Legal Classification of FINMA Circulars

FINMA is obliged to apply and enforce the laws and ordinances issued by the legislator. In accordance with article 7(1)(b) of the Federal Act on the Swiss Financial Market Supervisory Authority, FINMA regulates the application of financial market legislation by means of circulars, among other things. FINMA circulars merely serve to create transparency regarding FINMA’s supervisory practice and to clarify questions of interpretation; they are not of a legislative nature and must not introduce any obligations that deviate from or go beyond the law or ordinance (article 5(2) of the Ordinance to the Financial Market Supervision Act).

Key Points of the FINMA Circular

The circular “Duties of conduct under FinSA/FinSO” contains several key points, some of which were amended during the consultation process:

• Services excluded (or covered) by the FinSA: According to article 3(3)(b) of the Ordinance on Financial Services (FinSO), the placement of financial instruments with or without a firm underwriting commitment and related services are not considered financial services within the meaning of article 3(c) of the Federal Act on Financial Services (FinSA). The explanatory notes to the FinSO of November 6, 2019 of the Federal Department of Finance FDF already stated that the FinSA serves to protect investors, i.e. in this context it is aimed at the offering of financial instruments to investors, but not at the relationship of the service provider with companies and their shareholders as partners who finance themselves via the capital market. The FINMA-Circular 2025/2 takes up this wording. FINMA’s explanatory notes to the circular provide further clarity: neither the financial services providers nor the company seeking financing are to be regarded as particularly worthy of protection in relation to an investment activity. The FinSA serves to protect investors and not issuers. However, if the service relates directly to the relationship between the financial service provider and its clients in their capacity as investors and thus “clients” within the meaning of article 3(c) FinSA, the placement of financial instruments may constitute a financial service.
  In our understanding, this corresponds to the situation as held by the majority of literature and existing practice to date. Members of a syndicate or banks, securities firms or pure intermediaries (reine Vermittler) acting exclusively for the issuers or e.g. selling founders, who do not perform this activity for their clients acting as investors on the buy side, are not subject to FinSA. As the literature focuses here on the de facto appearance and bona fide understanding of the buyers, organizational or other measures (e.g. disclaimers or clarifications) must be taken/reviewed to ensure that this role is also recognizable as such.
• Duty to provide information: The FINMA-Circular 2025/2 also contains FINMA practice and requirements for fulfilling the duty to provide information under FinSA.
  • Compared to the draft circular, however, the requirements for the form of the information have been simplified. Information on the form of the information is now dispensed with and reference is made instead to existing statutory provisions (article 9(3) FinSA in conjunction with article 12 FinSO).
  • The circular provides for various information obligations regarding risk disclosure on contracts for difference (CFDs). In contrast to the draft, the final circular adds quarterly information for private clients who have suffered a total loss of margin on CFDs in the last 12 months. This is intended to increase transparency and enable clients to better understand the risks.
  • The final circular provides for a requirement to inform about the nature and extent of concentration risks insofar as risk concentrations in client portfolios that are not customary in the market are not excluded in asset management and portfolio-related investment advice and specifies customary types of such information.
• Requirements regarding the appropriateness and suitability test: Financial service providers create risk profiles of their clients by obtaining information for the appropriateness and suitability test. According to the FINMA-Circular 2025/2, all information required for the appropriate performance of the appropriateness and suitability test must be obtained. Financial service providers must check the knowledge and experience of clients for each relevant investment category. In the case of asset management and portfolio-related investment advice, they also must take into account the investment strategy and financial instruments used. The required level of detail of the inquiries depends on the complexity and risk profile of the investments and the investment strategies.
• Securities lending: The FINMA-Circular 2025/2 also specifies the minimum information required and to be documented when using clients’ financial instruments (securities lending). This includes whether the financial service provider acts as a counterparty (principal) or as an agent, that the ownership of financial instruments is transferred to the counterparty and that there is only a claim to the same type and quantity being repurchased, that in the event of bankruptcy of the counterparty, there is only a non-privileged monetary claim, etc.
• Client information when considering own financial instruments: Financial service providers inform customers whether the market offering considered by the financial services provider in the selection of financial instruments includes only their own, both their own and third-party, or only third-party financial instruments. When considering its own financial instruments, the financial services provider must avoid creating specific incentives in the remuneration of the persons involved in the rendering of the financial services and the customers must be informed about unavoidable conflicts of interest resulting from considering its own financial instruments.
• Compensation from third-parties / retrocessions: FINMA specifies its expectations regarding the form and content of client information on third-party compensation / retrocessions that the financial services provider receives and retains with the consent of its customer.

The information about retrocessions in the financial services provider’s standard contracts must be visually highlighted and must be physically available to the customer or easily accessible electronically.

In respect of the content of the information to be disclosed, the ranges of third-party compensations of the different classes of financial instruments as well as the ranges of third-party compensation based on the portfolio value and the applied investment strategy have to be provided in case of an asset management relationship. According to the FINMA, the same disclosure standard applies in case of portfolio-related investment advice. As the investment decision is with the customer when providing only investment advice, the financial services provider will need to determine the ranges of third-party compensation based on the recommended investment strategy and irrespective of whether the customer follows the recommended investment strategy in order to meet the FINMA’s expectation expressed in the circular.

The financial service providers disclose the actual amounts received to the customers upon request, generally free of charge. Exceptionally, in the case of extraordinary effort, such as multiple exercises of the right to information within a year, a moderate, at most cost-covering flat fee may be charged.

Compared to the consultation draft, not only have individual points in the FINMA-Circular 2025/2 itself been adjusted, but also various explanations. It is advisable to read these explanations carefully in order to better understand the nuances of FINMA’s statements in the circular. In our opinion, this applies in particular with regard to the delimitations concerning article 3(3)(b) FinSO and to better understand the differences between asset management, portfolio-related investment advice and transaction-related investment advice in the FINMA-Circular 2025/2.

Need for Action

Despite the amendments to the final circular, there is still a need for action in certain areas. In particular:

• Article 3(3)(b) FinSO: For service providers who are not subject to FinSA (and do not intend to be), an analysis of their own activities and practice is recommended. Service providers must be sure for whom they are acting and how and/or whether the necessary clear (organizational, etc.) separation exists. The bona fide impression must also be critically scrutinized and, if necessary, it must be ensured through training, disclaimers and other measures that the services are not subject to FinSA.
• Information on retrocessions: In order to retain third-party compensation, financial service providers must make customers aware of the third-party compensation expected to be received by the financial services provider. FINMA expects from the financial services provider that such information in standard contracts is highlighted visually or, alternatively, disclosed in a separate letter or form. This information must be physically presented to customers or easily accessible electronically. A general reference to the financial service provider’s website is not considered sufficient.

As FINMA expects the same disclosure for portfolio-related investment advice as for portfolio management, the financial services provider will need to determine and disclose the ranges of third-party compensation based on the recommended investment strategy for the portfolio.

The new FINMA circular “Duties of conduct under FinSA/FinSO” comes into force on January 1, 2025 and is intended to increase transparency and legal certainty in the financial services sector. It remains to be seen how financial service providers will implement the new requirements and what further adjustments will be necessary in practice.