Financial Services Act adopted by the Swiss Parliament
New regime on the provision of financial services — new prospectus regime
Today, June 15, 2018, the Swiss Parliament adopted the Financial Services Act (FinSA). The new law regulates the provision of financial services in Switzerland (including those provided by non-Swiss entities on a cross-border basis) as well as the offering of financial Instruments in or into Switzerland. The date on which the FinSA enters into effect will be determined by the Swiss Federal Council and is currently expected to be at the earliest in mid-2019.
The Financial Services Act (FinSA) adopted today by the Swiss Parliament will impose several new requirements on financial service providers, some of which have been the subject of vigorous debate, as well as implement a new prospectus regime for the offering and admission to trading of financial Instruments.
Matters regulated by the FinSA
Rules on the provision of financial services
The FinSA introduces several new rules applicable to the provision of financial services in or into Switzerland. These rules include the following:
- client advisers must be entered in a newly-established register of client advisers, even if they are only providing services to clients in Switzerland on cross-border basis;
- client advisers must meet a minimum standard of education and participate in continuous training;
- financial service providers must adhere to expanded conduct rules, which include requirements to inform clients about the financial services prior to concluding any agreement, to perform appropriateness or suitability checks prior to offering Investment advice or asset management services, to document the services that have been agreed and an accounting of those that have been rendered and the related costs, to apply due diligence and care in the rendering of the services, and to safeguard best execution;
- financial service providers must comply with certain organizational requirements, are responsible for external service providers that they engage in connection with the provision of financial services, and must avoid conflicts of interests; and
- fees, commissions and other remuneration or financial benefits received by financial service provides from third parties in connection with the provision of financial services must either be fully disclosed to, and receipt thereof waived by, the relevant client, or, alternatively, passed on in full to the relevant client.
What is particularly noteworthy for non-Swiss financial service providers is that the FinSA will now also apply to those providing their services on a cross-border basis. Whenever a person or entity provides financial services to Swiss clients, the FinSA applies irrespective of where such person or entity is located. As a result, any non-Swiss financial service provider must either establish a regulated branch or subsidiary in Switzerland or, alternatively, register their client advisers in the register of client advisers. Under the authority granted to it under the FinSA, the Swiss Federal Council may choose to provide a registration exemption in the implementing ordinance for client advisers of non-Swiss financial service providers that are subject to prudential supervision, so long as they render financial services in or into Switzerland exclusively to professional or institutional clients.
The FinSA introduces the concept of client segmentation for the first time in Switzerland outside the context of collective Investment schemes. A financial service provider will be required to categorize its clients into the following three categories:
- Professional clients: Swiss financial intermediaries, Swiss insurance companies, foreign clients subject to prudential supervision, central banks, public law corporations with professional treasury operations, occupational pension schemes with professional treasury operations, companies with professional treasury operations, large companies, and private Investment structures with professional treasury operations that have been established for wealthy retail clients are deemed to be professional clients. A professional client may waive the application of certain of the FinSA’s conduct rules for financial services provided to it.
- Institutional clients: Certain professional clients (i.e., Swiss financial intermediaries, Swiss insurance companies, foreign clients subject to prudential supervision, central banks and national and supranational public law corporations with professional treasury operations) are deemed to be institutional clients. The FinSA’s conduct rules applicable to financial service providers do not apply with respect to institutional clients.
- Retail clients: All clients that are not professional clients are considered to be retail clients.
Certain clients, including wealthy retail clients and private Investment structures established for such clients, may opt out of or opt in to another category, so long as such election is made in writing.
A financial service provider may refrain from categorizing its clients if it chooses to treat all its clients as if they were retail clients.
New prospectus regime
The FinSA introduces a new comprehensive prospectus regime. The key features that are new for the Swiss market are:
- the requirement that prospectuses be approved on an ex ante basis, including in the case of secondary public offerings; and
- the requirement to prepare a «basic information document» in the case of offerings to private clients.
Ex ante Approval
The FinSA requires prospectuses to be approved by a new regulatory body (the so-called «review body»), which will be licensed and supervised by the Swiss Financial Market Supervisory Authority FINMA.
In principle, the requirement to publish an approved prospectus will apply to all public offerings, including secondary public offerings, in or into Switzerland and to all securities that are to be admitted to trading on a trading platform in Switzerland.
Notwithstanding the requirements of the FinSA, it will be possible to submit a prospectus to the review body for approval if it has been prepared in accordance with foreign regulations that conform to the standards of the International Organization of Securities Commissions (IOSCO) and so long as the information duties are equivalent to those under the FinSA.
Furthermore, prospectuses that have been approved in accordance with the standards of certain non-Swiss jurisdictions or bodies to be specified, and published on a list maintained, by the review body will be automatically deemed approved by the review body. Consequently, any such prospectus may be used in connection with a public offering andlor admission to trading in Switzerland, so long as it has been published and deposited with the review body as required by the FinSA.
To ensure the continuation of the current efficient time-to-market in Switzerland, issuers of certain types of financial Instruments that will be designated by the Swiss Federal Council in the implementing ordinance (see below at III.) will only need to have the related prospectus approved by the review body within a certain period of time after the offering has been completed. To benefit from this exemption, a
Swiss bank or Swiss broker dealer will have to confirm that the «most important information» about the issuer and the relevant securities is available to the Investors at the time of the offering (or admission to trading).
The statutory prospectus liability regime currently in effect will continue to apply. However, liability for forward-looking statements and the summary section in a prospectus will be limited.
Exemptions from the prospectus requirement
The FinSA introduces a set of explicit exemptions from the requirement to prepare a prospectus. The list of exempted transactions includes public offerings:
- limited to professional clients; or
- limited to a maximum of 500 Investors (including retail Investors); or
- with a minim um Investment of CHF 100,000 per Investor; or
- of securities with a denomination of at least CHF 100,000; or
- of securities that, calculated over a 12-month period, do not exceed an aggregate amount of CHF 8,000,000.
Further, certain types of securities may also be publicly offered in Switzerland without a prospectus, for example equity securities issued outside of a capital increase in exchange for equity securities of the same dass already issued, or securities issued by employers or affiliated companies to current or former employees, members of the board of directors or members of the management.
There are also exemptions from the requirement to prepare a prospectus in the case of admission to trading without a concurrent public offering in Switzerland. These exemptions include securities that are already traded on a foreign trading platform that has been designated by a Swiss trading platform for such purpose or where the transparency for Investors is otherwise safeguarded.
Certain issuers (i.e., the Swiss Confederation or cantons, inter- or supranational public law corporations, the Swiss National Bank and foreign central banks) are generally exempted from the FinSA’s requirement to prepare a prospectus.
In the implementing ordinance, the Swiss Federal Council may also provide for additional relief from certain of the prospectus requirements. The new review bodies will also have the authority to provide for relief in certain cases so long as the interests of Investors continue to be protected.
Duty to prepare a basic information document in the case of offerings to private clients
Whenever a financial Instrument that is not an equity security or a debt Instrument without derivative characteristics will be offered to private clients, a so-called basic information document must be prepared.
The basic information document must contain all information material for the client’s Investment decision, be presented in an easily comprehensible manner and be designed to make financial Instruments easy to compare. In the case of material changes to the information contained in the basic information document during the life of the financial Instrument, the basic information document must be updated.
The FinSA provides that documents prepared in conformity with foreign law that are equivalent to a basic information document may be used instead.
Draft implementing ordinance expected in autumn 2018
While the FinSA contains the basic framework for the regulations applicable to the provision of financial services, the new prospectus regime and other rules (e.g. with respect to civil, regulatory or criminal liability) for which a clear basis in the FinSA itself was required to be provided, the specific details of such regulations, regime and rules will be set forth in the implementing ordinance. The draft implementing ordinance is expected to be published for public consultation in autumn of this year.
We will continue to monitor these developments and issue a series of bulletins an specific topics as soon as the draft implementing ordinance is available.