The Reviewing Body – a New Element in the Prospectus Law according to the Federal Financial Services Act (FinSA)

The Draft Federal Financial Services Act (FinSA) provides for uniform rules for the requirement to publish a prospectus for all public securities offerings and for the admission of securities to trading on a trading venue. A central element of the new regulations is the requirement for a mandatory check of the prospectus by a reviewing body (Prüfstelle), prior to the publication of the prospectus.

This article discusses the new prospectus requirements according to the FinSA and introduces the reviewing body as a new element of the listing procedure. Further, the possible impact of these new regulations on the listing process will be illustrated and some initial conclusions drawn.

By Rodolfo Straub / Therese Grunder / Regina Tschopp (Reference: CapLaw-2016-2)

1) Introduction

Federal legislation does not currently contain any comprehensive regulation of the prospectus as a basis for the issue and public placement of securities. The Swiss Code of Obligations/CO (Federal Act on the Amendment of the Swiss Civil Code, Part Five; The Code of Obligations, SR 220) only contains a requirement for a prospectus to be published in the event of a capital increase by a company limited by shares (article 652a CO) and by the issuance of bonds (article 1156 CO). Detailed regulations on prospectuses are contained in the Listing Rules/LR of SIX Swiss Exchange issued under the stock exchanges’ statutory self-regulatory competence (article 35 of the Financial Market Infrastructure Act/FMIA, in force since 1 January 2016, previously article 8 of the Swiss Federal Act on Stock Exchanges and Securities Trading/SESTA), although these rules apply only to the listing prospectus. The Listing Rules set out the obligation to publish a listing prospectus, any exemptions to this requirement, the contents of the listing prospectus and the listing procedure, which also comprises the approval of the prospectus.

The Draft Federal Financial Services Act/FinSA (Federal Gazette 2015 9093 ff. (German only)), includes a chapter on securities prospectuses. It is intended to create uniform rules for the requirement to publish a prospectus for all public securities offerings and for the admission of securities to trading on a trading venue. A central element of the new regulations is the requirement for a mandatory check of the prospectus by a reviewing body (the Reviewing Body; Prüfstelle), in general before the prospectus is published.

Hereinafter, the current regulations of SIX Swiss Exchange will be set out and the new prospectus requirements according to FinSA analyzed, followed by an introduction of the Reviewing Body. Then, the possible impact of these new regulations on the listing process will be illustrated and some initial conclusions drawn.

2) The listing prospectus as a key element of the Listing Rules

Under the Financial Market Infrastructure Act/FMIA; stock exchanges are required to issue regulations on the admission of securities to trading and the listing of securities. These regulations must in particular lay down rules for the publication of information on which investors rely for assessing the characteristics of securities and the quality of the issuer (article 35 FMIA). The stock exchanges are empowered to issue these regulations as part of their self-regulatory competences under federal law mentioned above (Listing Rules and Additional Rules).

The Listing Rules and Additional Rules are issued by the Regulatory Board of SIX Swiss Exchange and implemented by SIX Exchange Regulation as an independent unit within SIX. A significant element of the Listing Rules is the listing prospectus, the review and approval of which forms an integral part of the listing process.

The listing prospectus must provide sufficient information for competent investors to reach an informed assessment of the assets and liabilities, financial position, profits and losses and prospects of the issuer, as well as of the rights attached to the securities (article 27 (1) LR). In particular the prospectus schemes, which form part of the Listing Rules and the Additional Rules, govern the requirements for the contents of the prospectus in the different listing standards. Article 33 LR provides for exemptions from the obligation to publish a prospectus. It is also possible to shorten the listing prospectus in certain cases (article 34 LR) and to omit certain information normally required under the prospectus schemes (article 36 LR). The review and approval of the listing prospectus by SIX Exchange Regulation is part of the listing process. The prospectus must be submitted to SIX Exchange Regulation together with the listing application. In the case of new listings, applications for listings must be submitted at the latest 20 trading days before the first trading day, in the case of capital increases 10 trading days before the first trading day or the first trading day of the subscription rights (article 12 Directive on the Procedures for Equity Securities/DPES).

For bonds and derivatives there is a special procedure in the form of provisional admission to trading where the listing process including the review of the prospectus is completed after the admission to trading. Under this procedure, bonds and derivatives are provisionally admitted to trading within one or three trading days, with the listing procedure and the review and approval of the prospectus only taking place in a second phase.

SIX Exchange Regulation processes the listing application within 20 trading days and checks that the prospectus contains the information required in accordance with the applicable prospectus scheme and, if necessary, submits the application to the Regulatory Board for a decision. If according to SIX Exchange Regulation required information is missing in the prospectus, the applicant is requested to complete the document. If the requirements laid down in the Listing Rules are met, i.e. the listing prospectus is complete, the listing application is approved (article 47 LR). This decision constitutes the official approval of the listing including the prospectus. The issuer may lodge an appeal against the listing decision to the Appeals Board within 20 trading days provided the issuer has an interest worth of protection in having the decision amended (article 62 LR). In turn, appeals against the decisions of the Appeals Board may be lodged with the SIX Swiss Exchange Board of Arbitration within 20 trading days.

On the basis of these regulations SIX Exchange Regulation decided on 97 listing applications for equities (apart from IPOs or capital increases, listing applications must also be filed for other transactions such as stock splits, exchanges of securities, change of regulatory standard etc.) , 279 for bonds, 97 for collective investments schemes and 42’798 for derivatives in 2015.

3) Prospectus requirements under the FinSA

According to the FinSA dispatch, one of the aims of the act is to improve client protection, which is also intended to strengthen Switzerland’s competitiveness as a financial center (dispatch by the Federal Council to the Federal Assembly on the draft Federal Financial Services Act and the draft Federal Financial Institutions Act of 4 November 2015, Federal Gazette 2015 8901 ff). Alongside rules on the provision of financial services and the assertion of customers’ rights, rules on offerings of financial instruments are a central element of this new legislation. In terms of the documentation requirements for financial instruments, the FinSA draft legislation contains provisions on the prospectus and the basic information sheet. The chapter “Prospectus for Securities” in Title III “Offering of Financial Instruments” of the FinSA establishes uniform prospectus requirements both for public offerings of securities and for the admission of securities to trading on a trading venue. The old sections in the Code of Obligations on issuance prospectuses for equities and bonds are to be revoked.

Under article 37 FinSA the duty to publish a prospectus is triggered when a public offering is made or alternatively when securities are admitted to trading on a trading venue (whether a stock exchange or a multilateral trading facility as defined by FMIA). In both cases a prospectus must be published in advance. Thus, with the new law, the scope to publish a prospectus and the timing of when to publish it underwent a signifi-cant change. In future the prospectus will no longer only be needed once the security is listed, dated from the first day of trading. It will have to be available from the beginning of the public offering, even if there is no subsequent listing or admission on a trading venue. This introduces in Switzerland what has been in force in the EU for around 10 years under the aegis of the Prospectus Directive.

The FinSA contains exemptions from and facilitations of the requirement to publish a prospectus in articles 38ff. and articles 49ff. The basic requirements for the contents of the prospectus are laid down in article 42ff. FinSA. The detailed requirements depending on the issuer category and security will be set out in the ordinances and are not known at present. Further provisions govern the format in which the prospectus may be published (article 67ff. FinSA), the distinction to public advertising (article 71 FinSA) and the liability for the prospectus (article 72 FinSA).

In its transitional provisions, the FinSA sets a deadline of two years from the entry into force of the Act for the implementation of the new prospectus regime (article 97 (4) FinSA).

4) The Reviewing Body

The prospectus must be submitted to the Reviewing Body before it is published. The Reviewing Body checks that it is complete, coherent and understandable (article 53 (1) FinSA).

In contrast to the current position, where only listing prospectuses are subject to review, under the FinSA all prospectuses required by law must be reviewed and approved by the Reviewing Body. This review must take place before the prospectus is published. However, the Federal Council may designate securities whose prospectus does not need to be reviewed until after publication. This will allow for the special issuance procedure as well as the provisional admission to trading – both essential, in particular for bonds – to be maintained.

The act does not stipulate who the Reviewing Body must be. Anyone who can carry out this task sufficiently independent and obtain authorization from FINMA can apply to be a Reviewing Body. According to the dispatch this market-based approach has been chosen because FINMA does not currently have the resources in terms of infrastructure and personnel to carry out this task (which is fulfilled by public authorities in the EU) itself (FinSA/FinIA dispatch p. 8981). FINMA may approve more than one Reviewing Body if this is objectively justified (article 54 (1) FinSA). It is notable that the limitation for FINMA to approve more than one Reviewing Body in objectively justified cases was introduced after the consultation only. The consultation draft had stipulated the possibility for a number of Reviewing Bodies to operate under the FinSA. There are no indications in the consultation report on the FinSA or the dispatch of when such an approval might be objectively justified. If there is no private Reviewing Body available on the market, the Federal Council may designate a body to carry out this task (article 54 (5) FinSA).

The review of the prospectus by the Reviewing Body is carried out under public law on the basis of the Administrative Procedure Act/APA dated 20 December 1968 (article 55 (1) FinSA). A public task is therefore being carried out by a private entity. A private Reviewing Body qualifies in this function as a public authority as defined by article 1 (2) (e) APA. The review decision has the status of an official administrative decision which can be appealed to the Federal Administrative Court (Article 47 (1) (b) APA).

As already mentioned, when reviewing the prospectus the Reviewing Body is required to verify the three criteria of completeness, coherence and comprehensibility. The review is therefore far more extensive than a purely formal check of completeness. However, the dispatch also makes it clear that the review does not entail a check of the substantive accuracy of the information in the prospectus. The dispatch also explains that the requirement for coherence should be interpreted as meaning that the prospectus may not contain any internal contradictions (FinSA/FinIA dispatch, p. 8981). Under the law as it stands currently, SIX Exchange Regulation mainly checks listing prospectuses for completeness. SIX Exchange Regulation also draws any evidently contradictory or incorrect information in the listing prospectus to the issuer’s attention. However, unlike in the FinSA requirements, the review of prospectuses under the Listing Rules does not focus explicitly on coherence and comprehensibility. Just as now, neither in the future there will be a check of an issuer’s credit standing. If the Reviewing Body decides that the prospectus that has been submitted does not meet the requirements of the act, it will request the submitting institution to rectify it. The Reviewing Body does not intervene in the creation of the prospectus with its review work and is, according to the view taken by the authors, not covered by the liability for the prospectus according to article 72 FinSA.

The Reviewing Body is required to check the prospectus within 10 calendar days. This period is interrupted by any requests to correct the prospectus and begins again afresh once the corrected version has been received, i.e. the Reviewing Body then has another 10 calender days to audit the prospectus. For new issuers the review period is 20 calendar days (article 55 FinSA). This represents a significant difference from the listing procedure carried out by SIX Exchange Regulation, which is almost always completed within 20 trading days, including checking any corrections and rectifications of the prospectus. The mentioned deadlines are regulatory periods (Ordnungsfristen). If the Reviewing Body does not make a decision within the deadline set for it, this does not amount to the approval of the prospectus. Once approved, a prospectus remains valid for 12 months (article 57 FinSA).

As discussed above, the contents of the prospectus – and therefore the contents of the review as well – will be laid down in the acts and ordinances. Article 43 FinSA gives the Reviewing Body powers to permit exceptions to the content requirements for the prospectus. An extension of these powers in the ordinances would be welcome. This could, for example, make it easier to respond to market developments and the documentation of new instruments. One possible solution could be for the Reviewing Body to demand other equivalent information in the prospectus instead of the information normally required, if this is justified by the nature of the issuer or the security.

The Reviewing Body levies fees to cover its expenses (article 59 (1) FinSA). The relevant fee regulations will be issued by the Federal Council. This provision will prevent any competition on fees which could otherwise arise seeing it would be possible, in theory at least, for several Reviewing Bodies to be active under FinSA.

5) Review of the prospectus and listing on stock exchange: impact on the procedure

The new prospectus regime established by the FinSA divides the procedure set out in section 2 above into two parts: the publication and review of the prospectus in accordance with the FinSA in advance of the public offering or admission to trading in a first step and the listing under the stock exchange’s listing rules in a second step. This division of the process into two parts corresponds to the system currently in force in the EU.

Even after the entry into force of the FinSA, the stock exchange will still need listing and admissions regulations in accordance with article 35 FMIA. Once the securities have been listed, the investor will therefore have access to information on the issuer and the securities based on two different legal requirements: information on the issuer and the securities in the prospectus in line with the content requirements of the FinSA and information on the issuer and of the securities in accordance with the listing rules. FinSA does not limit the right for stock exchanges to issue their own prospectus rules based on their self-regulatory competences. However, in practice, it would be less than ideal having to comply with both the FinSA and the stock exchange prospectus requirements. To have two sources of law would also mean having to address two authorities for prospectus approval: the Reviewing Body under FinSA and the body in charge of vetting prospectuses under the listing rules. This could entail serious difficulties in the issuance and listing procedures, for instance when the request from the stock exchange to amend some information given in the prospectus based on the listing rules encroaches on information required by FinSA. In such a case, issuers might have to revert back to the Reviewing Body, possibly resulting in delays in the issuance and listing procedure which could endanger the success of a transaction. Therefore, the content requirements for issuers in the prospectus under the FinSA will have to be designed in such a way as to meet the requirements for the subsequent listing in full. As regards information requirements for securities, these evidently need to be more comprehensive for a listing, particularly with regard to the technical data relevant for trading, than if the offering does not relate to a listing. The listing rules can be expected to contain additional requirements here.

A closer look at the two steps – the drafting and reviewing of the prospectus and the listing application and decision – highlights some important differences. The review of the prospectus in the first step is carried out, as discussed, by private-sector review bodies but on the basis of public law as laid down in federal administrative law with a right of appeal to the Federal Administrative Court. The fees are based on the fee regulations laid down by the Federal Council. The subsequent listing decision, however, is the responsibility of the stock exchanges’ regulatory bodies under their self-regulatory competences, with a right of appeal to the Appeals Board and the SIX Swiss Exchange Board of Arbitration. The fees for this procedure will be laid down in the List of Charges of SIX Swiss Exchange (we are leaving aside the question of whether the listing regulations should be considered to be public-law or private-law norms. The fact that article 35 (5) FinIA explicitly refers to the contractual sanctions is a possible indication of their private-law nature). Whether it will still be possible in future for both steps to be carried out by the same regulatory unit in the stock exchange, is currently under discussion. SIX will apply to become a Reviewing Body and take the necessary organisational measures. How the Reviewing Body will be organised in detail and what impact the establishment of the Reviewing Body by SIX Swiss Exchange will have on the existing listing procedure is still uncertain at the moment. One of the key issues is the question of how to ensure that a review body that is part of the SIX Group is able to meet the independence requirement of the FinSA.

6) Summary and conclusion

A comprehensive and uniform law on prospectuses that also covers the use of a prospectus on the primary market is a welcome development on investor protection grounds and in terms of creating a level playing field. Many of the comments and suggestions for improvements made in the course of the consultation are reflected in the FinSA dispatch. It should therefore be possible to implement the proposed new regulations without a significant impact on the transaction forms in use today.

The current listing process will change with the introduction of the Reviewing Body. It will be split into two separate steps of the drafting and review of the prospectus, followed by the subsequent listing.

It is too early for an in-depth assessment of the impact of the FinSA and the Reviewing Body. Before doing so the texts of the Federal Council’s ordinances, which will be critical for the detailed implementation in this area in particular, are needed. It is uncertain if a number of issues still can be handled in a rather flexible manner as under the current structure of SIX Swiss Exchange and SIX Exchange Regulation. As examples could be mentioned the ability to modify the content of the prospectus in order to account for new financial instruments and market developments as well as the assignment of the competence to grant exemptions from the requirement to publish a prospectus. In order to achieve an as market-friendly solution as possible which ultimately contributes to strengthen the financial center, it will therefore be essential to involve market participants when drafting the ordinances.

The range of financial instruments, which require a prospectus and are listed will not change significantly as a result of the FinSA. However, the requirement to review the prospectus in advance of a public offering of securities represents a significant change. By applying to become a Reviewing Body SIX aims to ensure that it will be able to carry out the new two-stage process of prospectus review and listing/admission to trading in future as efficiently as before and to the satisfaction of issuers in coordination with the existing in-house expertise and available systems infrastructure.

Rodolfo Straub (
Therese Grunder (
Regina Tschopp (