Deficiencies of current law
Significant shortcomings exist under current financial services law in the area of code of conduct and product regulations. Frequently, clients are not informed about financial service providers and their services, for instance. Moreover, there is no general duty to enquire about clients' knowledge and experience. The prospectus duties for financial products are patchy and dispersed in various legislative instruments. Prospectuses are often too detailed and insufficiently clear for clients, and concise product documentation that is easy to understand rarely exists. Furthermore, the options for clients to assert their rights are effectively severely restricted. In particular, there are high cost risks.
The various financial service providers are subject to different degrees of regulation and supervision. In particular, some in the asset management business are subject to prudential supervision (banks, securities dealers, fund management companies and asset managers of collective investment schemes), while other financial service providers are not subject to supervision (independent asset managers).
These deficiencies in current law lead to insufficient client protection and unequal competitive conditions.
The FinSA and FinIA are part of the new financial market architecture, which covers four areas: (1) supervision (already governed by the Financial Market Supervision Act, FINMASA); (2) infrastructure (in the Financial Market Infrastructure Act, FinMIA); (3) services (FinSA); and (4) supervised entities (FinIA).
The FinSA sets out cross-sector rules for offering financial services and distributing financial instruments. In terms of content, the rules are based on the EU directives (MiFID II, Prospectus Directive, PRIIPs), with adjustments made to reflect the specific Swiss circumstances
Financial service providers are required by law to give clients appropriate explanations and advice. The two main client segments are retail clients and professional clients. Uniform rules are provided for with regard to the prospectus duty, with simplifications envisaged for SMEs. A key information document (KID) is now to be supplied for financial instruments offered to retail clients. The KID should enable clients to make informed investment decisions and genuinely compare various financial instruments in a simple and understandable way.
Provision is not made for the following instruments, which were highly controversial during the consultation: reversal of the burden of proof, the procedural costs fund and an arbitration court. Instead, ombudsmen will be strengthened. All financial service providers will now have to affiliate to an existing or newly created ombudsman.
A differentiated supervisory regime for portfolio managers, managers of collective assets, fund management companies and securities firms will be introduced with the FinIA. Well-established provisions of existing law have been taken over and merged, with some changes being made.
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 the process. 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 several supervisory organisations are possible. In the area of portfolio management, the supervisory authorities will be given the power to make provision for an audit frequency of several years depending on the risk and the activity of those supervised by them.
Parliament adopted both bills in the final votes on 15 June 2018. The FinSA was accepted by 138 votes to 57 (National Council) and 41 votes to 0 (Council of States); the FinIA passed with 139 votes to 56 (National Council) and 44 votes to 0 (Council of States).
Relative to the Federal Council dispatch, changes and adjustments were made to the bills in the following areas in particular:
- insurance activities were removed from the scope of the FinIA; the regulations are to be included in the Insurance Oversight Act in a separate revision;
- simplifications for clients in civil proceedings regarding financial market disputes were dropped;
- FINMA grants authorisation to independent asset managers and trustees and has full enforcement powers over these; the ongoing supervision of independent asset managers and trustees is to be performed by non-governmental supervisory organisations authorised by FINMA;
- the insolvency provisions in the Banking Act proposed by the Federal Council in the annex to the FinIA are to be included in a separate consultation;
- a new authorisation category for companies (in particular in the fintech area) which accept public funds of between CHF 1 million and CHF 100 million will be created in the Banking Act; simpler requirements apply for these companies under certain conditions; following the Federal Council resolution of 30 November 2018, this amendment to the Banking Act was brought into force ahead of schedule on 1 January 2019.
Both laws are expected to come into force with the implementing ordinances on 1 January 2020.