The Swiss banks make a significant contribution to value creation in Switzerland and provide jobs for highly skilled workers. If they are to continue doing so, the conditions under which they operate have to allow them to remain competitive internationally. Access for Swiss financial service providers to foreign markets is of strategic importance in this regard. Market access means that Swiss banks can export their services out of Switzerland, and their main export market is the European Union.
In the interests of safeguarding and improving access to the EU market, the focus in the near term will remain on equivalence procedures and bilateral agreements with EU partner states.
Planning certainty imperative for equivalence procedures
- Switzerland is very closely linked to the EU with more than 120 agreements, so the EU does not treat it like any other third country. Both sides benefit from their extremely close trading partnership and therefore share an interest in reciprocally open markets.
- To improve market access, we are calling on the EU to recognize equivalence in the area of financial market regulation. The recognition of equivalent regulation is a condition for the access of the entire Swiss financial sector to the EU market. The pending equivalence procedures should be concluded as swiftly as possible on the EU side, particularly in cases where the technical process was concluded long ago by the competent authorities.
- The Swiss government and administration must act assertively. Like the Federal Council, the SBA cannot comprehend the EU’s decision to recognise the equivalence of Swiss stock exchange regulation only for a limited period of time. What is in essence a technical process has been overpoliticised by linking it to extremely complex political negotiations on institutional issues. We believe that Switzerland – just like other third countries – should receive equivalence with no time limit, especially since technical equivalence has been established by the EU authorities.
Relations between Switzerland and the EU are very close and multifaceted, with more than 120 agreements signed in the past 25 years. The two are very close trading partners. This high degree of interconnectedness puts Switzerland in an exceptional situation vis-à-vis the EU in that it trades much more intensively with the EU than other third countries. Swiss banks are subject to competent and comprehensive financial market supervision in Switzerland that is also recognised by the EU. On top of this, Swiss legislation is designed to be equivalent to EU law in areas that are relevant for market access. Switzerland enjoys a high level of political and financial stability by international standards. For all of these reasons, the EU should recognise Switzerland as a reliable trading partner and thus accord it a high priority and assess it on its own merits when it comes to equivalence.
Recognition of equivalence in financial market regulation
Switzerland strives for EU equivalence in its legislation wherever this is possible, necessary for the banks’ business and proportionate. From the banks’ perspective, legal uncertainty stems from the existing procedures for achieving EU equivalence not being defined clearly or reliably enough. There are no specific timelines, for example, nor is there a uniform benchmark for equivalence. There is no right to equivalence, it is instead a political decision taken by the European Commission.
The industry wants full recognition of the equivalence of Swiss financial market regulation where provided for under EU law and where it is important for Switzerland. It is the SBA’s opinion that insufficient progress has been made so far in this area, and the Association therefore finds it regrettable that, for political reasons, recognition of stock market equivalence has been limited to one year. The arbitrary linking of technical recognition of equivalence with the progress made in the negotiations for a framework agreement is incomprehensible. We therefore call for technical equivalence decisions to be separated from institutional issues, although we do understand that the latter require sufficient attention.
Key pending equivalence procedures
In June 2019, the European Commission allowed its temporary recognition of the equivalence of Switzerland’s stock exchange regulation for the purposes of Article 23 of the Markets in Financial Instruments Regulation (MiFIR) to lapse. This prompted the Federal Department of Finance (FDF) to invoke its contingency measure to protect the Swiss stock exchange infrastructure as of 1 July 2019. After the EU continued not to recognize Swiss stock exchange regulation as equivalent, the Federal Council extended the validity of the protective measure until 31 December 2025 on 17 November 2021. At the same time, it opened the consultation on the transfer of the protective measure to the Financial Market Infrastructure Act (FMIA). The measure will remain temporary even after its transfer to the FinfraG and will initially apply for a period of five years, but can be deactivated at any time.
According to the SBA, the recognition of equivalence in this regard should be renewed quickly and without a time limit. Moreover, further decisions on equivalence in other areas are of great importance. These should be finalised as swiftly as possible.
- Article 67 of the Alternative Investment Fund Managers Directive (AIFMD) relates to the extension of the EU passport to third countries, i.e. other countries as well as Switzerland. A favourable decision would result in the admission of Swiss alternative investment funds throughout the EU, with their management and marketing subject to uniform regulation in all EU Member States. This would open up new opportunities for Swiss-based business that have up to now been the preserve of locations inside the EU (primarily Luxembourg and Ireland). ESMA gave positive advice on extending the passport to Switzerland back in July 2016. The Commission’s political decision is still pending and could remain so for years due to a possible review of the AIFMD.
- Articles 46 and 47 of MiFIR relate to the direct cross-border provision of services to professional clients in the EU from a third country. A favourable decision would make it possible to provide investment services to eligible counterparties and “per se” professional clients throughout the EU without the need for any branches in the EU. Swiss institutions would benefit from EU passporting for third countries, which would significantly enhance their scope for providing cross-border services. Luxembourg, an EU Member State, offers an interesting precedent in this regard, having deemed Swiss financial market regulation and supervision to be equivalent for this very purpose under its national regime in June 2020. Read more HERE.
- Article 13 of the European Market Infrastructure Regulation (EMIR) relates to recognition of Swiss derivatives regulation. A favourable decision on equivalence would mean that it would be sufficient to meet certain obligations (such as clearing, risk mitigation and reporting) under Swiss law rather than having to ensure compliance with EMIR. This is referred to as substituted compliance. For intragroup transactions, it would even result in an exemption from certain obligations under EMIR (in particular with regard to clearing and risk mitigation).
- Article 25 of the Central Securities Depositories Regulation relates to the processing and settlement of securities transactions by providers in third countries. Recognition of equivalence in this area allows central securities depositories from third countries to provide custody services for clients in the EU. This process is also relevant with regard to member states of the European Economic Area. SIX SIS is the central securities depository not only for Switzerland, but also for Liechtenstein, and therefore performs functions centrally for the Liechtenstein financial centre. Equivalence is a prerequisite for continuing to provide these services.