Update Legal & Regulations
Date on which these are set to come into force, and transitional provisions
As previously announced at the beginning of November 2019, the Swiss Financial Services Act (Finanzdienstleistungsgesetz – “FIDLEG”) and the Financial Institution Act (Finanzinstitutsgesetz – “FINIG”) as well as their executing ordinances came into force on 1 January 2020. It is apparent that certain proposed amendments to the draft regulations have been adopted. These were introduced on the basis of feedback received from the financial sector during the consultation procedure on the draft FIDLEV. These amendments are broadly in line with the SSPA proposals and are intended to provide clarity and legal certainty in practice.
The main changes include in particular the extension of important transitional periods, which in most cases now amount to two years. An extension of the transitional period to two years was introduced as a result of the consultation procedure for, amongst other things, client segmentation, the required knowledge of client advisors, rules of conduct, organisational obligations and the basic information sheet (BIS). Following the positioning and efforts of the industry and the Association, a compromise has been reached on the obligation to publish a prospectus: a de facto nine-month transitional period is now applicable. In the case of securities offered to the public or approved for trading on a securities exchange after the FIDLEG has come into force, there is a transitional period of six months from the date of FINMA’s approval of a receiving body– however an approved FIDLEG prospectus must be published from 1 October 2020 at the earliest. Based on the assumption that SIX Exchange Regulation and BX Swiss will be approved by FINMA as receiving bodies by the end of March 2020, 1 October 2020 will be the starting date for the FIDLEG prospectus. A transitional period of two years applies to securities for which a public offer has been made or approval for trading was been applied for before the FIDLEG entered into force. The principal aspect when it comes to transitional periods is that, unlike the obligations explained above, no specific transitional period has been indicated for the provisions on advertising. This means the new rules on advertising (advertising has to be recognisable as such or be labelled accordingly) probably already need to be complied with today.
Probably the most important innovation for issuers and distributors of structured products is the transition from the liberal regime of the Collective Investment Schemes Act (Kollektivanlagengesetz – “KAG”) – which only required a simplified prospectus for the distribution of structured products – to the general, product-neutral prospectus requirement for securities pursuant to the FIDLEG. Anyone making a public offer to purchase structured products in Switzerland or applying for structured products to be admitted for trading on a securities exchange are now required to publish an approved prospectus in advance. In respect of content and structure, the regulations establish clear and detailed guidelines. It is essentially the case that prospectuses need to be submitted to a receiving body approved by FINMA for review and approval prior to publication and subsequently deposited with the same receiving body. FIDLEG however also provides for numerous exemptions from the prospectus requirement.
No receiving body has been approved by FINMA to date. However, it is likely that the SIX Exchange Regulation AG and BX Swiss AG, which submitted a corresponding application last year, will be approved as prospectus auditors during the 1st quarter of 2020.
Basic information sheet (BIS)
Irrespective of the obligation to publish a prospectus, a BIS now also needs to be prepared and made available in advance if a structured product is offered to private clients. This is a document modelled after the PRIIPs KID that is familiar to us from the EU. It contains an outline of the most important product information and is designed to present this in language that is easy to understand for all private clients. Due to the fundamental equivalence of the BIS/PRIIPs KID concepts, PRIIPs KIDs are recognised in Switzerland as equivalent documents and may be used in place of a BIS. This applies irrespective of whether the product in question is also to be offered in the EU. FIDLEG and FIDLEV also contain clear requirements regarding the content and structure of information in respect of the BIS.
With regard to the requirements for the provision of the BIS, the provisions on the financial service provider’s duty to provide information need to be observed, whereby the latest FIDLEV amendments have also made important clarifications in this respect. Within this context, it is particularly important to clarify the necessary procedure for execution-only transactions. In these cases, a BIS only needs to be presented if a BIS actually exists. This is the case if the BIS can be provided at a reasonable cost. It is also worth mentioning the provision which establishes that, even in the case of execution-only transactions, the BIS can be made available to private clients with their consent only after the transaction has been concluded.
The aforementioned changes in the final version of the Ordinance last autumn also extended the BIS transitional period. When it comes to structured products, this means, as mentioned above, that for two years after the FIDLEG comes into force, product manufacturers may continue to produce a simplified prospectus within the meaning of the (old) KAG instead of a BIS.
The current SSPA work is intended to help ease the transition to BIS. The “Legal & Regulation” working group is preparing a template for the creation of standardised BISs.
In the field of advertising, the new statutory provisions also establish significant innovations. This means financial service providers and other providers of structured products may continue to produce and publish appropriate advertising material, although such documents must now comply with clear new requirements. These are the clear recognisability and/or designation of the advertising material as such, the reference to the prospectus and BIS as well as to the relevant source of these documents, and the correspondence of the information with the details set out in the prospectus and BIS.
It is to be welcomed that the Ordinance clarifies the question of what qualifies as advertising within the meaning of the FIDLEG. The term covers any communication addressed to investors that aims to draw attention to specific financial services or financial instruments. The breadth of the term is qualified by a negative catalogue in which it is stated that certain information is not in itself deemed to constitute advertising (e.g. reports on issuers, transactions or industry media reports). The unconvincing and problematic ban on advertising unauthorised financial instruments or financial instruments that do not correspond to the client profile has been removed from the wording of the Ordinance.
Status of AMC principles / recommendations
AMC recommendations prepared by the “Legal & Regulation” working group were finalised and presented to the Board of the SSPA for approval in December 2019. The Board has now approved these and decided that they are to come into force on 1 April 2020. This means issuers have sufficient time to familiarise themselves with the AMC recommendations and to implement them accordingly. The AMC recommendations are published on the SSPA website.
The AMC 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.
Inter alia, the AMC advisor should confirm in writing that he uses an established control system to monitor the performance of the AMCs. He moreover undertakes to disclose to the investor the key data of the pursued investment strategy, taking particular account of the following elements:
- Which investment categories and financial instruments are permitted to be integral parts of the investment strategy;
- Whether the prospective strategy includes leverage;
- Who decides on the composition and restructuring of the underlying security, and how often the underlying security may be restructured;
- Where the current composition of the underlying security can be retrieved, or from whom it can be obtained;
- Whether significant investment restrictions exist;
- Whether diversification rules exist;
The specified fees must be reported transparently and in a comprehensible manner. The multiple compensation of the AMC advisor, so-called double-dipping, is not permissible. The separation of responsibilities between the AMC advisor and the issuer must be clearly defined and disclosed to the investor.
Status of the SSPA sample distribution agreement
The project pursued by the “Legal & Regulation” working group to develop a model distribution agreement for the financial sector and SSPA members is continuing to make progress. The sample distribution agreement is being prepared initially in the English language. Ultimately, though, it will be made available in German as well as in English. The aim is to ensure a fair balance of interests between the issuer and the distributor – for this reason the template is to be formulated in the most neutral possible manner. SSPA members may use the sample agreement on a voluntary basis, and may also tailor this to meet their individual needs. A broad application will be beneficial, however, in order to establish a market standard.