation provided for two alternatives regarding the licensing and supervision of asset managers of private clients so far. Now, the Federal Council proposes to create a new specific supervisory organization (SSO). The SSO will be an independent body but licensed by and subject to the supervision of FINMA. The SSO shall exercise its prudential supervision in a risk-based manner. As a result, small asset managers with a lower risk profile and simple structures may be audited only every four years instead of every year. The SSO shall conduct its supervision independently and the possibility of establishing more than one supervisory organization, if needed, remains reserved. Impact and Next steps The new guidance confirms that the new legislation will have a considerable impact on the market players. While asset managers will be newly regulated, FSPs generally will have to accept new burdens (and costs) to comply with additional duties and obligations. This will require a review of the existing business model by each market participant and may subsequently lead to changes, for example in the internal guidelines, such as in terms of training and continued professional development, and the relevant documentation. The Swiss government is expected to publish the actual draft laws to be debated in parliament until the end of 2015. While there is no published timeline for this new legislation to become effective, it can be expected that the new laws will enter into force in 2017 / 2018. An entry into force in 2017 would coincide with the entry into force of MiFID II. Baker & McKenzie Zurich is monitoring the developments and is happy to discuss with you any of the consequences of the contemplated new pieces of legislation.