In the aftermath of the 2008 financial crisis, Switzerland launched a legislative project to better protect customers and investors. Parliament's passage of FinSA and FinIA on 15 June 2018 brings this project a significant step closer to completion. The two acts are still to be specified by the ordinances prepared by the Swiss Federal Finance Department and potentially by ordinances and circular letters of the Swiss Financial Market Supervisory Authority (FINMA). The complete set of new rules is expected to enter into force on 1 January 2020.
In addition to investor and customer protection, an important driver behind the new laws was the necessity of having a regime in place equivalent to EU regulations. The provisions of FinSA are to a large extent based on EU legislation – in particular, MiFID/MiFID II, Prospectus Directive/Prospectus Regulation, and PRIIPs Regulation.
Scope of Application
FinSA applies to providers of financial services, such as banks, securities firms, asset managers, and investment advisors. It also affects individuals who provide financial services (client advisors), issuers of securities, and producers of financial instruments.
FinIA sets forth licensing requirements for asset managers, trustees, managers of collective assets, fund management companies, and securities firms. Licensing requirements for banks will continue to be provided for by the Banking Act.
Neither FinSA nor FinIA affect insurance companies or insurance products, which are regulated by the Insurance Supervision Act and the Insurance Contract Act.
As for territorial scope, FinSA's rules of conduct apply to all providers of financial services acting in Switzerland or providing services for customers located in Switzerland. The prospectus obligations relate to public offerings in and out of Switzerland. In other words, FinSA applies not only to domestic services and offerings, but may also be relevant in a cross-border context.
FinIA mainly concerns financial service providers located in Switzerland. In addition, it sets forth licensing requirements for foreign financial service providers having a branch or representative office in Switzerland.
Some provisions of FinIA are similar to existing rules, such as the licensing requirements for fund management companies and securities firms as well as for branches and representative offices of foreign financial service providers.
However, FinSA and FinIA also contain a significant number of new rules, which include:
- Rules of conduct of financial service providers – These rules include obligations concerning information, the performance of appropriateness and suitability assessments, accounting vis-à-vis customers, execution of orders, organisational requirements, and conflict of interest. Rules vary depending on the particular financial service provided and whether retail or professional clients are involved.
- Prospectus obligations for issuers of securities – Issuers of securities must, as a rule, publish a prospectus to be reviewed and approved by a reviewing body authorised by FINMA. This does not apply where FinSA specifies an exception to such prospectus obligations.
- Establishing a KID – As a rule, producers of financial instruments must establish and make available a KID regarding their financial instruments. In transactions in related financial instruments, the KID should be distributed to customers by financial service providers.
- Licensing requirements for asset managers and trustees – Asset managers must apply for a licence and are then subject to ongoing supervision. FINMA grants the licence, while ongoing supervision is performed by a non-governmental supervisory organisation authorized by the FINMA. The same principles apply to trustees.
- Register for client advisors – Individuals who provide financial services, including investment advisors, must register with the register for client advisors. This applies to individuals acting for financial service companies, and those acting on their own. For such purposes, they must among other requirements meet certain education standards.
Together with FinSA and FinIA, the Swiss Parliament introduced a new authorisation category in the Banking Act. This new category relates to companies that accept public funds up to CHF 100 million, and specifically targets FinTech companies. The new rules allow them to apply for a license which is granted under less restrictive requirements than a conventional banking licence.
Participants in the Swiss financial market will have to assess whether and to what extent FinSA or FinIA applies to them. If applicable, they will have to determine what measures they must adopt for compliance when the acts come into force on or around 1 January 2020.
In the coming weeks, CMS will publish additional newsletters addressing certain topics under FinSA and FinIA from the perspective of specific market participants, such as asset managers, issuers of securities, or the funds industry.
For more information on these acts and how they might affect your business, feel free to contact us.