Update on Client Adviser Registry and Ombudman’s Offices under the Financial Services Act

On 1 January 2020, the new Financial Services Act entered into effect. Certain of the transition periods are linked to the licensing of new institutions that perform relevant roles under the Financial Services Act. This article provides for an update on the current status and the end of the transition period.

By Benjamin Leisinger (Reference: CapLaw-2020-39)

1) The Financial Services Act

The Financial Services Act of 15 June 2018 (FinSA), which entered into effect on 1 January 2020, introduced new duties for financial service providers. Since the provision of cross-border financial services into Switzerland, i.e. to clients in Switzerland, also generally falls within the scope of application of the FinSA, these requirements are relevant for foreign financial service providers, too. FinSA‘s regulatory duties include the following: (i) the duty to register the individuals who actually perform financial services on behalf of the (foreign) financial service provider in a new register of client advisers; (ii) the duty to categorize their clients as private clients, professional clients and institutional clients; (iii) the duty to comply with expanded conduct rules; and/or (iv) the duty to comply with certain organizational requirements, including by disclosing or passing on fees, commissions and other remuneration or financial benefits received by financial service providers from third parties in connection with the provision of financial services, except where waived.

2) The Transition Periods

Most substantive regulations on the provision of financial services under the FinSA did not apply immediately. Certain duties are subject to a general (mostly two-year) transition period. Others did not apply immediately because new institutions relevant under the FinSA did not exist, yet. In these cases, the transition periods only started to run when these new institutions existed and were approved by the Swiss Financial Market Supervisory Authority FINMA (FINMA). 

3) New Institutions Relevant for Financial Service Providers –
Registration Bodies and Ombudsman Offices 

Under the FinSA, the term “financial services” is statutorily defined: financial services are limited to specific and enumerated services related to financial instruments. Services not related to financial instruments are not covered in the first place. The list of financial services in the FinSA notably does not include services such as dealing on own account, underwriting of financial instruments and/or placing of financial instruments on, or without, a firm commitment basis, investment research and financial analysis or other forms of general recommendation relating to transactions in financial instruments. Corporate finance advice, M&A advice or similar services where the investment in financial instruments is only a means to a different end (e.g., the optimization of the capital structure or the purchase of an enterprise) generally are not financial services, either.

For financial service providers, two institutions had to be set-up and approved by FINMA first before the relevant transition periods could start to run: registration bodies (Registration Bodies, for more details see CapLaw-2019-55) and ombudsman offices (Ombudsman’s Offices). For the new prospectus regime that is also regulated in the FinSA, another institution, the reviewing body, is relevant (see CapLaw-2020-21 for more details on the reviewing bodies).

a) Registration Bodies

Pursuant to the FinSA, “financial service providers” are persons that provide financial services on a professional basis in Switzerland or to clients in Switzerland, while “client advisers” are the natural persons who actually perform financial services on behalf of a financial service provider (or in their own capacity as financial service providers). 

Client advisers of Swiss financial service providers that are not already subject to prudential supervision and client advisers of non-Swiss financial service providers that provide their services in Switzerland are obliged to register in a register of client advisers. The registers of client advisers are maintained by the so-called Registration Bodies. The Registration Bodies also verify that the client advisers have completed the necessary training and further education.

Client advisers of non-Swiss financial service providers which are (a) prudentially supervised outside Switzerland and (b) provide services in Switzerland only to professional or institutional clients (as defined in the FinSA) are exempt from the duty to register in a register of client advisers.

FINMA approved BX Swiss Ltd as the first Registration Body with effect as of 20 July 2020. The registration office of BX Swiss offers a fully digital process for entry into the client advisor register. With effect from 14 September 2020, FINMA approved the second Registration Body, the Association Romande des Intermédiaires Financiers (ARIF), headquartered in Geneva. The approval of further Registration Bodies is expected.

The FinSA provides for a six-month transition period after the approval of the first Registration Body for the entry of the client advisers in a register kept by a Registration Body. This transition period now ends on 19 January 2021. In order to meet this deadline, the client advisers need to file their application for entry in a register with a Registration Body by the end of the transition period.

The client adviser who seeks to obtain registration in the register of client advisers shall, in particular, demonstrate that he or she: (i) has sufficient knowledge of Swiss regulations and the required expert knowledge (please also refer to the next paragraph), (ii) has sufficient professional insurance or similar financial guarantees in place or the financial service provider for which the client adviser is working satisfies this requirement, (iii) is affiliated with an Ombudsman’s Office in case the client adviser is also the financial service provider or, if this is not the case, the financial service provider itself holds an affiliation, (iv) is not and was not convicted for certain violations of Swiss financial services regulations, including the criminal provisions set forth in the FinSA, or certain provisions of the Swiss Criminal Code, which have been registered into a criminal record and (v) is not subject to certain sanctions taken by FINMA, such as the prohibition from practicing the profession for a certain period of time.

As far as the required knowledge of Swiss regulations is concerned, in order to be admitted into the register of client advisers, a client adviser should prove that he or she has sufficient knowledge of the rules of conduct set forth in the FinSA. The Registration Body of BX Swiss Ltd as the first Registration Body also provides for “guidelines concerning proof of the required knowledge according to Art. 6 FinSA” (see https://www.regservices.ch/?download=9451) as well as for lists of “accepted external training and further education in the field of FinSA code of conduct rules” (see https://www.regservices.ch/?download=9467) and “accepted external training and further education in the field of the necessary expertise” (see https://www.regservices.ch/?download=9469).

b) Ombudsman’s Offices

Under the FinSA, clients of Swiss and non-Swiss financial service providers which offer financial services in or from Switzerland shall have an ombudsman procedure available to settle disputes of clients with the financial service providers. For this purpose, the financial service providers are obliged to affiliate themselves with an Ombudsman’s Office recognized by the Swiss Federal Department of Finance. The very significant role of Ombudsman Offices stated in the consultative drafts of the FinSA has, however, been reduced in the final version.

Currently there are no exceptions to this obligation of financial service providers to enter into an affiliation with an Ombudsman’s Office. However, there is a proposal in the Swiss Parliament to amend the FinSA to provide an exemption for financial service providers which provide services only to professional or institutional clients (as defined in the FinSA). 

The Swiss Federal Department of Finance recognized the first four Ombudsman’s Offices with effect as of 24 June 2020. In the meantime, three further Ombudman’s Offices have been recognized and the recognition of further Ombudsman’s Offices is expected. 

One of the recognized Ombudsman’s Office is the well-established Swiss Banking Ombudsman of the Swiss Bankers Association. Despite the recognition of the Swiss Banking Ombudsman as Ombudsman’s Office under the FinSA, only members of the Swiss Bankers Association are eligible for affiliation with the Swiss Banking Ombudsman. Most of the other Ombudman’s Offices, such as for example the Swiss Chambers’ Arbitration Institution (SCAI), are open for affiliation by all types of financial service providers under the FinSA.

The FinSA provides for a six-month transition period after the recognition of the first Ombudman’s Office for the affiliation of the financial services providers with a recognized Ombudman’s Office. The transition period ends on 23 December 2020. In order to meet this deadline, the financial services providers need to file a completed affiliation request with a recognized Ombudman’s Office by the end of the transition period.

4) Time to Act

With these shorter transition periods of the FinSA now running, in particular foreign financial service providers should update their analysis on (i) whether they are subject to the registration and/or affiliation requirement and – if so – (ii) whether their client advisers meet the relevant prerequisites for registration and/or (iii) with which Registration Body or Ombudsman Office they want to register or affiliate, respectively.

Benjamin Leisinger (benjamin.leisinger@homburger.ch)