The Federal Act on Financial Services (FinSA) and the Federal Act on Financial Institutions (FinIA) are expected to take effect on 1 January 2020. These two laws will radically transform the current financial market structure. Below is a brief overview of the major changes that FinSA will bring.
I. WHAT DO FINSA AND FINIA AIM TO ACCOMPLISH?
The two acts are intended to strengthen customer protections as well as the reputation and competitiveness of the Swiss financial industry. This set of regulations is also intended to provide Swiss financial institutions with access to the European market. Under FinSA, uniform conditions for the provision of financial services will be created across market sectors. Business conduct at the point of sale for all financial products will eventually be regulated through FinSA. Uniform rules will also apply to the sales documentation of financial products. In the future, FinIA will subject all asset managers to prudential supervision. This represents a significant change for independent asset managers, as they have previously not been subject to a comparable supervisory regime.
Many FinSA provisions are specified in more detail in the Financial Services Ordinance (FinSO). The consultation procedure on the draft FinSO (D-FinSO) ended on 6 February 2019. The regulations in the DFinSO have therefore not yet been fully finalized. The final versions are expected in the 3rd quarter of 2019.
II. WHO IS SUBJECT TO FINSA?
FinSA applies to financial service providers, client advisors as well as to producers and providers of financial instruments.
Financial service providers are persons who provide financial services on a commercial basis in Switzerland, or for clients in Switzerland. The definition of financial services is crucial to the applicability of FinSA. The following activities performed on behalf of clients are considered financial services under FinSA:
- purchase or sale of financial instruments;
- acceptance and transmission of orders relating to financial instruments;
- asset management;
- investment advice; and
- granting of loans for the execution of transactions with financial instruments.
The distribution of investment funds is also considered a financial service.
Financial instruments according to FinSA include equity securities such as shares, participation or dividend- right certificates, bonds, shares in collective investment schemes, structured products and derivatives.
Client advisors are natural persons who provide financial services on behalf of a financial service provider or as act as financial service providers themselves.
However, FinSA does not cover insurance companies and insurance brokers whose activities are subject to the Insurance Supervision Act, nor does it cover pension funds.
III. CLIENT SEGMENTATION AS A NEW OBLIGATION FOR FINANCIAL SERVICE PROVIDERS AT THE POINT OF SALE
Financial service providers must assign clients, who they are assisting with financial services, to one of the following segments:
- Institutional Clients;
- Professional Clients;
- Retail Clients.
The applicability of FinSA costumer protection provisions varies according to client segment.
Institutional Clients include:
- financial intermediaries pursuant to the Banking Act, FinIA and the Federal Act on Collective Investment Schemes (CISA), such as banks, fund management companies, asset managers andsecurities firms;
- insurance companies under the Insurance Supervision Act;
- foreign clients subject to prudential supervision, such as foreign banks, fund management companies and asset managers;
- central banks; and
- national and supranational public corporations with professional treasury.
In addition to the Institutional Clients mentioned above, the Professional Clients segment further includes the following:
- pension funds with professional treasury;
- companies with professional treasury;
- large companies (i.e. companies exceeding two of the following criteria: balance sheet total of CHF 20 million, revenue of CHF 40 million, equity of CHF 2 million); and
- Private investment structures with professional treasury, established for high-net-worth Individuals.
Retail Clients are all clients who are neither Professional nor Institutional Clients. As Retail Clients, they enjoy the full range of customer protections provided by FinSA.
Any financial service provider who treats all clients as Retail Clients can forgo customer segmentation.
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