On 15 June 2018, Swiss parliament passed the new Swiss Financial Services Act (FIDLEG) and the Swiss Financial Institutions Act (FINIG) after more than two years of discussion. The acts are expected to enter into force as of 1 January 2020 and introduce an entirely new framework of conduct rules with which Swiss financial intermediaries will have to comply.
Who is affected?
The new regulatory framework will be applicable to any entity providing financial services in or into Switzerland. Financial service providers will have to adhere with the rules of conduct and be associated with a recognized ombudsman.
For certain institutions, in addition to the new conduct rules, the licensing and supervision regime will change as well:
- Portfolio managers: Under FIDLEG / FINIG, all Swiss portfolio managers will need a license by the Swiss Financial Supervisory Authority (FINMA). Portfolio managers for pension schemes and portfolio managers for collective investment schemes (together “qualified portfolio managers”) will be supervised by FINMA, while other portfolio managers will be subject to supervision by a supervisory organization. Supervisory organizations are non-public institutions which will be authorized by FINMA.
- Investment advisers: Anyone providing investment advice in Switzerland will need to sign up to a register of advisers. For such registration, adequate liability insurance coverage is required as well as evidence of sufficient training of the adviser and affiliation with an ombudsman. This registration requirement also applies to foreign investment advisers providing cross-border financial services into Switzerland. Caution must be taken in case of investment advisers providing de facto portfolio management services.
- Trustees: Similar to portfolio managers, trustees will need an authorization by FINMA as well, and are subject to ongoing supervision by a supervisory authority authorized by FINMA.
- FinTech companies: FinTech companies and other start-ups will have the possibility to get a “banking license light” by FINMA. Such license will allow for the provision of limited banking services (e.g. maximum of CHF 100 million of public deposits, no payment of interest and no investment of such deposits), while the regulatory burden will be reduced compared to a regular banking license.
Which conduct rules will be introduced?
Similar to MiFID II, FIDLEG requires financial service providers to adhere to certain rules of conduct. Among other duties, financial service providers will be required to
- exclude, reduce or disclose conflicts of interest;
- inform clients about the acceptance of benefits and ask for a waiver thereof or pass it on in full to the client;
- conduct a suitability / appropriateness assessment in case of portfolio management or investment advisory services;
- grant clients access to files;
- inform clients about the offered service or product and its risks;
- adhere with best execution principle; as well as
- ensure adequate knowledge of advisers on rules of conduct.
The applicable conduct rules vary depending on the type of clients: FIDLEG distinguishes between (i) retail clients, (ii) professional clients and (iii) institutional clients. There are possibilities for clients to waive certain client protection provisions (opt-out) or to declare their intention to benefit from a higher level of protection (opt-in).
What is new in terms of prospectus requirements?
Prospectus requirements for all types of securities are unified under FIDLEG. Generally, a prospectus will have to be published in case of a public offering of securities (i.e. an offer made towards the public) or if admission to trading on a trading venue is requested. Exemptions similar to those in the EU Prospectus Regulation will apply, among others depending on the type of offer (e.g. offering to professional clients only) or on the type of financial instrument (e.g. equities allocated to employees).
In contrast to today’s rules, an ex-ante approval of prospectuses will be mandatory under FIDLEG, except for collective investment schemes. The verification of these prospectuses will be conducted by a reviewing body which is authorized by FINMA. Foreign prospectuses can be approved by the reviewing body as well.
In addition to the prospectus and in line with EU law (PRIIPs), the publication of a key investor document (KID) is compulsory if a financial instrument is offered to retail clients. Such KID must provide all information which is relevant for an informed investment decision and which is necessary to compare different financial instruments. No KID is required for shares and equity-like products.
Which are the changes for the fund business?
The fund industry will only be marginally affected by FIDLEG / FINIG. Most importantly, the current licensing requirement for entities distributing collective investment schemes (distributors) will be abolished. While most distributors will need an entry in the register for investment advisers, those persons offering collective investment schemes without any advisory services will not have the duty to do so. Furthermore, for the cross-border offering of collective investment schemes into Switzerland to qualified investors, a Swiss paying agent and representative will no longer be required.
What to expect with regard to civil and criminal liability
FIDLEG / FINIG introduce new provisions regarding liability in the financial sector. Civil liability is being clarified with regard to damages triggered by false or misleading statements in prospectuses. Criminal sanctions by way of fines of up to CHF 500,000 are foreseen for violations of conduct rules, unless the financial intermediary at hand is subject to FINMA supervision.
When do I have to be ready?
It is expected that FIDLEG / FINIG will enter into force as of 1 January 2020. For certain aspects, specific transitional provisions will apply, e.g. for the FINMA license for existing portfolio managers (3 years), affiliation duty with an ombudsman (6 months) or the publication of prospectuses for existing securities (2 years). There will be no grandfathering clause for existing portfolio managers.
New regime to adhere with international standards
Overall, FIDLEG / FINIG is a milestone in Swiss financial regulation: With the introduction of administrative law provisions governing the client relationship, Switzerland catches up with international developments, in particular with those in the European Union (MiFID II, Prospectus Regulation, PRIIPs). While the new rules will, on the one hand, increase the administrative burden on financial service providers, on the other hand they also provide increased legal certainty. It remains to be seen whether FIDLEG / FINIG will suffice for the European Union to grant market access by way of an equivalence decision, as was striven for when the FIDLEG / FINIG consultation was launched back in 2014.