Financial Services Act and Financial Institutions Act: results of consultation procedure
The federal government has published the results of the consultation on the Financial Services Act and the Financial Institutions Act (for further details please see “Federal Financial Services Act and Federal Financial Institutions Act”).
The Financial Services Act governs the prerequisites for providing financial services and offering financial instruments and facilitates the enforcement of customers’ claims against financial service providers. The Financial Institutions Act provides for a differentiated supervisory regime for financial institutions. The new guidelines should:
• strengthen client protection;
• enhance the competitiveness of the financial centre; and
• reduce competitive distortions between providers by creating a level playing field.
Both preliminary drafts were positively received by the majority of consultation participants. However, serious reservations were expressed about individual areas. For example, the rule on the reversal of the burden of proof, which provides that in case of dispute it is up to the financial services provider to prove that it complied with the statutory duties of information and explanation or the client will be deemed not to have executed the transaction at issue, was clearly rejected. The participants feared that such a novelty would feed abusive lawsuits. The drafts provided alternatively an arbitration solution and a new form of financing for proceedings to facilitate the enforcement of claims. Means of collective redress, such as group settlement proceedings for the amicable settlement of disputes in the event of a large number of claimants were also planned. The procedural costs fund and the arbitration court, together with the instruments of collective legal protection limited to financial services, did not meet the approval of the participants, although they were relatively well received by lawyers. The strengthening of the Swiss banking ombudsman’s role was by contrast accepted.
In its present form, the client adviser register was also controversial. The draft Financial Services Act provided that only those listed in the register of client advisers are authorised to act as client advisers in Switzerland. Client advisers are entered in the register of client advisers if they prove that they have taken out professional indemnity insurance or have provided equivalent financial guarantees and they are affiliated to an ombudsman. The rule on disclosure of the compensation of financial service providers (eg, retrocessions) was debated. The proposals ranged from a complete ban on retrocession payments, to abandoning the rule in the preliminary draft. In the Financial Institutions Act in particular, the rule on enhanced due diligence requirements relating to client tax compliance was rejected.
The federal government has taken initial decisions on the direction to be taken regarding the controversial topics in the consultation procedure. The reversal of the burden of proof, the procedural costs fund and the arbitration court will be eliminated. Access to a court of law will be facilitated with a new cost settlement rule without cross-financing among financial service providers, whereby the financial service providers, subject to certain conditions, will pay the plaintiff costs themselves, regardless of the outcome of proceedings. The regulations on the instruments of collective legal protection (group settlement proceedings and representative action) will be integrated in the corresponding work on adapting the Civil Procedure Code and will no longer be regulated in the Financial Services Act. The client adviser register will be completely revised and merged with the register for foreign financial service providers. The rule on disclosure of compensation (eg, retrocessions) will be retained in its current form in the preliminary draft. In this way, there will be no provision for a ban on retrocessions or restrictions on transparency. The enhanced due diligence requirements in connection with client tax compliance will be regulated in the scope of the message on the act implementing the automatic exchange of information. In the case of institutional oversight, a general legislative basis is envisaged for legal risks. The Banking Act will not be repealed. However, the Financial Institutions Act and the Banking Act will be reconciled.
A separate discussion will be conducted by the Federal government on the specific design of the supervision of asset managers, training and continuing education and the problem of costs associated with enforcement.
The next step is the submission of a message from the federal government to Parliament that is expected for December 2015.
