Since January 1st, 2020, financial institutions in Switzerland are subject to two new laws: the Swiss Financial Services Act (“FinSA”) and the Financial Institutions Act (“FinIA”), which, together with the corresponding ordinances FinSO (Financial Services Ordinance) and FinIO (Financial Institutions Ordinance), entail new regulations for financial intermediaries. The activity of asset management is now subject to authorization requirements from FINMA Financial intermediaries must fulfil a whole range of obligations as well as organizational and personnel requirements in order to be able to continue to offer their services.
The FinSA introduces extended rules of conduct for all financial institutions and defines detailed information about the offered services and products that must be made available to customers.
Aim, Purpose & Content
FinSA and FinIA are part of the new regulatory financial market architecture. Both laws aim to create uniform competitive conditions, strengthen the competitiveness of the Swiss financial market and improve customer protection.
The core of customer protection is the "customer segmentation", "the product and cost information obligation" about the financial services and financial instruments offered as well as the standardized "appropriateness and suitability check". As a customer the aim is to be better informed about the risks of financial services to better understand them.
Key points
Client Segmentation (Art. 4 FinSA)
FinSA differentiates between three client groups for the segmentation of customers: "Private Clients", "Professional Clients" and "Institutional Clients". Basically, the knowledge and experience of customers with financial instruments are decisive for the classification. Private clients are customers who are not professional clients. "Private clients" receive the greatest possible investor protection. They must be informed comprehensively about the risks, the product characteristics and the expected or calculable costs. Financial intermediaries are also confronted with far-reaching accountability, information and documentation obligations.
"Professional/institutional clients", on the other hand, enjoy less investor protection. In the case of these customer groups, the law assumes that the persons involved have sufficient experience, knowledge and expertise to make independent investment decisions and to be able to adequately assess the associated risks. The "Institutional Clients" group is a subcategory of "Professional Clients", which includes regulated legal entities, larger companies and other institutions such as municipalities, governments or central banks, etc. These institutions benefit from the lowest level of protection.
Opting-in/Opting-out (Art. 5 FinSA)
Customers have the option of being categorized under a different customer group. This reclassification is called "opting-in" or "opting-out". As a result, the customer is subject to higher or lower customer protection, which increases or decreases the scope of information and clarifications to be obtained.
Information obligations (Art. 8 FinSA)
Before concluding a contract or providing any financial services, financial service providers must inform their customers about their exact field of activity, their supervisory status and the possibility of a mediation procedure before a recognized ombudsman. They inform their customers about the recommended financial service, the associated risks and costs and disclose existing economic ties to third parties. As part of the clarification obligations, it is the financial intermediary's responsibility to first and conscientiously obtain clarity about the customer's financial circumstances and investment goals as well as the knowledge and experience.
Appropriateness and Suitability Test (Art. 10 et seq. FinSA)
Financial service providers must carry out an in-depth appropriateness and suitability check based on the information provided by the customer. Put simply, it is important to clarify whether the respective financial service is appropriate and suitable for the customer. It is essential to inquire in detail about the knowledge and experience as well as the financial circumstances and investment objectives (e.g. investment horizon, purpose and risk tolerance) of the customer.
During the suitability check, it must be determined whether the customer understands the selected investment strategy and asset allocation and can assess the associated risks. Based on the customer's risk profile, risk tolerance and risk capacity are determined. The recommended investment strategy regarding asset allocation refers to the client's risk profile. The suitability test ensures that the selected investment strategy considers the needs and financial circumstances and is therefore tailored to the customer and appropriate.
If the information that the financial service provider receives from the customer is not sufficient to assess the appropriateness or suitability of a financial instrument, it shall point this out to the customer before the service is provided and shall advise against it.
Documentation and accountability obligations (Art. 15 f. FinSA)
Financial service providers must document the service agreed with the customer in an appropriate manner. At the request of the customer, the financial service provider must provide the customer with an account of the financial services provided, the composition, valuation and development of the portfolio and the associated costs.
Transparency and due diligence obligations (Art. 17 et seq. FinSA)
Financial service providers follow the principle of good faith and the principle of equal treatment when processing customer orders. The asset manager must therefore ensure that all customer orders are processed immediately and in the best interests of the customer.
Conflict of interest (Art. 25 FinSA)
Financial service providers must take appropriate organizational precautions to avoid conflicts of interest that may arise when providing financial services. If customer discrimination cannot be ruled out, this must be disclosed to the customer.
Compensation by third parties (Art. 26 FinSA)
Financial service providers may only accept compensation from third parties (e.g. brokerage fees, commissions, provisions, etc.) related to financial services provided if they a) have expressly informed the customer of this in advance and b) the customer has waived this.
Our staff will be happy to provide you with further information.
December 2022
The Board of Directors of
ARM Asset Risk Management AG
