The office of the Federal Council, Switzerland’s ‘seven-headed president,’ is consulting the regulated community about ordinances that it wants to attach to the Swiss Financial Services Act and the Swiss Financial Institutions Act.

On 15 June, the Swiss parliament passed both the Financial Services Act (FinSA for English-speakers, FIDLEG for German-speakers and LSFin for French-speakers) and the Financial Institutions Act (FinIA for English-speakers, FINIG for German-speakers and LEFin for French-speakers). On 24 October, the Federal Council began to consult interested parties about three ordinances that it wanted to issue that concern the implementation of these new laws. The period for comment ends on 6 February.

FinSA sets out cross-sector rules for the provision of financial services in Switzerland. The degree of regulation and supervision for financial service providers depends on the services they perform. The supervisory regime for portfolio managers, managers of collective assets, fund management companies and securities firms is set out in FinIA. As a novelty, under FinIA, professional portfolio managers and trustees will require an authorization from the Swiss Financial Market Supervisory Authority FINMA to carry out their business.

The three implementing ordinances-to-be, the Financial Services Ordinance (FinSO), the Financial Institutions Ordinance (FinIO), and the Supervisory Organisation Ordinance (SOO), contain rules. The Swiss parliament wants to allow the Federal Council to add details of its own to these rules.

The draft of FinSO

In draft form, FinSO contains implementing provisions concerning the financial services providers' duties of conduct (in particular, an ‘information duty,’ the performance of a ‘suitability and appropriateness’ test, a ‘documentation duty’ and some ‘due diligence’ obligations regarding client orders). Part of the information duty is the obligation to provide retail clients with a so-called key information document (Basisinformationsblatt or KID") when they offer them financial instruments in Switzerland). The KID should make it easier for clients to compare different financial instruments with each other. FinSO contains a template Swiss KID and a detailed description of things to be covered in the KID. Also, it describes the foreign documents that are considered equivalent to the KID and which may be used instead of one, such as PRIIPS KIDs in the EU and Produktinformationsblätter in Germany.

The draft of FinSO also contains, inter alia, implementing provisions covering (i) rules to govern the offering of securities in prospecti, which feature a form for financial instruments; (ii) the obligation of every ‘client advisor’ to sign the register of client advisors; and (iii) ways of classifying clients, especially the method of calculating a financial threshold above which wealthy clients ought to be classified as 'professional clients' and allowed to ‘opt out.’

[Editor's note: the Geneva Compliance Group writes that HNW private clients may ask to be classified as professional clients (the so-called ‘opting out’) as long as they have the right knowledge and professional experience and fortunes of at least SFr500,000 in each case. There is also a clause to let a private client with a fortune of at least SFr2 million to opt out without restraint.]

The draft of FinIO

The draft of FinIO contains, among other things, implementing provisions concerning the Acts’ authorisation requirements, the duties that the Acts impose on financial institutions and the supervision of those institutions. In particular, it lists the new supervisory requirements that will apply to portfolio managers and trustees. Less stringent requirements apply to these firms than do for managers of collective assets, fund management companies and securities dealers (newly designated as ‘securities firms’). Smaller portfolio managers that do not manage assets commercially, and portfolio managers that only manage assets from related parties (e.g., family members) are not subject to this new regulatory and supervisory regime.

The requirements that apply to securities firms have largely been copied from the Swiss Collective Investment Scheme Ordinance and the Swiss Stock Exchange Ordinance.

The draft of SOO

SOO is meant to delineate the supervisory functions that FINMA will delegate to the new supervisory organisations. They will, for the first time, supervise portfolio managers, trustees and precious metal trade assayers. FINMA is responsible for the authorisation of these supervisory organisations, which will be obliged to use a risk-graded supervisory concept based on FINMA’s risk assessment system.

Outlook and timeline

The financial industry is expected to debate these drafts hotly and might call for significant amendments. FINMA, in its capacity as the overarching supervisory authority, might take the occasion to add further implementing provisions to the new regulatory structure in the form of two regulatory documents called FinSO-FINMA and FinIO-FINMA.

FinSA and FinIA are expected to enter into force, together with their implementing ordinances, on 1 January 2020. The drafts of FinSO and FinIO contain various transitional provisions.

* Pestalozzi's Zurich office can be contacted on +41 44 217 91 11