Financial market legislation
Switzerland has extensively overhauled its financial market legislation.
The new financial market legislation architecture essentially comprises the Anti-Money Laundering Act (AMLA) and the Banking Act (BA) together with the Financial Market Supervision Act (FINMASA), the Financial Market Infrastructure Act (FMIA), the Financial Services Act (FinSA), the Financial Institutions Act (FinIA) and the related Financial Services Ordinance (FinSO), Financial Institutions Ordinance (FinIO) and Supervisory Organisations Ordinance (SOO).
- Financial Services Act (FinSA) and Financial Services Ordinance (FinSO) – in force since January 1, 2020, with transition periods of two years for most purposes
- Financial Institutions Act (FinIA) and Financial Institutions Ordinance (FinIO) – in force since January 1, 2020, with transition periods of two years for most purposes
- Financial Market Supervision Act (FINMASA) – in force since June 22, 2007
- Financial Market Infrastructure Act (FMIA) – in force since June 19, 2015
- Anti-Money Laundering Act (AMLA)
- National Bank Act (NBA)
- Banking Act (BA)
- Collective Investment Schemes Act (CISA)
- Insurance Supervision Act (ISA) / Insurance Contract Act (ICA)
- Mortgage Bond Act (MBA)
Central tenets of the FinSA and FinIA
The FinSA and FinIA brought investor protection in Switzerland up to date with a focus on investors taking responsibility for themselves. Their main purpose was to consolidate existing duties that were previously spread between legal texts, case law and various circulars, so many market participants’ duties did not change significantly in practice.
Nevertheless, the FinSA and FinIA did bring some key changes, e.g.:
- The activities of asset managers and trustees are now subject to stricter regulation.
- The conduct rules concerning investment advice are now more detailed, with extended information and documentation duties, a compulsory review of appropriateness and suitability, and transparency and due diligence requirements.
- Extended prospectus requirements now apply to the offering of financial instruments. A key information document must be produced and supplied to clients in most cases.
- Financial service providers must take appropriate organisational measures, for example to ensure that client advisers are properly trained.
The creation of a solid legal framework in terms of acts and ordinances has had a positive effect on legal certainty. For instance, the entire sector no longer has only a Federal Supreme Court judgment for guidance on how to handle retrocessions as this is now governed by a binding act and ordinance supported by a broad consensus.
Positive effects are also discernible with regard to the competitiveness and exportability of Swiss financial products and services. A successful Swiss financial centre depends heavily on access to foreign markets, and the implementation of the FinSA and FinIA provides a foundation for this.
The two acts were passed by Parliament after a five-year legislative process and entered into force on January 1, 2020.
The Swiss Bankers Association scrutinised the drafts carefully throughout the legislative process and provided detailed input. It offered extensive opinions on the two legislative projects as part of the consultations, and issued a statement on the subsequent dispatch relating to the two acts.
The following are the key points and achievements in the legislative process from the banking sector’s perspective:
Financial Services Act (FinSA):
- Investor protection has been brought up to date by extending transparency for customers, with a focus on investors taking responsibility for themselves.
- Apart from rules on the provision of documents and the ombudsman’s office, the FinSA does not contain any stipulations concerning civil proceedings (in particular, reversal of the burden of proof, the procedural costs fund, the representative action and group settlement proceedings were removed from the final version). Given that these would have constituted special legislation governing civil proceedings against financial service providers, their removal is welcome.
- All the criminal provisions require intent: there are no offences involving negligence in the FinSA. In addition, none of the offences carry a custodial sentence.
- The rules on prospectuses have been comprehensively overhauled and are now contained within a single act rather than being spread across a number of pieces of legislation, which enhances legal certainty.
- The task of defining the necessary minimum standards for initial and ongoing customer advisor training is left to financial service providers themselves; the Act itself does not lay down any standards. This allows for differing specialist requirements to be accommodated, and for a swift response to market developments.
- There is no register of advisers for financial service providers that are subject to prudential supervision but only for those that are not (investment advisors, financial planners, etc.), along with foreign financial intermediaries. This is extremely welcome on cost-benefit grounds alone.
Financial Institutions Act (FinIA):
- The Banking Act has rightly been retained as the special legislation, since the FinIA cannot be an alternative to it.
- Independent portfolio managers – who were not previously subject to prudential supervision – are now subject to the FinIA in their capacity as financial institutions, with a dedicated supervisory authority.
The FinSO and FinIO
The following ordinances also entered into force on January 1, 2020:
- Financial Services Ordinance (FinSO)
- Financial Institutions Ordinance (FinIO)
- Supervisory Organisations Ordinance (SOO)
The FinSO fleshes out financial service providers’ consultation and information duties (including provisions on prospectuses and key information documents) and also contains provisions on their organisation (including the register of advisers and ombudsman’s offices).
The FinIO contains implementing provisions regarding the authorisation conditions, duties and supervision of financial institutions.
According to the FinIA, supervisory organisations must be created to oversee portfolio managers, trustees and assay offices under the Precious Metals Control Act. The SOO governs the authorisation requirements for and activities of these newly created supervisory organisations (SOs).
The Swiss Bankers Association provided extensive input for all three ordinances in the consultation phase. The ordinances reflect many of the solutions discussed in the working groups and largely follow the same logic. However, some key regulatory approaches the SBA was involved in developing did not find their way into the final texts. The banking industry therefore provided a detailed account of the additions and adjustments it believed were needed.
The Federal Council decided on November 6, 2019 that the FinSA, the FinIA and their ordinances would enter into force on January 1, 2020, but a two-year transition period applies to most of the duties therein – an overview of the timetable is presented in an SBA news article.
Links & Documents
Stellungnahme der SBVg zur Finanzdienstleistungsverordnung (FIDLEV), Finanzinstituts- verordnung (FINIV) und Aufsichtsorganisationenverordnung (AOV)
Stellungnahme Teilrevision Nationalbankverordnung