Legal Aspects

Please note that this page provides general and not exhaustive information which is subject to amendments and/or additions over time. The law allows two years for financial intermediaries and supervisory authorities to develop and adjust their procedures and practices in order to comply with it.

FINANCIAL SERVICES ACT (FINSA)

• Objectives and timing
• Scope
• Client classification
• Impacts of Client Classification
• Change of Client Classification
• Code of conduct

Objectives and timing

Switzerland’s Financial Services Act (FinSA) aims at:

• Strengthening investor protection
• Defining a code of conduct governing the provision of financial instruments and services
• Creating a level playing field among financial service providers

All financial service providers (whether under prudential supervision or not) must apply FinSA as of 1 January 2020, with a maximum 2-year transition period for certain aspects.

Scope

FinSA applies in Switzerland to all professional financial service providers, including banks, and issuers of financial instruments.

Financial services include for example:

• Sale or purchase of financial instruments
• Receipt and transmission of orders on financial instruments
• Discretionary portfolio management
• Advisory services
• Loans to finance transactions on financial instruments

Client classification

FinSA stipulates that clients must be classified in one of the three following categories:

Private Clients

Private Clients are clients who are neither Professional Clients, nor Institutional Clients (see definitions below).

They are given the highest protection, which means stricter information requirements for the Bank, but limited access to certain financial instruments and services.

Professional Clients

Professional clients are deemed to possess sufficient knowledge and experience to take investment decisions in full knowledge of the nature and extent of the associated risks, and be able to bear the financial consequences of those decisions.

They are afforded limited protection.

Among Professional Clients are large companies or companies with professional treasury operations.

Institutional Clients

Institutional clients are deemed to possess knowledge and experience comparable to that of financial services providers.

According to FinSA, the legal rules of conduct, particularly the duty of information by financial intermediaries, are not applicable to these clients.

Institutional Clients include banks, insurance companies and other financial intermediaries subject to prudential supervision in Switzerland or abroad.

Impacts of client classification

Qualified Investor status

• Switzerland’s new Collective Investment Schemes Act (CISA) defines the status of Qualified Investor on the basis in particular of client classification defined by FinSA.
• Professional Clients and Institutional Clients are considered Qualified Investors.
• Private Clients are not considered Qualified Investors. As a result, they do not have access to collective investment schemes (funds) reserved for Qualified Investors, and they cannot invest in collective investment schemes (funds) not authorised in Switzerland. However, by signing a management or advisory mandate with the Bank a client is automatically assigned Qualified Investor status (unless they expressly waive it). Private Clients may also make a written request to switch categories and be treated as Professional Clients, provided they fulfil the requisite conditions as described below.

Change of client category classification

Under FinSA clients are entitled to change categories upon written request, provided they meet the conditions.

Change to a category offering a reduced level of protection (Opting Out)

High net worth clients or private investment structures created for high net worth clients without professional treasury operations may request to be treated as Professional Clients if:

• The client or private investment structure
  a) owns assets of at least CHF 500,000 and
  b) possesses the necessary knowledge to understand the risks associated with financial investments on the basis of their training, education and professional experience, or on the basis of comparable experience in the financial sector

Or

• The client or private investment structure owns assets of at least CHF 2 million

These amounts do not include assets such as real estate, social security claims or pension fund assets

• Swiss or foreign collective investment schemes or their management companies, without prudential supervision, may request to be considered Institutional Clients.
• Companies and occupational pension schemes and institutions whose purpose is to service occupational pensions may request to be considered Institutional Clients provided they have professional treasury operations.

Change to a category offering extended protection (Opting In)

• Professional Clients may request to be treated as Private Clients
• Institutional Clients may request to be treated as Professional Clients

Code of conduct

FinSA includes the following conduct rules:

Duty to provide information:

The duty to provide information encompasses factual data relating to the financial service provider as well as information on the financial services it offers.

The financial service provider must inform its clients on:

• Its name and address
• Its field of activity and the supervision to which it is subject
• The option of initiating mediation proceedings before a recognised mediation body
• The general risks associated with certain financial transactions

In addition, the financial service provider must inform its clients on:

• Personally recommended financial services and the associated risks and costs
• Its business relationships with third parties in relation to the financial service provided
• The financial instruments on offer in the market considered for the selection

Private Clients are provided with a key information document (KID) for each FinSA-covered financial instrument recommended to them personally. Each KID contains information on the characteristics, risks and costs of a given financial instrument, allowing easier comparison between financial instruments.

Suitability and appropriateness checks

• Financial service providers offering discretionary portfolio management services must check the suitability of the investments made in relation to the client’s financial situation and investment objectives
• This also applies in the case of advisory services covering the client’s entire portfolio
• In the case of one-off recommendations on specific transactions the financial service provider is only required to check the appropriateness of the financial instruments being recommended, taking into account the client’s knowledge and experience
• If the financial service provider has not received sufficient information from the client to be able to assess suitability or appropriateness, it must alert the client to this fact
• No suitability or appropriateness checks are required for merely executing or transmitting orders, but the service provider must inform the client that those checks have not been carried out

Duty to document and to report

Financial service providers must document the financial services agreed with clients and the information collected about them.

They shall also document the client’s needs and the grounds for each recommendation.

Transparency and due diligence in the execution of client orders

Financial service providers shall ensure best execution of their client’s orders, i.e. that the best possible outcome is achieved in terms of cost, timing and quality

These code of conduct rules do not apply for Institutional Clients.