How was the duty to publish a prospectus regulated before the entry into force of FinIA and FinSA?
Prospectus duties could arise with regard to the stock exchange listing of securities (e.g. listing regulations of the SIX Swiss Exchange).
Regulatory prospectus duties were stated in the CISA for collective investment schemes and structured products. The CISA also requiredunder certain conditions the publication of a document containing the key investor information for the product (so-called Key Investor Information Document or KIID; art. 76 CISA).
Why is the duty to publish a prospectus now, regulated in the FinSA?
The prospectus duties under the CO were purely of a private law nature, i.e. they were not enforced under supervisory law, and were limited to the issuance of shares and bonds. The prospectus duties of the SIX Swiss Exchange (or other stock exchanges) only applied in the case of a listing of securities. There was only a regulatory duty to publish a prospectus in the CISA area (collective investment schemes and structured products). The FinSA’s regulation of the duty to publish a prospectus is intended on the one hand to standardize and in some cases tighten up the previously fragmentary regulation in order to improve client protection.
On the other hand, the Swiss prospectus regime shall had to be harmonized with current EU law so that prospectuses established in accordance with Swiss regulations can also be used in the EU, if necessary. The EU Prospectus Directive therefore served as a “model” for the regulation in the FinSA in many areas.
What fundamental changes does the prospectus requirement in FinSA entail?
The new regulation in the FinSA represents a paradigm shift in two respects. On the one hand, standardization means that a prospectus and a basic information document (BID) must now be established for all securities. On the other hand, the new duty to publish a prospectus under the FinSA completely replaces the existing provisions on the duty to publish a prospectus in the Swiss Code of Obligations (cf. “How is the duty to publish a prospectus regulated today?“), as a result of which the duty to publish a prospectus can now be considered supervisory law and enforced accordingly. With the exception of the fund prospectuses, which will be submitted to FINMA as before (art. 58 para. 3 FinSO), all prospectuses under FinSA must be approved by a reviewing body prior to publication (cf. “Must all prospectuses be approved by a reviewing body before publication?“).
What happened to the prospectus duties under the CISA?
These were moved from the CISA into the FinSA (art. 58-50 FinSA) and into the FinSO (art. 58 FinSO). The minimum content of a prospectus for collective investment schemes is also listed in detail in Appendix 6 to FinSO. In terms of content, the previous regulations essentially remained in place.
What adjustments did FinSA make with regard to structured products?
The previous regulation of structured products in art. 5 CISA was in principle transferred to FinSA (cf. art. 70 FinSA), whereby the simplified prospectus provided for so far will be incorporated in the new basic information document (BID) in accordance with FinSA. The previous exemption from the prospectus requirement under art. 1156 CO (cf. art. 5 para. 4 CISA) is abolished and structured products, are now subject to the prospectus requirement under the FinSA.
When is there a duty to publish a prospectus in accordance with FinSA?
The duty to publish a prospectus pursuant to FinSA applies (i) to the submission of a public offer to purchase securities in Switzerland, even if it is a foreign offeror, or (ii) to an application for admission of securities to trading on a trading venue pursuant to the Financial Market Infrastructure Act (art. 35 para. 1 FinSA).
There are exceptions relating to the type of offer (cf. art. 36 FinSA), relating to the type of securities (cf. art. 37 FinSA) as well as specific exceptions for the admission of securities to trading (cf. art. 38 FinSA). The duty to publish a prospectus is incumbent on the actual offeror, whereby the offeror does not necessarily have to be identical with the issuer.
Is there also a duty to publish a prospectus if the offer is directed only at institutional and professional clients?
In principle, there is no duty to publish a prospectus if the offer is directed only at institutional and professional clients (art. 36 para. 1 let. a FinSA).
What must be considered when offering securities to the public in accordance with FinSA, even if there is no duty to publish a prospectus?
If, in the case of a public offering of a security in Switzerland, there is no duty to publish a prospectus because an exception is applicable, the offeror and the issuer must treat the clients equally by making any information provided (insofar essential) equally accessible to all investors (Art. 39 FinSA).
What is meant by a public offer to purchase securities in accordance with FinSA that triggers the prospectus requirement?
A public offer is any invitation to the public, i.e. to an unlimited group of persons, to purchase securities that contains sufficient information about the offer conditions and the securities themselves (art. 3 let. g and h FinSA in conjunction with art. 3 paras. 5 and 7 D-FinSO) and this irrespective of whether the securities are offered on the primary or secondary market (cf. art. 35 para. 2 FinSA). Art. 3 para. 6 FinSO further contains a negative catalogue which, for the purpose of clarification, excludes certain circumstances from the concept of an offer.
Securities are defined as standardized securities suitable for mass trading, book-entry securities, derivatives and intermediated securities (art. 3 let. b FinSA). Financial products tailored to the client’s needs are therefore not deemed securities.
What requirements does FinSA place on the prospectus itself?
The prospectus should inform investors in an easily understandable form and as objectively and up-to-date as possible about the securities themselves, the issuer, the guarantor and collateral provider and the offer, so that an investment decision can be made in full knowledge of the facts and risks. The prospectus must be established in an official Swiss language or in English (art. 40 para. 2 FinSA).
In this respect, the FinSA formulates general principles on the content, components and distribution of the prospectus (art. 40 f. FinSA). The details are regulated in the FinSO as well as in the corresponding appendices.
Are the prospectuses in accordance with FinSA audited and approved by FINMA?
No. With the exception of those for collective investment schemes, the prospectuses are approved by newly created reviewing bodies. The reviewing bodies are private bodies authorized by FINMA (art. 52 FinSA).
Must all prospectuses be approved by a reviewing body before publication?
In principle, all prospectuses must be reviewed for completeness, coherence and comprehensibility by a reviewing body before publication, but not for material accuracy (art. 51 para. 1 FinSA in conjunction with art. 52 para. 1 FinSA). Prospectuses of collective investment schemes are exempted hereof, whereas documentations of foreign collective investment schemes, which are directed at non-qualified investors within the meaning of the CISA remain subject to approval (art. 51 para. 3 FinSA).
Under certain circumstances and if a bank or securities firm confirms that the most important information about the issuer and the securities is available at the time of publication, approval by the reviewing body may also be granted after publication (art. 51 para. 2 FinSA). The details are regulated in art. 60 D-FinSO and in its appendix 7.
Once approved by the reviewing body, prospectuses are valid for twelve months for public offers or admissions to trading on a trading venue and must be deposited with the reviewing body for this period (art. 55 para. 1 FinSA in conjunction with art. 64 para. 1 FinSA).
Can foreign prospectuses also be submitted to the reviewing body for approval?
Yes. However, a reviewing body may approve a prospectus prepared in accordance with foreign law only if (i) it has been prepared in accordance with international standards established by international organisations of securities regulators and (ii) the information requirements are of equivalent standard in comparison to the requirements of the FinSA (art. 54 para. 1 FinSA).
A reviewing body may provide that prospectuses that have been approved in accordance with certain state’s laws are also deemed approved in Switzerland (art. 54 para. 2 FinSA).
When is there a duty to prepare a basic information document (BID) in accordance with FinSA?
The creators of financial instruments must produce a BID if an offer is made to retail clients (Art. 58 para. 1 FinSA). The term “creator” refers to persons who create a financial instrument or make changes to an existing financial instrument, including changes to its risk and return profile or the costs associated with an investment in the financial instrument (Art. 3 let. i FinSA). “Financial instruments” are equity instruments (in form of securities), debt instruments (in the form of securities), units in collective investment schemes, structured products, derivatives, deposits whose redemption value or interest is risk- or rate-dependent, and bonds (Art. 3 let. a FinSA). “Retail clients” are all clients who are not professional or institutional clients (Art. 4 para. 2 FinSA; see “What are retail clients?“.
When does a basic information document (BID) exceptionally not have to be prepared?
No BID must be prepared for shares and equivalent instruments such as participation and profit participation certificates, for debt instruments without a derivative character (Art. 59 para. 1 FinSA) and for financial instruments which may only be acquired for retail clients within the framework of an asset management contract (Art. 58 para. 2 FinSA). The latter exception is a simplification for financial instruments which are offered exclusively to asset managers for their clients and which are not directly addressed to the client.
Documents according to foreign law that are equivalent to the BID may be used instead of a BID (Art. 59 para. 2 FinSA). However, these must also be prepared in an official Swiss language, in English or in the client’s correspondence language (cf. “What requirements does the FinSA place on the basic information document (BID)?“).
Why is there a duty to prepare a basic information document (BID) in addition to the prospectus requirement?
Even if there is a prospectus for a financial instrument, retail clients regularly do not orient themselves on it, but on other information provided by the provider or the creator. The BID contains the information that is essential to enable investors to make an informed investment decision and to compare different financial instruments more easily (Art. 60 para. 1 FinSA).
What requirements does FinSA place on the basic information document (BID)?
The BID must be an independent document and easy to understand (Art. 61 FinSA). The general content principles are regulated in Art. 60 para. 2 FinSA and the details are specified by the Federal Council in the Ordinance (cf. Art. 88 f. FinSO). The BID must be written in an official Swiss language, in English or in the client’s language of correspondence. In the case of collective investment schemes, the BID must be written in at least one official language or in English (Art. 89 para. 2 FinSO).
When and how must the basic information document (BID) be made available to retail clients?
The BID must be made available to retail clients free of charge when financial instruments are personally recommended and, in principle, before the clients subscribe or conclude a contract (Art. 8 para. 3 FinSA in conjunction with Art. 9 para. 2 FinSA). In the case of execution-only services, the client does not need to be informed by means of the BID unless a BID already exists for a financial instrument (Art. 8 para. 4 FinSA) in conjuction with art. 11 para. 2 FinSA. Also in the context of discretionary asset management contracts, the handing over of a BID is not required.
When and how must the prospectus and the basic information document (BID) be published?
Once approved, securities prospectuses must be deposited with the reviewing body for a period of validity of twelve months (cf. “Must all prospectuses be approved by a reviewing body before publication?“). In principle, both prospectuses for securities and for collective investment schemes must be published at the latest at the beginning of the public offering or admission (Art. 64 para. 1 FinSA and Art. 65 para. 1 FinSA). The FinSA and FinSO regulate the publication in detail. If equity instruments are to be admitted to trading on a stock exchange for the first time, the prospectus must be made available at least six working days before the end of the offer (Art. 64 para. 2 FinSA), implicitly creating a minimum subscription period for such securities.
If a financial instrument for which a BID must be prepared is offered to the public (cf. “When is there a duty to prepare a basic information document (BID) in accordance with FinSA?“), also the BID must be published at the latest at the start of the public offering (Art. 66 para. 1 FinSA).
Does the basic information document also have to be reviewed before submission / publication?
What additional considerations must be taken into account when advertising financial instruments for which a prospectus or a basic information document (BID) must be prepared?
Advertising for financial instruments must always be clearly recognizable as such and must refer to the prospectus and the BID for the respective financial instrument and to the point it can be obtained. Advertising and other information addressed to investors must comply with the information contained in the prospectus and the BID (Art. 68 FinSA).
What are the legal consequences of the violation of the FinSA provisions on the duty to publish a prospectus?
In the event of a breach of the FinSA provisions on the duty to publish a prospectus by persons subject to financial market supervision pursuant to Art. 3 FINMASA, the supervisory authority may use the supervisory instruments at its disposal pursuant to Art. 24 f. FINMASA (Art. 87 para. 2 FinSA). If the provisions are violated by a person who is not supervised and who does not work for a supervised person either, the FinSA contains corresponding penal provisions in the case of an intentional violation (cf. Art. 90 FinSA).
Art. 69 FinSA then provides for a liability under private law, which replaces Art. 752 CO: The person who makes incorrect, misleading or non-compliant statements in prospectuses, basic information documents or similar communications without exercising the necessary care shall be liable to the purchaser of a financial instrument for the damage caused thereby (Art. 69 para. 1 FinSA). This liability also applies in the event of slight negligence.
Anyone who makes false or misleading statements about essential perspectives, however, is only liable if the statements are made or disseminated against better knowledge or without reference to the uncertainty of future developments (Art. 69 para. 3 FinSA).
When will the provisions of the prospectus regime under FinSA enter into force?
The provisions of the prospectus regime enter into force on January 1, 2020. For securities for which a public offer is made after this date or for which admission to trading on a stock exchange is requested, the obligation to publish an approved prospectus will only apply from October 1, 2020, unless FINMA authorizes a reviewing body after April 1, 2020. In this case, the obligation to publish an approved prospectus only arises six months after the Authorization of the reviewing body (cf. Art. 109 para. 1 FinSO). Until the entry into force of the duty to publish an approved prospeches, Art. 652a CO and Art. 1156 CO (cf. “How was the duty to publish a prospectus previously regulated?”) will continue to apply (Art. 109 para. 2 FinSO).
With regard to the obligation to prepare a BID a transitional period of two years applies in principle, whereas special provisions for collective investment schemes and structured products are applicable during this transitional period (cf. Art. 110 f. FinSO).
Does the FinSA prospectus requirement also apply to public offers of securities that were submitted before the FinSA came into force on January 1, 2020 but continue beyond the FinSA's entry into force?
In this case, FinSA provides for a transitional period of two years from the date of entry into force and the corresponding provisions only apply after this period has expired (Art. 95 para. 4 let. a FinSA).
Does the duty to prepare a basic information document (BID) also apply to financial instruments that were offered to retail clients before their entry into force on January 1, 2020 and are offered beyond that date?
In this case too, FinSA provides for a transitional period of two years from the date of entry into force, after which a BID must be prepared for such financial instruments (Art. 95 para. 4 let. b FinSA).