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FinSA and FinIA enter into effect on 1 January 2020 - But a lot of provisions do not apply immediately

On 6 November 2019, the Swiss Federal Council decided that the Swiss Financial Services Act (FinSA) and the Swiss Financial Institutions Act (FinIA) will enter into effect on 1 January 2020. Concurrently, the final versions of the Financial Services Ordinance (FinSO) and the Financial Institutions Ordinance (FinIO) (as well as the Supervisory Organisation Ordinance (SOO)) containing the implementing provisions for FinSA and FinIA were published.

The FinSA provides rules of conduct for financial service providers in their dealings with customers. Furthermore, the act stipulates comprehensive prospectus obligations (and specifies the exceptions to such obligations) and rules on key information documents (KIDs) for financial instruments.

FinIA harmonises the existing statutory provisions governing the supervision of financial institutions, namely asset managers of collective investment schemes (Verwalter von Kollektivvermögen), fund management companies (Fondsleitungen) and securities firms. It also introduces new licensing requirements for portfolio managers (Vermögensverwalter) and trustees. Client advisors of financial services providers not subject to licensing requirements – respectively the individual client advisors working for them – must, in turn, apply with a register for client advisors according to FinSA.

FinSA, FinIA and the respective ordinances will also have an important impact on the Swiss Collective Investment Schemes Act (CISA), its ordinances and the related rules and guidelines.

Clarifications in the final versions of the ordinances

The final versions of FinSO and FinIO bring welcome clarifications to the drafts of the ordinances published back in spring (cf. also the official commentary of the Swiss Finance Department on the final ordinances, p. 11 et seq. of the German version):

  • Art. 3(3) FinSO provides for a catalogue of services which are not deemed financial services and thus fall outside the scope of FinSA. This catalogue has been extended, particularly with respect to corporate finance services (as provided namely by investment banks).
  • According to FinSA, in case of execution only transactions, a KID must be handed over to the customer provided that the KID is "available". Art. 11(2) FinSO clarifies that the KID is deemed available if it can be obtained with reasonable efforts. Moreover, in case of execution only transactions, the KID can be handed over after the transaction has been concluded if the customer gives its prior consent (in the form of a text (Textform), but not by way of general terms and conditions) (art. 11(3) FinSO).
  • FinSA clarifies that there is no need to update customers during the customer relationship if the information they are to be provided with according to art. 9(1) FinSA changes (deletion of art. 14(2) draft FinSO).
  • As a part of the suitability test (cf. art. 12 FinSA), a risk profile and – in case of portfolio management and permanent investment advisory mandates – an investment strategy must be drawn up (art. 17(3) FinSO).
  • Client advisors working for prudentially supervised foreign financial service providers must not register with the register for client advisors if they serve professional or institutional clients only (art. 31 FinSO).
  • The KID for collective investment schemes may be drawn up not only in an official language (German, French or Italian) but also in English (art. 89(2) FinSO).
  • The advertising rules for financial instruments that cannot be marketed due to legal restrictions (e.g. because lacking approval or not corresponding to the client profile) have been abandoned (deletion of art. 95(3) draft FinSO).
  • FinIA stipulates an exception from its scope of application, inter alia, regarding (i) persons who manage solely the assets of persons with whom they have business or family ties and (ii) mandates prescribed by statutory law, such as deputyships according to art. 398 of the Swiss Civil Code (cf. art. 2(2)(a) and (2)(2)(d) FinIA). These exceptions were further clarified by the final version of FinIO (cf. art. 3 et seqq. FinIO). The clarifications regarding what is deemed a family tie are of particular interest for family offices (to evaluate whether they fall within the scope of the FinIA and thus potentially require a license as portfolio manager).
  • FinIA provides provisions applicable to all financial institutions governed by it (art. 5 et seqq.) and specific provisions regarding the individual institutions (art. 17 et seqq.). The final version of FinIO offers a better definition of these general and specific provisions, particularly in the areas of organisation (art. 12, 23, 37, 51 and 66 FinIO) and delegation of tasks (art. 15 et seqq., 40 and 56 FinIO).
  • Portfolio managers and trustees require a license under FinIA if they act in a commercial capacity (cf. art. 3 and 17 FinIA). The related definition has been clarified in the final version of the ordinance (cf. art. 19 FinIO).
  • The ongoing supervision of portfolio managers (but not asset managers of collective investment schemes) and trustees will be performed by private supervisory organisations (and not the Swiss Financial Market Supervisory Authority (FINMA) which, however, will grant the licenses). In principle, these organisations must accept all asset managers and trustees meeting the relevant regulatory requirements. However, they are entitled to supervise only persons who are subject to a special statutory professional secret, such as lawyers or notaries (art. 21(2) FinIO). Still, there will be very likely supervisory organisations which will not implement such restriction (i.e. also admit persons not subject to a special statutory professional secret).
  • Art. 20 FinIA requires that at least two members (or, under certain circumstances, one member) of the management body of portfolio managers and trustees have a certain level of professional experience and training. These requirements were further specified in the final version of the ordinance (art. 25(1) FinIO).
  • Art. 24(2) FinIA provides for certain de minimis thresholds. If asset managers of collective investment schemes fall below these thresholds, they will only require a licence as portfolio managers (and not as asset managers of collective investment schemes). To avoid confusion, the final version of FinIO clarifies that the delegation of investment decisions is also possible to asset managers of collective investment schemes that do not meet such de minimis thresholds (art. 40(1) FinIO).
  • The final version of FinIO does not stipulate special provisions concerning the (financial) auditing of portfolio managers and trustees anymore (deletion of art. 79 draft FinIO).

Despite these clarifications, we expect controversies in the months to come. One controversial issue relates to the scope of FinSA. In art. 3(2) FinSO, the word "intermediation" (Vermittlung), contained in the draft FinSO, has been removed. This might suggest that marketing activities related to financial instruments (including collective investment schemes) do not qualify as financial services and would thus fall out of its scope. On the other hand – like the official commentaries on the draft FinSA by the Swiss government (Botschaft) and by the Swiss Finance Department on the draft ordinances – the Swiss Finance Department's official commentary on the final ordinances suggests that such marketing activities will fall under FinSA. Although also we believe that this is the case (with the related consequences, such as the application of the rules of conduct and the registration duty of client advisors), the question cannot be answered conclusively until clarified by FINMA or the competent courts.

Numerous transitional periods

FinSA and FinIA enter into force on 1 January 2020. However, most of the provisions do not apply immediately given that the acts and ordinances specify transitional periods.

The legislative process has not yet come to an end

With FinSA, FinIA and the related ordinances (FinSO, FinIO and SOO), the cornerstones of the new laws have now been established. However, there will be further implementing provisions, the drafts of which having not yet been published. This particularly concerns the Financial Institutions Ordinance of FINMA (FinIO-FINMA). A draft of FinIO-FINMA is expected to be published during spring 2020. Moreover, FINMA may publish new circulars regarding the new laws and will revise existing ones (e.g. FINMA circular 2008/5 "securities dealers" or FINMA circular 2013/9 "distribution of collective investment schemes"). Also numerous self-regulatory instruments, such as those of the Swiss Funds & Asset Management Association (SFAMA) or the Swiss Association of Asset Managers (SAAM) will have to be amended and some of the relevant supervisory bodies (such as the registration body for client advisors or the reviewing body for prospectuses) and their respective rules have yet to be approved.

Having said that, as of today, not all relevant rules have been finalised. Swiss financial market law will thus remain a moving target for some time.

The above article was first published on CMS RegZone. This article is provided as a general informational service and it should not be construed as imparting legal advice on any specific matter.

Dr Matthias Kuert, LL.M. advises clients in general contract, commercial and financial law matters (including capital markets law). In these fields, he also handles proceedings, be it in front of state courts, arbitral tribunals or regulatory authorities. A special focus of his work lies on the new Swiss financial laws (FinSA and FinIA) and the regulation of FinTech companies.

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