What you should know about the architecture of Swiss financial market legislation – FinSA and FinIA

Source: BRP Bizzozero & Partners SA

As we all know, January 1, 2020, represented a turning point for Swiss financial market regulation. On that day, the Financial Services Act (FinSA) and the Financial Institutions Act (FinIA) entered into force together with three implementing ordinances, the Financial Services Ordinance (FINSO), the Financial Institutions Ordinance (FinIO) and the Supervisory Organization Ordinance (SOO).

These new laws and ordinances fundamentally reshaped the architecture of Swiss financial market legislation. Their core objective was to create uniform competitive conditions for financial intermediaries in Switzerland and to improve client protections.

Focus on FinSA

As already said, FinSA is aimed to introduce a new regulation of financial services. The concept of financial services is broadly defined by FinSA and includes:

  • The acquisition or disposal of financial instruments

  • The receipt and transmission of orders in relation to financial instruments

  • The administration of financial instruments (portfolio management)

  • The provision of personal recommendations on transactions with financial instruments (investment advice) and

  • The granting of loans to finance transactions with financial instruments.

FinSA introduced some cross-sectoral rules for the provision of these services, called “rules of conduct”. In a nutshell, they consist of:

  • Information duties

  • Documentation and accountability duties

  • Transparency and due diligence duties

  • Duty to carry out an appropriateness or suitability test in case of asset management or (personalized) investment advice services.

These rules of conduct are graduated depending on the required level of client protection. This depends on the client segment to which the respective financial service provider is assigned. Therefore, all financial service providers offering financial services in Switzerland or for clients in Switzerland on a commercial basis must classify their clients either as retail clients, professional clients or institutional clients.

The highest level of protection applies to retail clients and the lowest level of protection to institutional clients. To them, FinSA rules of conduct do not apply. Depending on the client category, clients may declare under certain conditions that they want to change segment, by increasing their protection (the so-called opting in) or reducing their protection (the so-called opting out).

Not only supervised market participants such as banks, securities firms, fund management companies and portfolio managers must comply with these rules of conduct, but also non-supervised market participants if they provide financial services in Switzerland or to clients in Switzerland.

Financial service providers must also observe organizational obligations established by FinSA by adopting appropriate operational measures and by means of internal regulations.