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Legal Brief: why FinIA and FinSA represent progress for the industry

Legal Brief: why FinIA and FinSA represent progress for the industry

This article first appeared in the October issue of Citywire Switzerland magazine and was written by Hans Moritz and Dirk Spiegel, partners at Lindemann Rechtsanwälte.

In June, after an exhaustive consultation process, the Swiss parliament finally passed the Financial Services Act (FinSA) and the Financial Institutions Act (FinIA).

Drafts of both pieces of legislation had been discussed by the Council of States and the National Council since December 2016. The acts, which are expected to be enforced on 1 January 2020, include some new rules for managers and institutions.

The laws are part of new financial market architecture aiming to create uniform competitive conditions for financial intermediaries and improve client protection.

They also aim to put Swiss regulations on a par with EU regulations and impose requirements on Swiss financial services providers that are similarly imposed on their EU counterparts, thereby creating a level playing field.

FinSA and FinIA will be applicable to any entity providing financial services in or into Switzerland. Financial service providers will need to adhere to the new rules of conduct and be associated with a recognised ombudsman.

FinSA sets out cross-sector rules for offering financial services and distributing financial instruments, which are based on MiFID II, the EU Prospectus Directive and PRIIPs.

The law establishes two main client segments: (i) a retail client segment and (ii) a professional client segment. As a rule, financial services providers will have to verify beforehand whether a specific service or instrument is suitable or appropriate for a particular client and give clients appropriate explanations and advice.

The suitability and appropriateness testing will depend on the type of financial services offered.

Furthermore, financial service providers will have a duty to establish a key information document (KID) for retail clients.

FinIA introduces a differentiated supervisory regime for portfolio managers, managers of collective assets, fund management companies and securities firms.

The main change concerns the prudential supervision of managers of
individual client assets, managers of the assets of occupational benefits schemes and trustees.

Not all financial institutions will be supervised by Finma in this process. Portfolio managers for pension schemes and portfolio managers for collective investment schemes will be supervised by Finma, while the prudential supervision of managers of individual client assets and trustees will be performed by a supervisory organisation that is independent in its supervisory activity (but authorised by Finma), whereby multiple different supervisory organisations may be formed.

The fund industry over all will only be marginally affected by the new laws. Most importantly, the current licensing requirement for entities distributing collective investment schemes will be abolished, and the cross-border offering of collective investment schemes into Switzerland to qualified investors, a Swiss paying agent and representative will no longer be required.

The supervisory authorities will be given the power to set out specific guidelines to give them the opportunity to conduct specific audits in the area of portfolio management, depending on the risk and the activity of those supervised by them.

Overall, the laws are milestones in the Swiss financial market architecture. Switzerland is catching up with international developments, particularly those within the EU. And while the new
rules will increase the administrative burden on financial services providers, they may also provide increased legal certainty.

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