Baker & McKenzie Briefs Clients on Regulatory Issues Impacting Swiss Banks

Global,  May 9, 2012 - Within the framework of the regular business briefings organized by the Wealth Management Team of Baker & McKenzie Zurich, on May 8, 2012, Theodor Härtsch and Markus Affentranger gave in Zurich an overview over a number of recent regulatory developments relevant for the financial service industry.

The Swiss Federal Council has decided that the changes to the Swiss Federal Act on Banks and Savings Institutions (SBA) regarding systemically relevant banks (the so-called 'too big to fail' legislation) shall enter into legal force as of March 1, 2012. Currently, the preparation of the amendments to the implementing ordinance to the SBA and the capital maintenance rules are under way. Compared to other banks, systemically relevant banks need to have significantly more capital for the purposes of compliance with capital maintenance rules. The requirements are well above the minimum standards set out in the Basel III framework. Banks may hold equity in the form of new hybrid types of capital, such as reserve capital, conversion capital or contingent convertibles. Furthermore, they need to comply with organizational requirements and in particular, they must prepare a contingency plan which shall ensure that systematically relevant functions can be preserved even in a severe crisis of a bank.

In February 2012, FINMA followed up on its Distribution Report of 2010 in which FINMA had identified a number of deficits of the current regulatory regime as far as customer protection is concerned. In its FINMA Position Paper on Production and Distribution of Financial Products (Vertriebsregeln) published at the end of February 2012, it proposes new legislation in Switzerland that shall provide for more uniform and consistent (and, thus, enhanced) rules on financial products and the provision of financial services across the industry. There shall basically be a general duty to prepare a prospectus for financial products of any kind. In addition, each prospectus needs to be structured in a standardized manner and the legibility of such documents must clearly be improved. In addition to a prospectus, a short production description shall be made available to the investors for certain products, such as structured products. Financial service providers will in the future need to be fully transparent as to their regulatory status and as to the nature of their services. They may only call themselves "independent" if no remuneration is received from any third party. Independent asset managers will have to obtain a license, and they shall be supervised on a continuing basis – which may be considered quite "revolutionary" in Switzerland where independent asset managers still to a large extent do neither require a license nor are supervised except for anti-money laundering purposes.

Mr. Affentranger stated, “While it will still take time until such new legislation on financial products and the provision of financial services will become effective, a revised Swiss Act on Collective Investment Schemes ("CISA") is contemplated to enter into force already in the beginning of 2013 (considering that the EU Directive on Alternative Investment Fund Managers ["AIFMD"] is to be implemented by the EU member states until mid-2013).”

Purpose of the revision of the CISA is in particular the adaptation to the AIFMD but also generally to new international standards in the fund industry. Asset management of collective investment schemes will become subject to the requirement of a license of FINMA.

Mr. Haertsch stated, “Currently, asset managers of foreign collective investment schemes do still not need a license under Swiss law. Foreign collective investment schemes offered in Switzerland will need a Swiss representative who – according to the draft law – has to comply with stringent rules: It should need to check on a regular basis whether the management and the custody of the foreign collective investment scheme are equivalent to the CISA with respect to organization, investors' rights and investment policy.”

However, this has been criticized by representatives of the financial industry as being too far-reaching and unnecessary. Custodian banks (Depotbanken) will become liable for damages caused by a sub-custodian unless the custodian bank proves that due care as to selection, instruction and monitoring of the sub-custodian has been applying. The normal use of shares of collective investment schemes under an asset management agreement will also in the future be possible without the asset manager being required to apply for a license as a distributor (Vertriebsträger) of the relevant collective investment schemes. The proposed revision of the CISA is about to be debated in the Swiss parliament during the months to come. A heated debate is to be expected considering that members of the industry have partly heavily criticized the proposals in the draft law.

For any questions about this press release, please contact:

Stephanie Jarrett  ( +41 22 707 9821)
Marnin Michaels ( +41 44 384 1208)
Markus Affentranger ( +41 44 384 1286)
Theodor Haertsch  (   +41 44 384 1211)