Relations between Switzerland and the EU
Relations between Switzerland and the EU are very close and multifaceted, with more than 120 agreements signed in the past 25 years. In addition, the “bilaterals III” negotiations between Switzerland and the EU were materially concluded at the end of 2024. The EU is also hugely important for Switzerland as regards the financial sector. It is one of the biggest export markets for Switzerland’s banks. Almost 40% of cross-border assets managed in Switzerland originate from Western Europe. Unfortunately, however, Switzerland currently has no scope for actively providing cross-border banking and securities services across the EU. The current rules limit the cross-border provision of services for EU investors exclusively to instances of passive “reverse solicitation” – in other words, when customers seek out services on their own initiative. Meanwhile, continual changes in EU regulation are restricting market access ever further, even though the Swiss market is completely open to EU providers.
To achieve improved access to the EU market and thus reciprocity, the banking sector is pursuing a number of mutually independent approaches:
- Bilateral agreements: These allow for improvements to market access with individual, strategically important EU countries. So far, Switzerland has reached an agreement with Germany on a simplified exemption procedure.
- Equivalence strategy: Recognition of the equivalence of regulation is a prerequisite for opening up access to the EU market for the Swiss financial sector as a whole. Key elements of Swiss financial market regulation (but not the regulations in their entirety) are recognised as equivalent to EU regulations. EU regulations for which recognition is pending include Article 67 of the Alternative Investment Fund Managers Directive, Articles 46 and 47 of the Markets in Financial Instruments Regulation, Article 13 of the European Market Infrastructure Regulation and Article 25 of the Central Securities Depositories Regulation. The relevant recognition procedures are currently one-sided, inefficient and, in some cases, heavily politicised. The SBA is therefore lobbying for improvements to create a more dependable basis for these procedures. The industry is calling for full recognition of the equivalence of Swiss financial market regulation.
- Onshore presence in EU countries: Some Swiss banks have set up subsidiaries and branches in the EU to serve their foreign customers from a local base.
However, the industry is currently focused on the institution-specific approach. The Swiss banking sector is firmly committed to this concept, which aims to offer interested Swiss institutions access to the EU market when they register with an EU supervisory authority.
The institution-specific approach
The institution-specific market access approach should continue to be pursued in order to maintain and further expand cross-border business with customers in the EU. Institution-specific market access involves interested Swiss banks registering once with a central EU authority and being issued with a passport allowing them to actively provide banking and securities services throughout the EU. The scope of access would extend to all relevant customer categories, including private clients, and would cover providing services to existing customers as well as soliciting and acquiring new customers domiciled in the EU.
When registering, Swiss banks would individually undertake to accept and comply with the relevant EU law when serving EU customers. That would include the EU conduct of business rules with regard to investor protection, market integrity and a level playing field. In addition to primary supervision by FINMA, registered Swiss banks would be subject to oversight by an EU authority when engaging in cross-border activities in the EU. The details would be set out in a cooperation agreement between the Swiss and EU supervisory authorities. The Federal Council acknowledged that the institution-specific approach is a viable solution in its draft Assessment of Swiss-EU relations dated 9 December 2022 (page 21).
The accord reached between Switzerland and Germany establishing an exemption procedure could serve as a reference in this respect. Germany offers banks outside the EEA the option to obtain licence exemptions under the applicable German laws and regulations. A memorandum of understanding between the Swiss and German supervisory authorities also gives Switzerland access to more far-reaching licence exemptions granted by the German supervisory authority BaFin. Institutions that have obtained such an exemption can actively acquire and serve German customers on a cross-border basis without going through an institution licensed in Germany, but they are broadly required to comply with German regulations. Their cross-border business is additionally reviewed by Swiss audit firms, while BaFin has some audit powers of its own.
A potential alternative would be to set up an EU registration system like the one that already exists in the US. The US Investment Advisers Act of 1940 allows foreign financial institutions and their investment advisors to offer their portfolio management and advisory services cross-border in the US. Institutions wishing to do so must register with the US Securities and Exchange Commission (SEC) or a state supervisory authority. Registered financial institutions and their investment advisors must comply with US law in their dealings with US customers.