The New Reviewing Body

The Financial Services Act establishes a new prospectus regime in Switzerland requiring the publication of a prospectus for public offerings of securities and the admission to trading on a trading venue. It introduces a new regulatory body – the reviewing body (Prüfstelle) – to be authorized by FINMA and responsible for review and approval of prospectuses. This article discusses the setup and operation of such reviewing body, the prospectus requirements and content as well as the review and approval of the prospectus.

By Sabir Sheikh / Peter Probst (Reference: CapLaw-2018-57)


1) Introduction

On 15 June 2018, the Swiss Parliament adopted two new laws: the Financial Services Act (FinSA) and the Financial Institutions Act (FinIA). The FinSA introduces, amongst others, a new prospectus regime in Switzerland that demands the publication of a prospectus for (i) any public offering of securities in Switzerland and (ii) admission to trading of securities on a trading venue in Switzerland. Such prospectus needs to be reviewed and approved by a new regulatory body, the so-called reviewing body (Prüfstelle). On 24 October 2018, the Swiss Federal Council initiated the consultation on the Financial Services Ordinance (Draft-FinSO), the Financial Institutions Ordinance (Draft-FinIO) and the Supervisory Organization Ordinance (Draft-SOO) outlining the implementing provisions for both the FinSA and the FinIA. The consultation procedure ends on 6 February 2019. It is expected that the two acts together with the ordinances will enter into force on 1 January 2020.

2) The Reviewing Body

The FinSA introduces a new regulatory body, the reviewing body (Prüfstelle), to be authorized by FINMA and responsible for the review and approval of the prospectuses pursuant to article 35 et seq. FinSA. Unlike the member states of the EU, where public authorities act as reviewing bodies, the Swiss approach provides for a private entity. FINMA may authorize more than one reviewing body provided this is objectively justified. If there is no private entity available as reviewing body, the Swiss Federal Council may designate a body for this task (article 52 (1) and (5) FinSA).

In order to become a reviewing body, the interested party will have to file an application with FINMA containing information about the place of actual management, internal organization, business management, planned controls of activities, the persons charged with the management and the delegation of functions to third parties (article 52(1) FinSA, article 71 Draft-FinSO). Both the reviewing body and the persons charged with management must provide guarantee of fit and proper business conduct. The persons charged with the management must enjoy a good reputation and must have the specialist qualifications required for their function (article 52(3) FinSA). To the extent necessary for the evaluation of the application FINMA may request further information (article 71(3) Draft-FinSO). Based on its general supervisory competence pursuant to the Financial Market Supervisory Authority Act (FINMASA) FINMA may also request a statement of an independent and competent person with regard to certain organizational aspects, especially with regard to the use of information technology; the costs of such mandated person will have to be borne by the reviewing body (cf. Explanatory report on the consultation on the FinSO, the FinIO and the SOO (Explanatory Report FinSO/FinIO/SOO), p. 53).

The cost for the application process will have to be borne by the applying reviewing body (article 76 Draft-FinSO).

The reviewing body must be domiciled in and actually managed out of Switzerland. Should the reviewing body not be a legal entity itself but part of a legal entity, such legal entity will have to fulfil such requirements (article 73 Draft-FinSO). The FinSA further provides that the reviewing body must guarantee the independent fulfilment of its tasks (article 52(2) FinSA). For that purpose its organizational structure must (a) be set out in organizational regulations, (b) ensure that its personnel has the specialist qualifications required for their function, (c) dispose of an internal control system and ensure that the applicable laws and regulatory requirements will be met and (d) ensure that conflicts of interests – especially with other profitable business units – are avoided (article 74(2) Draft-FinSO). Conflicts of interest may be avoided by the introduction of disclosure and abstention rules. If the reviewing body is part of an existing legal entity, the persons charged with its management need to be functionally and hierarchically separated from other profitable business units. Even though the reviewing body shall carry out its duty independently from other profitable business units, it shall be possible that the review and approval of the prospectuses shall be made by employees responsible for other tasks – provided this does not lead to any conflict of interest (cf. Explanatory Report FinSO/FinIO/SOO, p. 55).

The review and approval of the prospectuses may not be delegated to a third party. However, activities of secondary importance, such as maintenance of the IT infrastructure and the like (cf. Explanatory Report FinSO/FinIO/SOO, p. 55), may be transferred by written agreement to qualified third parties (article 75 Draft-FinSO).

The reviewing body is required to prepare an activity report on an annual basis to the attention of FINMA containing information about its organization, its balance sheet and profit and loss statement, statistics about the reviewed prospectuses as well as its expected challenges in the following business year. In addition, the reviewing body will have to present information about the coordination and collaboration with any other reviewing body (article 72 Draft-FinSO). This is especially relevant for areas where the reviewing bodies possess a certain degree of discretion (e.g. articles 41, 45, and 56 FinSA) and the coordination and collaboration among them is necessary in order to avoid distortions of competition and to ensure a uniform application of law (cf. Explanatory Report FinSO/FinIO/SOO, p. 54).

Should the reviewing body no longer fulfil the requirements under the FinSA, FINMA may order the measures necessary to remedy the deficiencies. If the reviewing body fails to remedy the deficiencies within a reasonable period, FINMA shall withdraw its authorization (article 52(4) FinSA).

3) Prospectus requirements and content

The current law requires the publication of an issuing prospectus in case of public offerings of shares and bonds (article 652a and article 1156 CO) and a listing prospectus in case of listings of securities on a Swiss exchange (e.g. pursuant to the listing rules of SIX Exchange Regulation). With the introduction of the new prospectus regime under the FinSA, that follows broadly the EU prospectus framework, uniform rules with regard to the publication of a prospectus will be created. The duty to publish a prospectus arises generally in case of primary and secondary public offerings of securities in Switzerland and the admission to trading of securities on a trading venue in Switzerland (article 35 FinSA).

The FinSA provides several exemptions from the duty to publish a prospectus that follow broadly European law and the rules of SIX Exchange Regulation AG. These include exemptions by type of offer, by type of security and for admission to trading (articles 36 et seq. FinSA).

A prospectus must contain the essential information for the investor’s decision on the issuer, the guarantor, the security provider, the securities and the offering (article 40(1) FinSA). The prospectus shall be provided in one of the official Swiss languages or in English, must include a summary, may contain documents incorporated by reference and may consist of a stand-alone document or several individual documents (articles 40 and 42-44 FinSA). The minimum requirements as to the content of the prospectus are set out in five schemes annexed to the Draft-FinSO. These schemes follow broadly the regulations of SIX Exchange Regulation AG, materially comply with the guidelines by the International Organization of Securities Commissions (IOSCO) and are largely in line with the requirements of the EU prospectus regulation (cf. Explanatory Report FinSO/FinIO/SOO, p. 39).

Issuers, guarantors and security providers must apply an accounting standard recognized and published by the Swiss trading venue or the reviewing body, as applicable. The latter may accept further accounting standards on a case by case basis provided that the differences between the applied accounting standard and a recognized accounting standard will be explained in detail in the prospectus (article 51(3) Draft-FinSO).

Similar to article 36 of the listing rules of SIX Exchange Regulation AG, the reviewing body may, subject to certain conditions, permit that certain information may be omitted from the prospectus (article 41(1) FinSA). As long as the interests of the investors are safeguarded, it can provide further exemptions which may be subject to conditions and requirements (article 41 FinSA, article 52 Draft-FinSO).

Debt instruments issued under an offering program may be drafted in the form of a base prospectus and must contain all the information available at the time of publication on the issuer, guarantor, security provider, on the securities and at least indicative information on the final terms. After expiry of the subscription period, the final terms must be published and deposited with, but not approved by, the reviewing body (article 45 FinSA).

The duty to comply with the prospectus requirements under FinSA enters into force six month after admission of a reviewing body by FINMA; until then the current provisions of the CO (article 108 Draft-FinSO) shall remain applicable.

4) Review and approval of the prospectus

Currently, only issuers of securities to be listed on a Swiss exchange are required to file a prospectus for approval to the respective approval body, whereas under the new prospectus regime all prospectuses required by FinSA are subject to approval by the reviewing body. Prospectuses of collective investment schemes are, however, not subject to an approval by the reviewing body; prospectuses of foreign collective investment schemes are subject to approval by FINMA (article 51(3) FinSA). Key Information Documents for Financial Instruments in the meaning of article 58 et seq. FinSA will not have to be reviewed and approved by the reviewing body.

In general, the prospectus must be submitted to the reviewing body prior to publication (article 51(1) FinSA).

In order to enable a fast market access, a prospectus for bonds (including straight bonds, convertible bonds, warrant bonds, mandatory convertible notes, contingent convertible bonds and write-down bonds) and structured products with a term of 30 or more days (Annex 7 Draft-FinSO), must be reviewed by the reviewing body only after publication. However, such ex post filing is subject to the confirmation by a bank or a securities firm that the main information on the issuer and the securities is available at the time of publication (article 51(2) FinSA); such confirmation has to be submitted to the reviewing body upon filing of the prospectus. In addition, it has to be indicated on the cover page of the prospectus that the latter has not been reviewed (article 40(5) FinSA; article 60(2) Draft-FinSO). In line with the established practice of SIX Exchange Regulation AG the prospectus will generally have to be filed within two months from the beginning of the public offering or the admission to trading; for products with a term of 90-180 business days, the time limit is 10 business days, for products with a term of 30-89 days, 5 business days (cf. article 60 Draft-FinSO).

The reviewing body has no right to decide whether there is a duty to draft a prospectus under FinSA. Accordingly, the reviewing body will also have to review a prospectus in case there is no prospectus requirement under FinSA (e.g. because an exemption pursuant to article 36 or 37 FinSA applies) (cf. Explanatory Report FinSO/FinIO/SOO, p. 46).

The procedure carried out by the reviewing body will be in accordance with the Federal Act on Administrative Procedure (APA) (article 53(1) FinSA). Accordingly, decisions by the reviewing body are issued by rulings in accordance with article 5 APA.

The reviewing body will check the prospectus for formal completeness, coherence and understandability (article 51(1) FinSA, article 59(1) Draft-FinSO). The prospectus is, however, not reviewed as to material accuracy. According to the dispatch by the Federal Council to the Federal Assembly on the draft FinSA and the draft FinIA of 4 November 2015, coherence means that the prospectus may not contain any internal contradictions. In addition, the reviewing body is not required to investigate whether there is any other information about the issuer that must be included into the prospectus (cf. Explanatory Report FinSO/FinIO/SOO, p. 46). Compared to the current review of a listing prospectus pursuant to the rules of and carried out by SIX Exchange Regulation AG which is limited to the review of formal completeness, it is expected that the scope of the review to be undertaken by the reviewing body will increase substantially under the new legislation.

Generally, the deadline for the review of a prospectus for issuers is 10 calendar days. Such period begins to run once the reviewing body has received the complete prospectus, i.e. the prospectus does not contain any substantial gaps, respectively all parts pursuant to article 44 FinSA and all documents incorporated by reference in accordance with article 42 FinSA have been filed. If the reviewing body notices that a prospectus does not fulfil the statutory requirements, it informs the submitting party within 10 calendar days upon submission, giving a reason and requesting rectification. Upon receipt of a rectified version, a new review period of 10 calendar days starts again. For new issuers, the deadline is 20 calendar days (article 53 FinSA). An issuer is deemed to be a new issuer if it has not filed a prospectus with a reviewing body for securities issued or guaranteed by it within the last three years and at the time of filing of the prospectus no securities issued or guaranteed by it are admitted to trading on a trading venue in Switzerland (article 69 Draft-FinSO). This provision follows article 27 of the Additional Rules for the Listing of Bonds of SIX Exchange Regulation AG which is, contrary to the suggested wording in the Draft-FinSO, only applicable to new issuers of bonds. The provisions with regard to the deadlines are regulatory periods (Ordnungsfristen). Accordingly, should the reviewing body fail to issue its decision within the applicable deadlines, this shall not constitute an approval of the prospectus (article 53(6) FinSA). The aforementioned deadlines are principally subject to the provisions regarding legal holidays pursuant to article 22a APA. Given that the suspension of deadlines would disturb the proper functioning of the capital markets and hinder issuers to react fast to changes in the capital markets, it is expected that the reviewing body will unilaterally renounce the applicability of article 22a APA (cf. Explanatory Report FinSO/FinIO/SOO, p. 51).

Similar to the prospectus regime of the EU, the FinSA contains a rule of equivalence for the review of foreign prospectuses. A foreign prospectus may be approved if it was prepared in accordance with international standards established by international organizations of securities regulators (such as the international disclosure standards for cross-border offerings and initial listings by foreign issuers of September 1998, issued by IOSCO) and the duties to inform are equivalent to those under the FinSA. In addition, the reviewing body may foresee that prospectuses approved under specific legal frameworks are deemed as authorized in Switzerland as well. It will have to publish a list in this regard (article 54 FinSA).

After approval, prospectuses shall generally be valid for 12 months for public offers or admission to trading on a trading venue of securities of the same type and by the same issuer. Prospectuses for debt securities issued under an offering program shall, however, be valid until none of the debt securities concerned are constantly or repeatedly being issued anymore (article 55 FinSA).

If between time of approval of a prospectus by the reviewing body and final completion of a public offering or opening of trading on a trading venue new facts occur or are established that could significantly affect the valuation of the securities, a supplement to the prospectus needs to be prepared, reported to the reviewing body and approved within seven calendar days. The reviewing body shall keep a list of facts that must be reported only, but are not subject to formal approval (article 56 FinSA).

Any approved prospectus must be filed with the reviewing body and published no later than the beginning of the public offer or admission to trading. The reviewing body records all approved prospectuses on a list which is made publicly available for twelve months (article 64 FinSA).

The reviewing body may charge cost-effective fees in order to cover its expenses (article 57(1) FinSA; article 78, 79 and Annex 8 Draft-FinSO).

5) Conclusion

With the introduction of the FinSA and its implementing provisions the current listing process for securities to be listed on SIX Swiss Exchange will be split into two separate streams: the review and approval of a prospectus by the reviewing body and the admission to listing and trading by SIX Exchange Regulation AG.

The scope of review is likely to increase since the new regime not only requires the review of a prospectus as to formal completeness, as currently carried out by SIX Exchange Regulation AG, but also as to coherence and understandability.

The reviewing body has discretion to grant exemptions from the content of the prospectus subject to certain conditions. Hence, the new prospectus regime leaves room for adequate and market oriented solutions for individual cases as well as flexibly to adapt to new market developments.

SIX Exchange Regulation AG will file for recognition as a reviewing body approved by FINMA. With its long-standing and proven expertise in reviewing prospectuses it will ensure that the newly split process of (i) review/approval of the prospectus and (ii) admission to listing and trading will continue to be carried out efficiently and in line with market and issuers’ needs.

Sabir Sheikh (
Peter Probst (