Update legal & regulations
FIDLEG/FINIG progress – coming up to the finishing line
Date on which this is set to come into force, and transitional provisions
The Swiss Federal Department of Finance (FDF) is set to propose to the Federal Council that the Financial Services Act (Finanzdienstleistungsgesetz – “FIDLEG”) and the Financial Institutions Act (Finanzinstitutsgesetz – “FINIG”) and their implementing ordinances should into force on 1 January 2020. The corresponding Federal Council resolution is expected to be approved on 6 November 2019.
On 9 September 2019, the State Secretariat for International Financial Matters (SIF) announced the planned transitional periods. In most cases, these amount to two years. This should give issuers sufficient time to prepare for the switch to the new regime.
Key changes to the Financial Services Ordinance
To give the sector greater planning security, in its communication of 9 September 2019 the FDF set out the key changes to the draft ordinances that were included in response to numerous statements submitted by the financial sector during the course of hearings on the FIDLEG and FINIG ordinances. The definitive wording of the ordinances is, however, still subject to approval by the Swiss Federal Council on 6 November 2019.
The draft ordinances have met with broad approval. Nevertheless, a number of clarifications and amendments have been made to the wording of the ordinance. In particular, the following significant material changes to the consultation draft are worth mentioning:
- The definition of the term “financial services”, insofar as this encompasses the purchase & sale of financial instruments, has been amended in response to diverging opinions. In particular, the term “brokering” has been deleted. It will be possible to assess the extent to which this amendment creates clarity about which activities associated with the purchase and sale of financial instruments qualify as financial services only once the definitive wording of the ordinance becomes available.
Code of conduct
- Particularly worthy of mention is the clarification relating to the provision of the Basic Information Sheet (BIB) for “execution only” transactions. This was one of the key issues raised in consultation submissions by the SSPA and other participants. The new Art. 11 Para. 2 FIDLEV now states that a BIB is deemed to exist in connection with “execution only” transactions and must therefore be made available to the client if it can be found at reasonable cost. This means the SIF has taken the concerns of the SSPA into account, although unfortunately has not used the wording proposed by the SSPA. The SSPA will interpret the provisions of the new ordinance within the context of the “FIDLEG Q&A”, thereby expressing the shared understanding of SSPA members of this provision.
- The new Art. 11 Para. 3 FIDLEV includes a provision stating that in the case of “execution only” transactions the BIB may be made available to private clients, with their consent, after the transaction has been concluded. This is a sensible exemption from the principle that the BIB must be made available before the completion of an acquisition or sales transaction. This provision was one of the concerns raised by the SSPA during the consultation on the Financial Services Ordinance.
- The SIF has also taken the SSPA’s proposal on board with regard to the provisions on advertising and has removed the proposed ban on the advertising of unauthorised financial instruments or of financial instruments that do not correspond to the client profile from the wording of the Ordinance (Art. 95 Para. 3 FIDLEV).
Coming into force / transitional provisions
- Once the FIDLEG and FINIG have come into force on 1 January 2020, a number of provisions are to be accorded longer transitional periods than had originally been included in the draft. In relation to client segmentation (Art. 103 FIDLEV), the required know-how of client advisors (Art. 104 FIDLEV), the code of conduct (Art. 105 FIDLEV), the organisational obligations pursuant to Art. 21 to 27 FIDLEG (Art. 106 FIDLEV) and the BIB (Art. 110 FIDLEV), the transitional period has been raised to two years.
- The extension of the transitional period for the BIB, which will make it possible for a simplified prospectus to be prepared for structured products instead of a BIB until 1 January 2022 is particularly important in this conjunction. Following consultation with the SIF, though, it remains the case that only a BIB or a simplified prospectus may be prepared. This restriction does not apply, however, to the preparation of a PRIIPs KID, that is to say, a PRIIPs KID can always be prepared alongside a BIB or simplified prospectus.
- In its communication of 9 September 2019, the EFD did not mention the transitional period for the prospectus. The draft of the Financial Services Ordinance makes provision for a six-month transitional period, commencing on the date of the approval by the first inspection authority. The SSPA is keen to see this relatively short deadline extended, and is holding discussions with the SIF on this matter.
The SSPA FIDLEG Q&A and product matrix
The “Legal & Regulation” working group is continuing to work on the “FIDLEG Q&A” working paper. The working paper will be supplemented and updated on an ongoing basis. It is designed to help SSPA members interpret and implement the new regulations. The “FIDLEG Q&A” will be made available on the SSPA website accordingly.
In addition, a new “product matrix” is to be created as an appendix to the working paper. This will serve as a practical guide to compliance with the new regulations concerning product documentation. The appendix will, inter alia, enable provide users with an overview of the documents that need to be supplied in connection with the respective offer of structured products.
The SSPA sample basic information sheet
The “BIB-Template” sub-working group has prepared a preliminary draft of the sample basic information sheet. Various paragraphs of the BIB are to be standardised. The central paragraph is “What risks exist and what could I receive in return?”
Status of AMC principles / recommendations
Based on principles developed and approved by the Committee, the “AMC” sub-working group has prepared a document containing recommendations for issuers of actively managed certificates (AMCs), and has submitted this to the Committee for approval. The recommendations are currently being finalised, and are expected to be approved by 1 January 2020.
These recommendations establish minimum requirements for the appointment of the person who is to manage the AMC and for transparency with regard to the investment strategy, its implementation and the associated costs. These minimum requirements are considered recommendations and establish guidelines to protect investors and strengthen the reputation of the sector.
SSPA sample sales agreement
The “Legal & Regulation” working group’s latest project is the development of a sample sales agreement for the financial sector and SSPA Members. The template will be available in German and English. It will be formulated as neutrally as possible, in order to offer a fair distribution of interests between issuers and distributors. SSPA members may use the sample agreement on a voluntary basis, and may also tailor this to meet their individual needs.