FMIA and the reform of Swiss financial market regulation


The key reforms include -

  • Derivative regulation – FMIA introduces a regime modelled, in many respects, on the EU’s EMIR legislation.
  • Market regulation – FMIA introduces regulation of MTFs and OTFs, in many respects, modelled on the EU’s MiFID/MiFIR[1] regime.
  • Assistance to foreign regulators – greater powers to the Swiss regulator to disclose information without the current processes to notify clients/protect confidential information.

Derivative regulation – a regime modelled, in many respects, on the EU’s EMIR legislation

The vast majority of Swiss derivatives trading is currently cross-border and largely takes place with the EU. The proposed derivatives regulations are thus based primarily on EU law. Consequently, the three key obligations for derivatives trading under EMIR[2] will apply in Switzerland too in the future:

  • Ÿclearing via a central counterparty,
  • reporting to a trade repository, and
  • risk mitigation.

Unlike in the EU, however, exceptions are to be created for smaller contracting parties in the financial sector (for reasons of proportionality) and to take account of corresponding US regulations. The draft FMIA sets out the legal basis for the obligation to conduct derivatives transactions via a stock exchange or another trading facility, but this will not come into force until it has also been introduced in the partner states.

Market regulation – regulation of MTFs and OTFs, in many respects, modelled on the EU’s MiFID/MiFIR regime

Swiss legislation currently refers to a very vague term "institution which is similar to a stock exchange", which is outdated by international standards. It will be replaced by the more precise concept of a "multilateral trading facility" and an "organised trading facility", reflecting the EU's terminology under its current MiFID regime and the changes to be introduced under MiFID II and MiFIR. The Federal Council explains the reforms as follows -

"Multilateral trading facilities differ from stock exchanges in that, although they admit securities for trading, there is no listing. They are subject to regulations which are similar to those for stock exchanges. In contrast, organised trading facilities are not considered as independent financial market infrastructures; instead, their operation remains with banks, securities dealers, stock exchanges and multilateral trading facilities. Certain specific obligations, particularly regarding organisation and trading transparency, are imposed on the operator of an organised trading facility. The transparency requirements for multilateral and organised trading facilities also address the problem of dark pools, i.e. trading venues that have lacked transparency until now. Moreover, the FMIA will establish the basis for regulating high-frequency trading, and restricting it if necessary".

Licensing for four types of market infrastructure

The legislation will introduce a broader authorisation/licensing requirement for

  • Ÿcentral counterparties,
  • central depositaries,
  • Ÿtrade repositories, and
  • payment systems.

Licensing conditions and obligations which are specifically tailored to these financial market infrastructures are also set out. Until now, FINMA[3] could subject central counterparties, central depositaries and payment systems to the Banking Act or Stock Exchange Act in certain cases. There was no regulation at all for trade repositories.

Consolidation of regulation - including regulation currently found in the Stock Exchange Act

In addition to the supervisory law requirements for financial market infrastructure, FMIA also contains all of the regulations that apply in relation to securities and derivatives trading for all market participants (market rules of conduct). These include the provisions on the disclosure of shareholdings, public offers, insider trading and market manipulation, which are currently enshrined in the Stock Exchange Act, as well as the new regulations for derivatives trading.

Assistance to foreign regulators

FMIA brings the Swiss administrative procedures for cooperation with foreign regulators in line with international requirements, just like the changes for the provision of information to foreign tax authorities under the Swiss Tax Administrative Assistance Act. In essence it enables FINMA to provide information to foreign regulators without following the current procedures for the protection of confidential information and secrecy. FINMA will be able to provide the information without notifying the client if notification compromised the investigation by the foreign regulator. FMIA replaces the administrative assistance provisions currently found in various different legislations and provides a uniform set of regulations.

[1] Markets in Financial Instruments Directive 2004/39/EC (MiFID I), Markets in Financial Instruments Directive 2014/65/EU (MiFID II) and Markets in Financial Instruments Regulation 600/2014 (MiFIR)

[2] European Market Infrastructure Regulation 648/2012 (EMIR)

[3] Swiss Financial Market Supervisory Authority (FINMA)