Key Take-aways
1. While the Swiss Financial Market Infrastructure Act (FMIA) by and large achieved the intended goals, some adjustments are proposed in the context of the first FMIA REFIT that is currently in consultation.
2. As regards the derivatives regulation, the distinction of small and large Parties shall become an annual determination and small non-financial counterparties shall no longer be subject to a reporting obligation.
3. The order book of exchanges shall include data on beneficial owners and become available to FINMA; the transaction reporting will be centralized with FINMA and shall become more standardized.
1 Introduction
The proposed reform goes back to the recommendations made by the Federal Department of Finance (FDF) in the context of its assessment of the Swiss Financial Market Infrastructure Act of 19 June 2015 (FMIA) five years after its entry into force on 1 January 2016 that was conducted similar to a "regulatory fitness and performance programme" (REFIT) for new EU financial market laws. The FDF came to the conclusion that the FMIA by and large achieved the intended goals but that, in some areas, adjustments should be made with the aim to increase the competitiveness of the Swiss financial center by taking into account technological changes and developments in international standards and regulations. The FDF, in consultation with the financial industry, prepared a reform package that was now adopted by the Swiss Federal Council and released as a consultation report (the FMIA REFIT Report) together with a proposed draft of the revised FMIA (D-FMIA) on 19 June 2024. The consultation will run until 11 October 2024. Key proposals include the following:
2 Payment Systems
The FMIA currently defines a payment system as a system with uniform rules and processes that clears and settles payment transactions. While foreign payment systems are not subject to licensing requirements, they may be subject to surveillance by the Swiss National Bank, to the extent they are of systemic importance. Swiss payment systems do at present only require a license by FINMA if this is deemed necessary for the proper functioning of the financial market or the protection of financial market participants, except if the payment system is operated by a bank.
Small non-financial counterparties are excluded from derivatives reporting obligations.
To increase legal certainty with respect to the question when a payment system is subject to a licensing requirement, the D-FMIA provides that the Federal Counsel shall define thresholds set by reference to transaction volumes.
Further, as regards payment systems operated by banks, the D-FMIA will require that the following types are distinguished: (1) to the extent it is a payment system of systemic importance, it must be operated by a separate legal entity and be licensed as such; (2) in the event is it not systemically important, but would be subject to a FINMA license if it was operated in a legal entity separate from the bank, i.e. the payment system crosses the materiality thresholds, it must meet the same regulatory requirements as payment systems that would be subject to a FINMA license and (3) any others are, as currently, only subject to the banking regulation.
Like under the current legal framework, foreign payment systems may provide their services in Switzerland on a cross-border basis and have Swiss participants without being subject to a FINMA license.
3 Regulation of Financial Market Infrastructures
Key proposals include the following:
- Liquidation plan: not only systemically important, but all financial market infrastructures subject to FINMA licensing requirements shall prepare a liquidation plan as part of the FINMA licensing process.
- Listing of securities with multilateral trading facility (MTF) for DLT instruments: in line with the rules for exchanges, securities may be listed, not only admitted to trading, on a DLT MTF.
- Admission and exclusion of participants: all financial market infrastructures shall be required to define rules and procedures for the admission, the suspension and the exclusion of participants (e.g. in an event of a participant's default).
- Systemic importance: the criteria to determine whether a financial market infrastructure is of systemic importance are adjusted to take into account also whether a financial market infrastructure may be subject to operational failures.
- Rules for systemically important financial market infrastructures: the new rules will introduce going concern and gone concern capital requirements. They will further specify the requirements for recovery and resolution planning and they will tweak the measures available to FINMA in the process of reorganizing a financial market infrastructure of systemic
4 Trading Venues
4.1. Trade and Transaction Reporting, Record Keeping
While Swiss trading venues remain responsible to oblige their participants to submit trade reports for purposes of compliance with the post-trade transparency requirements, the transaction reporting framework will be changed. Participants of a Swiss trading venue and securities firms will, according to the rules proposed in the D-FMIA, no longer have to submit the transaction reports according to article 39 FMIA and article 51 of the Financial Institutions Act of 15 June 2018 to a reporting office of the trading venue, but to FINMA. FINMA will then, if needed for trade surveillance, share the collected data with the trade surveillance units of the relevant trading venues.
With regard to transaction reporting to FINMA, article 39 para. 2 D-FMIA also stipulates a uniform format for such trade reports to improve their quality and usefulness. The Swiss Federal Council shall issue rules on ordinance level governing the specific information required, exemptions, the form of the transaction reporting and the timing.
The rules on record keeping of transactions (Jounalführungspflicht) will continue to apply to all participants of a Swiss trading venue and securities firms without changing the content of such requirement.
4.2. Order Book
As regards the order book held by a Swiss trading venue, the revised rules introduce an obligation for participants to identify the beneficial owners and record such information in the order book (order book-flagging). This information shall be useful for the identification of market abuse. Also, the trading venues will be required to make the order book data available to FINMA within five trading days of the trade date.
4.3. Foreign Trading Venues
Foreign trading venues (exchanges, multilateral trading facilities) will no longer require an authorisation by FINMA before admitting direct participants domiciled in Switzerland, to the extent that they are regulated in a jurisdiction that has been recognized by FINMA as a jurisdiction, where trading venues are adequately regulated, and the relevant foreign authorities provide administrative assistance to FINMA.
4.4. OTFs
As regards organized trading facilities (OTFs), the new rules of D-FMIA will align the FMIA with the current FINMA practices, as set out in FINMA Circular 2018/1, which includes a reporting of the OTF to FINMA prior to going live and FINMA keeping a public register of all OTFs.
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