SECTION 1: Market outlook
1.1 Please clarify which products or markets your
jurisdiction hosts that are affected by Mifid II.
Neither Directive 2014/65/EU of May 15 2014 on markets in
financial instruments (the Revised Mifid) nor Regulation
2014/600/EU of May 15 2014 on markets in financial instruments
(Mifir, and collectively with the Revised Mifid, Mifid II) will
apply directly in Switzerland.
However, outbound cross-border activities conducted from
Switzerland will fall into the scope of Mifid II. This will
primarily affect firms providing investment services and
activities in the sense of Mifid II in the EU.
As regards transactions with private clients in the EU, the
market access rules of the Revised Mifid do not require
equivalence recognition of the Swiss rules, but each EU
jurisdiction may require a minimum presence on-shore in the
relevant EU market concerned. As regards professional clients
and eligible counterparties, the full EU market access of Swiss
financial institutions will depend on the EU Commission taking
the decision that the Swiss regime is equivalent to Mifid II,
which will then permit a Swiss financial institution to
register with the competent EU authorities and passport its
services to the whole EU. Moreover, EU courts may be the
competent courts in the event that a consumer brings a legal
action against a Swiss financial institution.
Besides financial institutions, Swiss commodities and energy
trading firms will be impacted by Mifid II if their trading
volume exceeds the thresholds set by the ancillary activity
exemption according to Art. 2(1)(j) of the Revised Mifid. This
market includes more than 700 firms, which are in most cases
below the relevant thresholds. However, such firms must review
their trading portfolios to monitor Mifid II compliance.
SECTION 2 (b) – Non-EU countries
2.1 How prepared is your market for Mifid II?
Given that the Swiss rules are currently not fully aligned
with the rules of Mifid II, the Swiss financial markets
legislation is under review with the aim of obtaining an
equivalence decision by EU authorities, as needed to ensure
full EU market access.
As regards the matters regulated by the Swiss Financial
Market Infrastructure Act (FMIA), which entered into effect on
January 1 2016, Swiss law is already aligned with Mifid II. The
FMIA regulates financial market infrastructures (regulated
markets, multilateral trading facilities (MTFs), central
counterparty clearing house (CCPs), trade repositories,
securities custodians and payment systems); organised trading
facilities; activities of systematic internalisers; pre- and
post-trade transparency requirements; algorithmic trading; and
the derivatives market, as far as the implementation of the
G-20 commitments are concerned (clearing, reporting, risk
mitigation and trading obligations).
The FMIA will be supplemented by a Financial Services Act
(FSA) and a Financial Institutions Act (FIA), which are in the
process of being debated in the Swiss Parliament (the debate in
the second chamber starting on September 13 2017). The FSA
will, as far as equivalence to Mifid II is concerned, align the
conduct of business rules for offering financial services with
the requirements applicable in the EU: client segmentation;
disclosure of information; suitability and appropriateness
checks; treating clients fairly; best execution; conflicts of
interest; receipt and payment of inducements; documentation and
accountability; organisational requirements; qualification of
employees; and registration of front office staff.
The FIA will expand the scope of the current regulation of
investment firms and the regulation of asset managers by
introducing licensing requirements also for asset managers of
portfolios not invested through collective investment schemes
and trustees. It will further align the regulation of
investment firms with the rules applicable in the EU. The FSA
and FIA are scheduled to enter into force as of January 2019.
In this article, we are discussing the rules of the FSA as
currently proposed, subject to further amendments by the Swiss
The FSA will apply to any person or entity that is a
financial services provider (i.e. any person that is providing
financial services in relation to financial instruments in the
meaning of the FSA in Switzerland or to clients in Switzerland
on a professional basis), a client advisor or a structurer of
financial instruments. However, insurance companies and pension
funds will be exempted. What constitutes financial services and
financial instruments in the sense of the FSA will be aligned
with the definitions of Mifid II.
2.2 In which areas are market participants most in need of
guidance/certainty over the rules?
Financial services providers will need to ensure that their
processes are fully compliant with the new rules of conduct of
the FSA (including for instance suitability and appropriateness
requirements, information requirements, best execution and
organisational requirements). This will also be relevant for
non-Swiss financial services providers, even if they do not
establish a Swiss presence but conduct their business on a mere
cross-border basis in Switzerland.
Client advisors of non-Swiss financial services providers
that are not subject to prudential supervision by a Swiss
regulator would have to register with a client advisor registry
in order to provide financial services in Switzerland. This
registration obligation would also apply to such employees or
agents that are resident or/and have their workplace outside of
Switzerland. However, the exemptions to this obligation are yet
to be defined in secondary legislation to the FSA.
Also, the offering of financial instruments to private
clients will – in certain conditions – be
subject to an obligation to make available a key information
SECTION 3: Research
3.1 Please summarise the challenges Mifid II will pose in
your jurisdiction with regards to research.
Under the proposed FSA rules, financial services providers
may only accept inducements by third parties if they either (i)
inform the client before the provision of the relevant service
or the relevant contract about inducements, including
information on the existence, type and value of such
inducements or – if not known at this moment
– about the calculation parameters or (ii) pay any
inducement received entirely to the client.
This disclosure obligation extends the scope of the case-law
of the Swiss courts as applicable pre-FSA regarding inducements
provided by third parties under investment management or
advisory agreements and will apply also to execution-only
relationships (for which the Swiss courts have not yet
established such practice).
In several leading cases, the Swiss Federal Supreme Court
held that financial intermediaries, as recipients of
inducements, are subject to a duty of restitution based on the
mandatory rules applicable to mandate agreements pursuant to
Swiss contract law. According to such case-law, this duty may
only be waived by the client if (i) the client has been duly
informed of the existence and the scope (calculation basis,
percentage or calculation parameters) of such inducements and
(ii) the waiver has been expressly provided.
To the extent that the rules of the FSA regarding
inducements will not be further amended in the legislative
process, the Swiss framework deviates from the rules of Mifid
II, where investment firms – provided that they are
holding themselves out as providing investment advice
independently – are not permitted to keep inducements,
which are not classified as fees for services provided,
irrespective of client waivers.
The proposed FSA rules do not provide for separate rules
governing the receipt of research. However, this may become
part of secondary legislation. In the absence of specific rules
or guidance, the receipt of research should be addressed as the
receipt of a non-monetary benefit or a soft commission, which
may be classified as an inducement. Further to the general
waiver requirement for inducements as set out above, the SFAMA
Transparency Guidelines applicable to the fund industry require
a full disclosure of soft commissions. This should generally be
also taken into account when an investment firm receives
research without paying a consideration.
3.2 Is pricing research compatible with market practices
and existing legal frameworks?
Pricing research is generally compatible with the existing
legal and regulatory frameworks.
3.3 Is there clarity on how to resolve challenges in
unbundling research and complying with Mifid II in this
While Swiss law does not include requirements on the
unbundling of research and the way research should be paid for
at present, to the extent that the receipt of research without
payment is treated as a soft commission within the meaning of
the SFAMA Guidelines, clients should be informed about the
research received and an inducements waiver should be in
SECTION 4: Trading/market structure
4.1 Which areas of trading / type of instruments will be
most impacted by Mifid II in your jurisdiction and how might
they be impacted?
The types of activities most affected are those falling into
the scope of the EU third country jurisdiction access rules as
set out under 1.1 above.
4.2 What will be the key challenges with regards to trade
reporting and pre-trade transparency?
A key challenge in the Swiss market with respect to trade
reporting is to ensure compliance with the new reporting
obligation applicable to derivatives transactions. As regards
OTC derivatives with underlyings (exceeding 25%) traded on a
Swiss regulated market or MTF, the new trade reporting
requirements (Swiss equivalent of Art. 26 Mifir) will enter
into effect as of October 1 2018. For other financial
instruments traded on a Swiss regulated market or MTF, such
reporting obligations already apply today, but will be aligned
with Mifir as from January 1 2018 (e.g. requiring reporting of
the identity of the beneficial owner of transactions). As
regards the transaction reporting of derivatives (Swiss
equivalent of Art. 9 Emir), these obligations have a different
timeline (the obligations start to go live on October 1 2017
for large financial counterparties).
Pre-trade transparency requirements are new to the Swiss
market and will apply for equities as of January 1 2018.
4.3 What are the main considerations that trading venues
and exchanges will have to make?
Swiss exchanges will have to obtain the recognition decision
under Art. 23 Mifir to ensure that they may continue to be used
as a trading venue for shares in the EU.
SECTION 5: Investor protection
5.1 Explain the impact of heightened investor protection
obligations in your jurisdiction
As regards investor protection rules, the Swiss rules
proposed under the FSA will be closely aligned to those of
Mifid II. However, in some respects, the Swiss rules are
designed to be more liberal (e.g. allowing the sale of complex
financial instruments to execution-only clients, limitation to
appropriateness when advising on single investment only or
Financial service providers will have to classify their
clients as "private clients", "professional clients" or
"institutional clients". The category of institutional clients
will include financial services providers subject to prudential
supervision and insurance companies. Clients are private
clients by default if they are not institutional clients or
professional clients (which includes pension funds, public law
entities and corporate entities with professional treasury
operations). The status of a qualified investor for the
purposes of distributing funds, collective investment schemes
as structured products includes also natural persons who
entered into asset management mandates with financial
institutions or qualifying external asset managers.
Assuming similar requirements as those specified under Mifid
II are met, a private client may opt-out from its status into
the status of a professional client. Conversely, professional
clients may opt into the status of a private client. Similarly,
institutional clients may declare to be considered as
professional clients. A financial services provider must inform
its professional and institutional clients about their opt-in
The level of investor protection depends on the client
obligations towards clients
||Yes, but waiver
provide key information document (where applicable)
conduct suitability or appropriateness test
assumption of necessary know-how and experience and
financial suitability of investment risks
explicit waiver possible
qualification of client advisors
5.2 Which area of focus within investor protection is of
most concern/importance to your jurisdiction?
FSA investor protection requirements, such as best
execution, appropriateness and suitability as well as
information requirements are largely based on Mifid II.
Investment firms will have to review their processes and
documentation (including contractual documentation) to ensure a
proper implementation of these requirements. Also, the further
implementation of the requirements in self-regulatory codes of
conduct (e.g. in respect of best execution the rules specified
by the Swiss Bankers Association) should be considered
SECTION 6: Outlook 2017
6.1 What are the overall risks or opportunities that Mifid
II might bring to your market? Will Mifid II impact the
competitiveness of your market?
The alignment of Swiss law with Mifid II by implementing the
FSA and the FIA should ensure the continued market access of
Swiss firms to the EU. To the extent that the Swiss rules are
more liberal than those of Mifid II (e.g. in respect of
inducements), a risk would be that this may compromise the
equivalence recognition of Swiss law. Also, a further risk
could be that certain EU markets require a local on-shore
presence for accessing retail markets in full.
6.2 What are the next steps – what should market
participants be doing now to best prepare themselves?
As regards non-Swiss firms accessing the Swiss market, they
should monitor to what extent they will be affected by new
obligations arising from the FSA and the FIA (e.g. new conduct
of business rules, registration requirements of front office
Partner, Schellenberg Wittmer
T: +41 44 215 5252
F: +41 44 215 5200
Olivier Favre focuses on derivatives and structured
finance transactions and advising clients on financial
services, securities, commodities and fund regulation.
He also advises clients on financing and capital
markets transactions, on fintech solutions and on
insurance regulatory matters. He acts for a broad range
of clients, including financial institutions, buy-side
firms, issuers, insurance companies and industry
associations. Olivier is an authorised representative
at the SIX Swiss Exchange. He studied law at the
University of Zurich (lic. iur. 1998, Dr. iur. 2003)
and at Harvard Law School (LLM 2004).
Partner, Schellenberg Wittmer
T: +41 44 215 5252
F: +41 44 215 5200
Philippe Borens' main areas of practice are banking
and finance law, including the regulation of financial
intermediaries and financial services, equity and debt
capital markets, and investment law. He has authored
and co-authored various publications in the field of
Swiss securities law and competition law, and is a
lecturer at the University of Zurich. Before joining
Schellenberg Wittmer, Borens studied law at the
University of Basel (lic. iur. 1993, Dr. iur. 1999) and
the College of Europe in Bruges (LLM 1995). From 2013
to 2016, he was the managing director of Schellenberg
Wittmer in Singapore.
Senior Associate, Schellenberg
T: +41 22 707 8000
F: +41 22 707 8001
Vaïk Müller advises on banking and finance
law, in particular regulatory matters, financial
services, derivatives, collective investment schemes
and other investment products. He has a specific
expertise on cross-border legal and regulatory issues
(in- and outbound), advising in particular foreign
investment firms, such as fund manager and banks as
well as investors on Swiss applicable requirements. He
is the author of several publications on financial
regulations. Hi obtained his degree in law from the
University of Geneva in 2005 and earned his PhD from
the University of Zurich in 2015. He was admitted to
the Geneva Bar in 2010.