LGT – Regulatory Update for EAMs FinSA at the gates – an overview Christian Koller, LL.M., Attorney at Law 25. Juni 2018 FinSA – an overview | Slide 1 25. Juni 2018
Contents − Preliminary remarks − General provisions − Requirements for providing financial services − Offering financial instruments − Issuing documentation − Ombudsman services − Supervision and exchange of information − Penal provisions − Final provisions − Brief summary FinSA – an overview | Slide 2 25. Juni 2018
Preliminary remarks • February 2012: FINMA position paper on distribution rules: “ not enough protection for clients !” • June 15, 2018: wording of the FinSA/FinIA laws prepared; draft ordinances to be consulted on in fall 2018 • Entry into force expected in January 2020 • Parliament has watered down draft Dispatch (in various respects): • SAAM press release from November 4, 2015: “An unnecessary bloating of the monitoring mechanism that brings no benefit to investors and no improvement to market access” • SAAM press release from June 15, 2018: “Independent asset managers welcome the recognition afforded by the new FinSA/FinIA financial market legislation – Parliament is recognizing the diverse nature of the financial center” The FinSA is primarily a piece of supervisory law Non-compliance will result in sanctions • under supervisory and criminal law FinSA – an overview | Slide 3 25. Juni 2018
Title 1: General provisions (Art. 1–5) Purpose (Art. 1 para. 1) • Protecting clients • Establishing comparable conditions for providing financial services: “ level playing field ” • Enhancing the reputation and competitiveness of Switzerland as a financial center: Alignment with EU directives (especially MiFID II ) Subject matter (Art. 1 para. 2) • The FinSA sets out requirements for providing financial services in a trustworthy, diligent and transparent manner; and • The FinSA regulates how financial instruments are offered (prospectus rules) FinSA – an overview | Slide 4 25. Juni 2018
Title 1: General provisions (Art. 1–5) Scope (Art. 2) • The legislation applies to the following, independent of their legal form: • Financial service providers: persons who provide financial services in Switzerland or on behalf of clients in Switzerland on a commercial basis • Relationship managers • Persons who create and offer financial instruments • Exceptions: • SNB and BIS • Pension schemes and similar institutions • If their activities are governed by the Insurance Oversight Act, also: • Insurance companies • Insurance brokers and ombudsman services • Insurance institutions under public law in accordance with OPA 67 I FinSA – an overview | Slide 5 25. Juni 2018
Title 1: General provisions (Art. 1–5) A few definitions (Art. 3) • Financial services = the following services provided on behalf of clients: (i) purchasing and selling financial instruments, (ii) the acceptance and forwarding of orders relating to financial instruments, (iii) portfolio management, (iv) investment advisory and (v) granting loans to fund transactions in financial instruments • Financial service providers : • Persons who provide financial services in Switzerland on behalf of clients in Switzerland on a commercial basis • Definition of “on a commercial basis”: independent economic activity geared toward making a profit • Relationship manager : natural person who provides financial services on behalf of a financial service provider or in his own name FinSA – an overview | Slide 6 25. Juni 2018
Title 1: General provisions (Art. 1–5) Client categorization (Art. 4 f.) • Financial service providers assign their clients to the following categories: Private clients not wishing to opt out (≠ professional clients) • • High-net-worth private clients wishing to opt out (= professional clients) • Professional clients , particularly: i. Central banks / financial intermediaries under the BankA, FinIA and CISA / insurance companies under the IOA ii. Foreign clients subject to an equivalent level of prudential supervision iii. Corporations under public law / companies with professional treasury operations iv. Large companies v. Private investment vehicles with professional treasury operations set up on behalf of high-net-worth private clients • Institutional clients: (i) and (ii) above plus national and supranational corporations under public law with professional treasury operations • No categorization is required if the financial service provider treats all its clients as private clients (Art. 4 para. 7) FinSA – an overview | Slide 7 25. Juni 2018
Title 1: General provisions (Art. 1–5) Client categorization (Art. 4 f.) • Opting out: • Voluntary waiver of client protection • Less stringent conditions for high-net-worth private clients compared to the current definition of a “high-net-worth individual” in the CISA • Opting in if greater client protection is required • Intentions to opt out or in must be expressed in writing or in another form that can be documented as text • Information obligations of financial service providers • In terms of the facts: options for opting in • In terms of time: before providing financial services • In terms of personnel: all clients except private clients FinSA – an overview | Slide 8 25. Juni 2018
Title 1: General provisions (Art. 1–5) Opting in Opting out Institutional clients Investor protection (in part) Professional clients High-net-worth individuals / private investment vehicles Private clients FinSA – an overview | Slide 9 25. Juni 2018
Title 2: Requirements for providing financial services (Art. 6–34) Requisite knowledge (Art. 6) Requisite knowledge (Art. 6) • • Relationship managers must have sufficient knowledge of the FinSA rules of conduct Relationship managers must have sufficient knowledge of the FinSA rules of conduct and the specialist expertise required for their work and the specialist expertise required for their work • • Proposal by the Federal Council (in addition): Financial service providers have to Proposal by the Federal Council (in addition): Financial service providers have to ensure that their relationship managers have completed the necessary continuing ensure that their relationship managers have completed the necessary continuing professional development – struck out by the Council of States and National Council professional development – struck out by the Council of States and National Council FinSA – an overview | Slide 10 25. Juni 2018
Title 2: Requirements for providing financial services (Art. 6–34) Preliminary remarks on rules of conduct (Art. 7–20) • Content : information obligations, suitability and appropriateness test, documentation and accountability, and transparency in client orders • Not applied to institutional clients (Art. 20 para. 1) • Professional clients: • Suitability and appropriateness are assumed (Art. 13 para. 3) • The requirement to follow the remaining rules of conduct may be waived except for “transparency in client orders” • “When providing financial services, financial service providers must comply with the obligations under supervisory law as laid out in this Title” (Art. 7) • “Compliance with them shall also be deemed to represent compliance with aligned obligations under civil law” has been struck out the sense thus remains one of a “ radiating effect touching civil law” as set out in the Dispatch FinSA – an overview | Slide 11 25. Juni 2018
Title 2: Requirements for providing financial services (Art. 6–34) Rules of conduct Financial service providers shall inform clients of (Art. 8): • Their name, address, field of activity, supervisory status, possibility of mediation by an ombudsman service, general risks associated with financial instruments • Personally recommended financial services (including risks and costs ) • Existing commercial links with third parties / market offering taken into account • When personally recommending a financial instrument to private clients: key information document and, if requested, prospectus Timing and format of information provision (Art. 9): • Standardized, electronically or as hard copy • Before the contract is signed or the service provided as a basic principle • If advice is not being given face to face, provision of the key information document to clients may, with their consent, also be delayed until after signing FinSA – an overview | Slide 12 25. Juni 2018
Title 2: Requirements for providing financial services (Art. 6–34) Rules of conduct: suitability and appropriateness (Art. 10–14) Suitability test Appropriateness test Product/service has to be suitable considering Product/service has to be appropriate for the the client’s knowledge and experience client Ensures that the client can assess the risks Takes account of risk appetite and risk capacity Risk profile adequately • Age • Purpose and term of investment / time horizon • Family circumstances • Awareness of and attitude to risk • Professional circumstances • Desire/need for liquidity (short, medium and long term) • Education • Investment restrictions • Previous and current occupation • Income • Nature, extent, frequency and time period of • Financial commitments knowledge and experience • Other assets • Taking account of costs FinSA – an overview | Slide 13 25. Juni 2018
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