Implementing ordinances of the new FinSa and FinIa Implementing ordinances of the new FinSa and FinIa

On 24 October 2018, the Swiss Federal Council began the consultation for the 3 implementing ordinances to the Financial Services Act and the Financial Institutions Act. The consultation period will last until 6 February 2019; the ordinances and the two laws will enter into force on 1 January 2020.

Following the adoption of the FinSA (FIDLEG) and the FinIA (FINIG) by the Swiss Parliament on 15 June 2018, the Swiss Federal Council has now published the following three consultation drafts for the implementing ordinances to these two acts for consultation:

• the Financial Services Ordinance (FinSO), as implementing ordinance to the FinSA, covering the duties of financial services providers regarding the provision of advice, information and organizational requirements;
• the Financial Institutions Ordinance (FinIO), as implementing ordinance to the FinIA, covering the authorisation conditions, duties and supervision requirements for financial service providers; and
• the Supervisory Organization Ordinance (SOO) setting forth the licensing conditions and the basic supervision principles for the newly introduced supervisory organizations.

Additionally to these three ordinances, it is expected that FINMA, in its capacity as supervisory authority, will also publish implementing ordinances to the FinSA and the FinIA, which will contain more technical aspects concerning the implementation of FINMA’s supervisory functions.

Furthermore, FinSA and FinIA will also have a substantial impact on the Collective Investment Schemes regulations (CISA / KAG, CISO / KKV, CISO-FINMA / KKV-FINMA).

The FinSO sets out a range of new requirements relating to the provision of financial services and the organization of financial service providers. Based on an initial review of the draft ordinance, especially the following new features of the consultation draft seem noteworthy:

• Notion of offer: Article 3(3) FinSO defines that an offer in the sense of the FinSA is given if the communication contains all of the essential elements regarding the conditions of the offer and the financial instrument, and is typically aimed at advertising and selling a specific financial instrument. In Article 3(5) FinSO then goes on to specify that no offer in the sense of the law is given by merely quoting a financial instrument without giving the further required information, i.e. only giving factual information or publishing generic information on a financial instrument.
• Client Segmentation: In Article 4 the FinSO sets forth that the categorization of a client applies to the entire relationship the client has with a financial service provider, how joint accounts should be handled, what the definition of a professional treasury is and how clients represented by a power of attorney should be treated. Article 5 FinSO specifies how the financial threshold for the opting-out is to be calculated. In comparison to MiFID II, especially the opting-out provisions of the Swiss FinSA and FinSO are much less stringent.
• Information duties: The Articles 6 et seq. FinSO establish in detail the various information duties for financial services providers. In this context, Article 11 FinSO stipulates that a financial service cannot be considered as consisting only in the execution or transmission of an order if advice was given beforehand. This concretization is relevant, as Article 8(4) FinSA sees an exemption from the duty to provide a key information sheet if the financial service consisted only of the execution or transmission of an order.

In general, information has to be provided in a way that clients have enough time to consider this information before entering into a contract.

For remotely provided advice, Article 9(2) FinSA sees an alleviation regarding the duty to hand out the key information sheet before executing a transaction. Article 15 FinSO further specifies the conditions for this alleviation.

• Suitability and appropriateness: Article 16 FinSO states that in case of a power of attorney, the knowledge and experience of the representative shall be taken into account and Article 17(3) FinSO determines that the financial service provider may rely on the information given by the client regarding the suitability and appropriateness assessment, unless there is an indication that the information is not true.

The FinIO specifies the new requirements for licensing, the key duties of the various types of financial intermediaries and the key principles for supervision. Based on our initial review, especially the following provisions seem to be of interest:

• Supervision of Asset Managers: with the FinIA, independent asset managers and trustees now are subject to licensing requirements and a new prudential supervisory regime. For smaller asset managers who do not manage assets commercially and asset managers limited to the management of assets from related parties (e.g. family members) these new provisions do not apply. The FinIO goes into further depth regarding those terms in Articles 2 and 11 FinIO.
• Thresholds: the FinIA provides for higher thresholds for asset managers of collective investment schemes of Swiss collective investment schemes and pension funds. Article 27 FinIO defines in detail how these thresholds shall be calculated.

The SOO sets forth the requirements for the new supervisory organizations. These will be responsible for the ongoing supervision of portfolio managers, trustees and precious metal trade assayers. FINMA is responsible for the licensing of these supervisory organizations. These will have to apply a risk-graded supervisory concept based on a risk assessment system provided by FINMA.

It is expected that the consultation on these three ordinances will receive extensive comments from the industry and that the three drafts may be subject to significant amendments. Additionally, the industry will also need to see how and what FINMA will add to the regulatory framework in the form of the FinSO-FINMA and FinIO-FINMA.

Furthermore, we would also like to draw your attention to the major changes and effects this ordinance will have on the regulation of collective investment schemes. In particular, the marketing and distribution activities in the existing investment fund regulation will be significantly affected.

We recommend that in particular Swiss banks, asset managers and fund management companies start assessing the impact of the regulations on their business models (if this has not been done already). It is key to identify the need for action in order to make a concrete implementation plan. The new provisions have to be complied with from 1 January 2020 onwards. However, the FinSO consultation draft includes several transitional provisions. For instance, the FinSO requirements with regard to client segmentation, the code of conduct and organization have to be complied with only one year after the FinSO has entered into force.

Performing a regulatory impact assessment is a good way to address all of these topics. This is also relevant for banks that have already implemented MiFID II principles in their Swiss organization.

We will publish further information regarding this topic in the upcoming weeks.

Further insights:

• FinSA and FinIA transcript of the discussion of the National Council
• Federal Council initiates consultation on ordinances to Financial Services Act and Financial Institutions Act