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January 10, 2020 | News
As the Swiss business community expected, on November 6, 2019, the Federal Council decided that the Federal Act on Financial Services of 15 June 2018 (FinSA) and the Federal Act on Financial Institutions of 15 June 2018 (FinIA) entered into force together with its implementing ordinances on January 1, 2020. A phasing period was indicated of up to two years, and three ordinances supported the legislative package: the Ordinance on Financial Services (FinSO), the Ordinance of Financial Institutions (FinIO), and the Ordinance on the Supervisory Organizations.
As the Swiss business community expected, on November 6, 2019, the Federal Council decided that the Federal Act on Financial Services of 15 June 2018 (FinSA) and the Federal Act on Financial Institutions of 15 June 2018 (FinIA) entered into force together with its implementing ordinances on January 1, 2020. A phasing period was indicated of up to two years, and three ordinances supported the legislative package: the Ordinance on Financial Services (FinSO), the Ordinance of Financial Institutions (FinIO), and the Ordinance on the Supervisory Organizations.
The new legislations
Portfolio Managers, Trustees and Trade Assayers as defined in the Precious Metals Control Act (PMCA) are classified as financial intermediaries under Art. 2 paragraph. 2 let. A of AMLA and have to join a supervisory organization (SO) licensed by FINMA to exercise their professional activity. The supervisory remit of the SO includes compliance with due diligence obligations under AMLA. Other financial intermediaries as per Art. 2 paragraph.
3 AMLA are no longer eligible for direct supervision by FINMA. Under the new regime, they have to join a recognized SRO to exercise their professional activity. The SRO supervises compliance with AMLA. The FinIA exempts persons who act as portfolio managers or trustees for the family members from the licensing requirements.
What are the main changes? – The below list outlines the core issues.
The new legislations are based on the EU directives - MiFID II, Prospectus Directive, PRIIPs - with adjustments to the specific Swiss financial and business environment. The purpose of both FinSA and FinIA is to enhance the protection of the clients of financial intermediaries and to reinforce the supervision over financial services providers in order to confirm the Swiss financial market's good standing.
This exemption creates the chance for single-family office and private trust companies to operate without being subject to prudential supervision. Some materials in FinSO give a definition of a loan that is deemed to finance the purchase of securities. It can be treated this way only if the financial service provider is also engaged in the underlying transactions or is aware that the credit will be used to fund such activities. Thus the scope of the FinSA to Lombard Lending and similar Credit Facilities is limited.
This exemption creates the chance for single-family office and private trust companies to operate without being subject to prudential supervision. Some materials in FinSO give a definition of a loan that is deemed to finance the purchase of securities. It can be treated this way only if the financial service provider is also engaged in the underlying transactions or is aware that the credit will be used to fund such activities. Thus the scope of the FinSA to Lombard Lending and similar Credit Facilities is limited.
Corporate Finance Advisory Services
The applicability of the FinSA to Corporate Finance Advisory Services differs from the MiFID II regulations: corporate finance advisory services, including M&A advisory and advice regarding capital raising, the placement of financial instruments, with or without underwriting, and financing in connection with such services do not constitute financial services.
FinSa
The Advisors Registry (Beraterregister) was introduced by FinSA for the purpose of all individual client advisors of foreign financial service providers, as well as the client advisors of domestic financial services providers that are not subject to prudential supervision, must be registered prior to any activities being undertaken in Switzerland.
The ordinance clarified the scope of the reverse solicitation exemption when a relationship was initiated at the request of a client, all financial services provided to that client are deemed not to have been provided in Switzerland. A FINMA-authorized registration body will be on charge of this register, which will include the particulars of the registered individuals, their fields of activity and their completed training and professional skills.
The New Client Classification Regime implements the categories of 'professional client', 'institutional client' and 'retail client'. Further to this, FinSa also allows for the possibility of certain pre-defined client types, such as high-net-worth retail clients, pension schemes, management companies of CIS, to change their classification.
The different levels of protection will apply, depending on the type of client. The information as the client's financial situation, the nature and amount of recurring income, their wealth and current and future financial liabilities, the purpose of the investment, the propensity to accept risk and investment restrictions, needs to be collected by the financial service providers for the suitability tests. Based on this information, the financial service provider should prepare a risk profile, ongoing investment advice and agree on an investment strategy with the client.
Rules of Conduct
The FinSA establishes Rules of Conduct for all financial services providers. These rules include an obligation to inform the clients prior to concluding any agreement, an obligation to verify if a financial instrument (or service) is suitable and appropriate, a documentation obligation and reporting duties, transparency and due diligence requirements for the execution of client orders. These rules of conduct do not apply for transactions involving institutional clients.
Further clarifications relate to the Duty to Draft a Key Information Document (KID) for any offering of securities (other than equity securities and debt instruments without derivative elements) to private clients in Switzerland. The KID has to contain the information for making a well-founded investment decision and a comparison of different financial instruments. The financial instruments that are produced for a specific private client do not need to have a KID; thus, FinSO is excluding tailor-made OTC derivatives from the duty to prepare a KID.
FinSA establishes the Prospectus Rules. Anyone who makes a public offer for the acquisition of securities in Switzerland or who seeks the admission for the trading of securities has the duty to publish a prospectus. The prospectus has to contain all material information for the investor's decision, in particular, the issuer, the guarantor and the security provider; the securities to be offered publicly or admitted for trading on a trading venue (the associated rights, obligations and risks for investors); and the offer (the type of placement and the estimated net proceeds of the issuance). The prospectus has to be submitted to a reviewing body before publication, that checks its completeness, coherence and understandability. The FinSA provides a number of exceptions from the prospectus requirement.
FinSA establishes the Prospectus Rules. Anyone who makes a public offer for the acquisition of securities in Switzerland or who seeks the admission for the trading of securities has the duty to publish a prospectus. The prospectus has to contain all material information for the investor's decision, in particular, the issuer, the guarantor and the security provider; the securities to be offered publicly or admitted for trading on a trading venue (the associated rights, obligations and risks for investors); and the offer (the type of placement and the estimated net proceeds of the issuance). The prospectus has to be submitted to a reviewing body before publication, that checks its completeness, coherence and understandability. The FinSA provides a number of exceptions from the prospectus requirement.
Further clarifications relate to the Duty to Draft a Key Information Document (KID) for any offering of securities (other than equity securities and debt instruments without derivative elements) to private clients in Switzerland. The KID has to contain the information for making a well-founded investment decision and a comparison of different financial instruments. The financial instruments that are produced for a specific private client do not need to have a KID; thus, FinSO is excluding tailor-made OTC derivatives from the duty to prepare a KID.
FinSA establishes the Prospectus Rules. Anyone who makes a public offer for the acquisition of securities in Switzerland or who seeks the admission for the trading of securities has the duty to publish a prospectus. The prospectus has to contain all material information for the investor's decision, in particular, the issuer, the guarantor and the security provider; the securities to be offered publicly or admitted for trading on a trading venue (the associated rights, obligations and risks for investors); and the offer (the type of placement and the estimated net proceeds of the issuance). The prospectus has to be submitted to a reviewing body before publication, that checks its completeness, coherence and understandability. The FinSA provides a number of exceptions from the prospectus requirement.
FinSA establishes the Prospectus Rules. Anyone who makes a public offer for the acquisition of securities in Switzerland or who seeks the admission for the trading of securities has the duty to publish a prospectus. The prospectus has to contain all material information for the investor's decision, in particular, the issuer, the guarantor and the security provider; the securities to be offered publicly or admitted for trading on a trading venue (the associated rights, obligations and risks for investors); and the offer (the type of placement and the estimated net proceeds of the issuance). The prospectus has to be submitted to a reviewing body before publication, that checks its completeness, coherence and understandability. The FinSA provides a number of exceptions from the prospectus requirement.
The certain Organizational Requirements have to comply with the financial service providers under the FinSA. They're to have appropriate governance and internal procedures to ensure a proper organization, ensure that their staff possesses the necessary skills, knowledge and experience to perform their work; and avoid conflicts of interest. A qualified senior executive of a portfolio manager or a trustee needs to have at least five years of professional experience as a trustee or a portfolio manager and training of at least 40 hours in the relevant area. In addition, they will be required to pursue continuing professional education.
The certain Organizational Requirements have to comply with the financial service providers under the FinSA. They're to have appropriate governance and internal procedures to ensure a proper organization, ensure that their staff possesses the necessary skills, knowledge and experience to perform their work; and avoid conflicts of interest. A qualified senior executive of a portfolio manager or a trustee needs to have at least five years of professional experience as a trustee or a portfolio manager and training of at least 40 hours in the relevant area. In addition, they will be required to pursue continuing professional education.
The financial service providers have six months from the entry in force of the FinSA to join an Ombudsman's office as well. If trustees or asset managers are already members of an SRO, they have six months to report to FINMA their intent to obtain a license, and then have three years to satisfy the requirements under the FinIA, including affiliate with a supervisory organization and file an application to be supervised by FINMA.
Transitional Regime
The generous Transitional Regime is provided to allow financial intermediaries to transit into the new legislative field under FinSO and FinIO. Financial service providers have two years to comply with the rules of conduct and organizational obligations. They are allowed to make the switch before this deadline expires by notifying their audit company of this decision and the date on they intend to comply with the FinSA. Until such time, they will continue to be subject to the applicable regime that was relevant to them.
As long as this article gives only the general point of view and is not a kind of legal advice, for any specific case or particular business model the legal opinion of Goldblum and Partners' specialists is highly recommended.