Foreign Financial Service Providers
Must FinSA&FinIA also be adhered to by foreign financial institutions?
Yes, provided there is a link to Switzerland. The supervisory regime of FinSA&FinIA provides for the following points of reference for its application:
- Foreign financial institutions which are effectively managed in Switzerland or which conduct their business exclusively or predominantly in or from Switzerland are regarded as domestic financial institutions and are fully subject to the relevant provisions or must be organized in accordance with Swiss law (art. 76 para. 2 FinIO);
- Foreign financial institutions with branches or representative offices in Switzerland are subject to art. 52 f. FinIA;
- Client advisors of foreign financial service providers who conduct business for them in Switzerland must register in an advisor register (subject to certain exceptions; cf. “Under what exceptional circumstances do client advisors of foreign financial service providers not have to register with the advisor register?“);
- Public offers from abroad for the acquisition of securities in Switzerland are generally subject to the provisions of FinSA regarding the offering of financial instruments (cf. “Prospectus requirements“).
Were the old Swiss financial market laws already applicable to foreign financial institutions?
Various Swiss financial market laws already contained provisions which had to be observed by foreign financial institutions, in particular in connection with the establishment of branches and representative offices of foreign banks and securities firms as well as the distribution of foreign collective investment schemes in Switzerland.
The FinIA harmonizes the similar provisions on subsidiaries and representations, which were regulated in different laws and at different levels, and harmonized them with the corresponding provisions of banking law. The latter continue to apply to banks even after the FinIA had come into force.
Has the regulation of cross-border financial services into Switzerland under FinSA&FinIA become more restrictive?
Yes, because the previous regulation of cross-border financial services into Switzerland can be described as extremely liberal. In principle, the purely cross-border provision of financial services, with the exception of fund distribution, was not covered by the old regulation. This has changed with FinSA&FinIA.
With the FinSA entering into force, client advisors of foreign financial service providers may in principle only provide financial services in Switzerland once they have been registered in the advisor register (cf. “Advisor register“).
Under what exceptional circumstances do client advisors of foreign financial service providers not have to register with the advisor register?
Client advisors who work for a Swiss branch or representative office of a foreign financial service provider in Switzerland are exempted from this requirement as the latter themselves are supervised.
Art. 28 para. 2 FinSA grants the Federal Council the authority to exempt client advisors of foreign financial services providers subject to prudential supervision from the registration requirement if they provide their services in Switzerland exclusively to professional or institutional clients. Art. 31 FinSO now grants this exception only to foreign financial services providers that are subject to prudential supervision abroad. This would mean, for example, that an offer of foreign collective investment schemes (assuming that the “offer” is a financial service pursuant to art. 3 let. c FinSA, cf. “To whom does the FinSA apply?) would trigger the registration duty of the client advisor travelling to Switzerland, even if his employer is subject to prudential supervision abroad and only addresses institutional clients. This tightens up the existing provisions of the CISA.
By when do client advisors of foreign financial service providers have to comply with the FinSA registration requirement?
There is a six-month transitional period. If there is no corresponding registration authority when the FinSA enters into force, the period for registration with the registration authority will not begin until a registration authority has been approved by FINMA or a registration authority has been designated by the Federal Council (Art. 107 FinSA).
Who is considered a foreign financial institution within the meaning of the FinIA?
A foreign financial institution is any enterprise organized under foreign law which (art. 76 para. 1 FinIO):
- is authorised abroad as a financial institution (i.e. as asset manager, trustee, manager of collective assets, fund management company or securities firm; or
- uses the terms “asset manager”, “trustee”, “manager of collective assets”, “fund management company”, “securities firm” or expressions with a similar meaning in the company name, business purpose or business documents; or
- acts as a financial institution within the meaning of art. 2 para. 1 FinIA
May all foreign financial institutions establish branch offices and representative offices in Switzerland?
No, foreign fund management companies may not establish branch offices and representative offices in Switzerland (art. 52 para. 2 FinIA and art. 58 para. 2 FinIA).
What is a branch office, what is a representation, and what are the differences?
A branch office exists if a foreign financial institution employs persons who are permanently and commercially active on its behalf in or from Switzerland (art. 52 para. 1 FinIA). According to the Dispatch of the Federal Council on FinSA and FinIA (p. 130), a branch is to be assumed in particular if the foreign financial institution is legally bound by the corresponding acts of such persons.
A representative office exists if a foreign financial institution employs persons who are permanently and commercially active for it in Switzerland or from Switzerland in another way, namely by forwarding client orders to the foreign financial institution or representing it for advertising or other purposes (art. 58 para. 1 FinIA).
Does the establishment of a branch office or representative office by a foreign financial service provider in Switzerland require an authorisation?
Yes, an authorization by FINMA is required (art. 52 para. 1 FinIA and art. 58 para. 1 FinIA). The authorization requirement already arises with the corresponding employment of persons (cf. “What is a branch office, what is a representation of a foreign financial institution, and what are the differences?”).
The foreign financial institution may not register the branch office for entry in the commercial register until FINMA has granted the authorization to establish it (art. 77 para. 3 FinIO). In the case of several branch officees, an authorization must be obtained for each branch office and one must be designated among them as being responsible towards the supervisory authority (art. 78 para. 1 FinIO).
The FinIA authorizes the Federal Council to exempt certain foreign financial institutions from complying with certain regulations (art. 57 FinIA and art. 60 FinIA), especially as the harmonization of the corresponding regulations in the banking, stock exchange and collective investment sector will leads to a substantially tightened regulation for certain financial institutions (Dispatch of the Federal Council on FinSA and FinIA, p. 132). However, the FinIO does currently not provide for such exemptions.
Does the dissolution of a branch office of a foreign financial service provider also require FINMA’s approval?
Yes (art. 81 FinIO). However, there is no corresponding duty to obtain approval for the dissolution of representative offices.
Under what conditions does FINMA grant authorsiation for a representative office of a foreign financial institution?
FINMA authorises a representative office of a foreign financial institution if (i) the foreign financial institution is subject to appropriate supervision, (ii) the competent foreign supervisory authorities raise no objections and (iii) the persons entrusted with the management of the representative office offer a guarantee of proper business conduct (art. 59 para. 1 FinIA). FINMA may also make its authorisation conditional on the country of the foreign financial institution granting reciprocal rights (art. 59 para. 2 FinIA).
Under what conditions does FINMA grant authorisation for a branch office of a foreign financial institution?
The authorisation requirements for a branch office go much further than those for a representative office.
On the one hand, the foreign financial institution must be sufficiently organized and have sufficient financial resources and qualified staff to operate the branch office in Switzerland. In addition, proof must be furnished that the foreign supervision also extends to the branch office to be established in Switzerland and that the company name can be entered in the commercial register (art. 53 let. a FinIA).
Then the competent foreign supervisory authorities must have no objections to the establishment of the subsidiary and must (i) undertake to report to FINMA if the interests of investors or clients could be seriously endangered and (ii) provide administrative assistance to FINMA (art. 53 let. b FinIA).
Finally, the subsidiary to be established must meet the general requirements with regards to the organisation (art. 9 FinIA), the place of management (art. 10 FinIA) and personal warranties (art. 11 FinIA).
Further, the competent foreign supervisory authorities must have no objections to the establishment of the branch and must (i) undertake to report to FINMA if the interests of investors or clients could be seriously jeopardised and (ii) provide administrative assistance to FINMA (art. 53 let. b FinIA).
FINMA may make the granting of authorisation subject to additional conditions, namely that (i) the state of the foreign financial institution grants reciprocal rights or that (ii) the foreign financial institution, if it is part of a financial group or financial conglomerate, is subject to appropriate consolidated supervision. In the case of foreign asset managers, trustees and managers of collective assets, FINMA may also require collateral if the protection of investors or clients so requires (art. 54-56 FinIA).
What are the main duties of branche offices and representative offices of foreign financial institutions under FinSA?
Brach offices and representations must comply with the provisions of FinSA when providing financial services (cf. art. 3 let. c FinSA). Brach offices and representations must fulfil the duties in connection with customer segmentation, the rules of conduct and the organisational requirements in accordance with FinSA. Brach officesand representatives obliged to issue documents and to join an ombudsman.
Branch offices and representations are subject, depending on their activity, to supervision by FINMA or a supervisory organisation and are subject to a supervisory audit in accordance with art. 62 FinIA or art. 63 FinIA (art. 77 para. 2 FinIO and art. 82 FinIO).