All posts by: mrisoldi

FinSA Rules of Conduct

Rules of conduct set in FinSA include the following duties:

  • Information duties
  • Suitability and appropriateness duties
  • Documentation and accountability duties
  • Transparency and diligence duties

When dealing with institutional clients, none of the duties above are mandatory.

When dealing with professional clients (non-institutional), the rules of conduct are mandatory. However, professional clients may waive this requirement in writing insofar as the information and the documentation and accountability duties are concerned.

When dealing with private clients, all the above duties are mandatory.

Information duties

The following information must be provided to the client before providing a financial service:
 
  • Key information about the provider (name, address, scope of activities)
  • Supervision status of the provider
  • Procedures to initiate a conciliation before an ombudsman
  • Risk and costs information
  • Commissions and other third-party economic ties
  • Potential conflict of interests related to the service offered
  • Market offers considered for the selection of financial instruments
These duties are detailed in articles 6 to 15 of FinSO.

Suitability and appropriateness duties

The financial service provider must verify in advance whether the service offered is suitable or appropriate for a client. The type of verification depends on the type of advice provided:

  • Test of appropriateness: if the investment advice is given for an isolated transaction, without considering the client’s portfolio, the provider must verify that the client has sufficient knowledge and experience for the product.
  • Test of suitability: if the investment advice is given taking into consideration the whole client portfolio, the provider must verify, in addition to appropriateness, that they know the client’s financial situation and investment objective, and whether the service offered is suitable.
Suitability and appropriateness duties do not apply to execution-only services.
If a private client is acting through a representative, then the representative’s knowledge and experience is to be taken into account for suitability and appropriateness tests.
 
If suitability or appropriateness cannot be verified (e.g., for lack of information), the provider can still offer the service provided that the client is informed of the inability to verify suitability or appropriateness.
 
When dealing with professional clients, the provider may assume that the knowledge and experience requirements are satisfied.
 
These duties are detailed in articles 16 and 17 of FinSO.

Documentation and accountability duties

Providers must document their services appropriately. They must record:

  • Orders received and executed
  • The composition, evaluation and evolution of the client portfolio, if applicable
  • The costs

Records must be kept in a way that the client can receive them within 10 business days of the execution of orders. They must be provided on a regular basis as agreed with the client, or on request of the client.

These duties are detailed in articles 18 and 19 of FinSO.

Transparency and diligence duties

Providers must ensure that the client’s orders are handled in good faith, on an equal-treatment basis, and in the best interest of the client. Directives need to exist regarding the execution of client orders.

These duties are detailed in articles 20 and 21 of FinSO.

How to offer to Private Investors

Private clients are:

  • Individuals and HNWI
  • Family offices without a professional treasury management (?)
  • All non-professional clients

To distribute to private clients, you need to:

The last two requirements (FINMA authorization and document publication) will be taken care of by the appointed Swiss representative.

Contact Regiswiss to learn more about how to navigate these regulatory requirements.

How to offer to Professional and Institutional Investors

Institutional clients

Institutional clients belong to the following categories:
 
  • Financial intermediaries as defined in the Swiss Banking Act (BankA), the Collective Investment Schemes Act (CISA) and the Financial Institutions Act (FinIA), including banks, fund management companies, portfolio managers and trustees
  • Swiss regulated insurance institutions
  • Foreign insurance institutions and financial intermediaries that are subject to prudential supervision
  • Central banks
  • National and supra-national public entities with professional treasury management

Institutional clients may opt in in writing to be considered professional clients (thus benefiting from a higher level of protection).

To distribute to institutional clients you need to:

 

Professional clients

Professional clients belong to the following categories:

  • Public entities (non national or supra-national) with professional treasury management (?)
  • Pension funds and companies with a professional treasury management (?)
  • HNWI who opt out of the private clients category
  • Family offices without a professional treasury management (?who opt out of the private clients category

The last two types of professional investors (i.e., HNWI and Family Offices without professional treasury management) are private clients by default, but they may opt out in writing and ask be considered Professional Clients.

To distribute to professional clients you need to:

Swiss Representative and Paying Agent

One of the requirements for distributing a fund to private clients and to some of the professional clients is to appoint a Swiss representative and a Swiss paying agent.

A Swiss representative is a company authorized and regulated by FINMA to perform the due diligence on funds distributed to investors in Switzerland. The representative manages the fund authorization process, ensuring that offering activities comply with Swiss law.

A Swiss paying agent is a Swiss bank enabling Swiss investors to issue or redeem fund shares through a Swiss entity if they choose to do so.

Contact Regiswiss to learn more about the process of appointing a Swiss representative and paying agent.

Swiss investor categories

Swiss investors are classified into three categories: Institutional Clients, Professional clients and Private clients

Requirements vary according to the category. 

Article 4 of FinSA states the obligation for financial service providers to classify their clients according to the categories above. Care must be exercised in correctly assessing the client category, as the possibility to opt-in or opt-out of the different categories exists in many cases. The same article 4 states that the obligation to classify clients is waived if a financial service provider treats all their clients as private clients (i.e., the higher level of protection).

Institutional clients

  • Financial intermediaries as defined in the Swiss Banking Act (BankA), the Collective Investment Schemes Act (CISA) and the Financial Institutions Act (FinIA), including banks, fund management companies, portfolio managers and trustees
  • Swiss regulated insurance institutions
  • Foreign insurance institutions and financial intermediaries that are subject to prudential supervision
  • Central banks
  • National and supra-national public entities with professional treasury management

Institutional clients may opt-in in writing to be considered professional clients (thus benefiting from a higher level of investor protection). 

Distribution to Institutional clients is subject to simplified regulatory requirements.

Professional clients

  • Public entities (non national or supra-national) with professional treasury management
  • Pension funds, family offices and other companies with a professional treasury management
  • Large companies satisfying at least two of the following criteria: (1) a balance sheet of at least CHF 20 million; (2) a turnover of at least CHF 40 million; (3) equity of at least 2 million
  • HNWI who opt out of the private clients category
  • Family offices without a professional treasury management who opt out of the private clients category

Professional clients (non-institutional) can opt-out in writing to be considered institutional clients (thus giving up a certain amount of investor protection).
They may also opt-in in writing to be considered private clients (thus benefiting from the same level of investor protection as private clients).

Distribution to Professional clients is subject to simplified regulatory requirements.

Private clients

An HNWI is defined by FinSA as an individual that fulfills either of the following criteria: (1) sufficient knowledge to understand the risk connected with investments, coming from their personal education and professional experience, and a net worth of at least CHF 500,000; or (2) a net worth of at least CHF 2 million, regardless of knowledge and experience.

Distribution to Private clients is subject to a FINMA authorization and regulatory requirements.

Professional treasury management?

Art. 3 FinSO states that a company or a private investment structure has a professional treasury management if it employs internally (or mandates externally) an experienced person with qualifications in the financial domain to manage their financial resources in the long term.