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29 October 2018 / article

Draft ordinances to Financial Services Act and Financial Institutions Act

The Swiss Parliament adopted the Financial Services Act (FIDLEG) and the Financial Institutions Act (FINIG) on 15 June 2018, which are currently expected to enter into force on 1 January 2020.

In summary, the FIDLEG stipulates how financial service providers have to provide their services and which rules have to be observed when they offer securities and financial instruments, whereas the FINIG mainly regulates the requirements for the various categories of financial institutions including portfolio managers, managers of collective assets, fund management companies and securities firms. The drafts of the ordinances, which are generally governing the enforcement of the rules set forth by the FIDLEG and FINIG, have now been promulgated.  

The drafts of FIDLEV, FINIV and AOV

On 24 October 2018, the Swiss Council has published the drafts of (A) the Financial Services Ordinance (FIDLEV), (B) the Financial Institutions Ordinance (FINIV) as well as (C) the  Supervisory Organisation Ordinance (AOV) and initiated consultation on the ordinances, which will last until 6 February 2019. As FIDLEG and FINIG, these three ordinances shall enter into force on January 2020.

In a nutshell, the three ordinances give more specific guidelines on the following provisions:

  • The FIDLEV describes the duties of financial service providers how to provide advice and information to clients. Further, it contains provisions regarding the required organization, including the handling of conflicts of interests, the new register of client advisers (Kundenberaterregister), client documentation (Kundendokumentation) and ombudsman services (Ombudsstellen) as well as detailed provisions regarding the prospectus requirements (including a newly introduced reviewing body). Finally, the FIDLEV contains provisions with respect to the key information document (Basisinformationsblatt), which seeks – as intended under MiFID II – to help clients to better understand and/or compare financial instruments.

  • The FINIV specifies the authorisation conditions (Bewilligung) and duties for financial institutions and depicts in detail the rules regarding their supervision (Aufsicht). Namely, whereas the requirements for securities firms are mainly inherited from the Collective Investment Schemes Ordinance (KKV), the new requirements for managers of individual assets and trustees, being now subject to prudential supervision, as well as those for managers of collective assets, fund management companies and securities firms, are illustrated comprehensively.

  • The AOV delineates the authorisation conditions (Bewilligung) as well as the activities for the newly introduced supervisory organisations (Aufsichtsorganisationen, AO). It is stipulated that the AOs require FINMA-approval before engaging in supervisory activity and which requirements must be fulfilled with respect to the application and the organization of the respective body. Further, once FINMA approved, the AO shall be responsible for the ongoing supervision of portfolio managers, trustees and trade assayers in accord with the Precious Metals Control Act (EMKG). According to the provisions, it is up to the AO, whether it is supervising the organisations by itself or (additionally) mandating auditors for this purpose. Also, the AO shall apply a supervisory concept depending on the risk involved, which is based on a risk assessment system and minimum requirements provided by FINMA (however, in contrast to FINMA, the AO do not have any competency for enforcement measures). Furthermore, the AOV contains rules regarding the requirements of adequate financial means of the AO, which shall secure its sustainable prosperity.

Differences Compared to European Law

The Swiss regulatory framework, consisting of FIDLEG, FINIG and the now published ordinances FIDLEV, FINIV and AOV clearly aims to introduce a similar regime for financial service providers as under MiFID II and its related laws. However, in particular due to peculiarities of the Swiss financial market, certain deviations have been introduced. For example, the rules regarding the best execution requirement are less stringent under Swiss law. Also, the rules governing the prospectus requirements are mainly based on existing and proven regulatory rules and do not go as far as in Europe. Moreover, while being to a large extent equal regarding its content, the key information document (Basisinformationsblatt) does not require for a risk parameter or information regarding the so-called stress scenario as required under MiFID II. In general, with the intention to leave it to the professionals in the market, it can be stated that the Swiss regulatory framework is less detailed than the European regulatory regime under MiFID II but at the end it will be a political decision whether the Swiss regulatory framework can be deemed as equivalent.   

Preliminary Evaluation

At first glance, and subject to further analysis, the ordinances of FIDLEG and FINIG are in line with what could be expected. Namely, the complete regulatory framework is substantially following the European provisions under MiFID II and MiFIR, albeit containing Swiss peculiarities. Nevertheless, the comprehensiveness of the framework is immense and it remains to be seen how the rules will be adopted by the financial service providers, especially asset managers, who are facing considerable new costs, far-reaching duties as well as extensive licensing and organizational requirements