On tour with investors – dos and don’ts for roadshows in Switzerland
The Swiss Financial Services Act introduced significant changes to the regulatory regime for financial service providers. Benjamin Leisinger and David Borer of Homburger analyse these changes and consider best practice
Upon its entry into force on January 1 2020, the Swiss Financial Services Act (FinSA), first, significantly changed the regulatory regime applicable to financial service providers in Switzerland and, second, introduced a new and modern regime for the offering of financial instruments.
Among other things, the FinSA introduced regulatory requirements for all persons and entities providing financial services (as such term is defined in the FinSA) on a commercial basis in Switzerland or for clients in Switzerland (financial service providers).
Financial service providers are now subject to the new conduct rules set out in the FinSA and need to take certain organisational measures set forth in the FinSA and those financial service providers that are not yet subject to a prudential supervision in Switzerland within the meaning of the Swiss Financial Market Supervision Act are required to have their client advisers registered in a newly established register for client advisers (Beraterregister).
Offering of financial instruments
Additionally, the FinSA introduced a new prospectus regime and introduced regulatory requirements applicable to advertisement for financial instruments.
Given that the rendering financial services and the offering of financial instruments are subject to regulatory requirements in Switzerland, the question whether roadshows qualify as financial services, an offer or an advertisement within the meaning of the FinSA – and what should be done to avoid this qualification – is of high practical importance for issuers, syndicate banks, distributors and brokers of financial instruments.
Types of roadshows
The catchword 'roadshow' was the subject of many discussions and statements in the legislative process for the FinSA.
A roadshow is an event where issuers, syndicate banks, distributors or brokers meet with existing of potential future investors or their financial intermediaries. However, when talking about roadshows and the regulatory requirements applicable to them (if any), it is important to distinguish the different types of roadshows as they could raise quite different regulatory issues under Swiss law.
Generally, a basic distinction is made between 'non-deal roadshows' and 'deal roadshows', although the lines may get blurred in practice.
Non-deal roadshows are events where the management of a company introduces itself, explains the business model, financial results, recent developments or other relevant aspects of the company – or simply takes the opportunity to meet existing shareholders or other investors and to check-in with them and their expectations or views. As such, non-deal roadshows are unrelated to specific transactions.
Deal roadshows on the other hand are meetings that are meant to promote the interest of investors with respect to an upcoming offer of shares, bonds or other financial instruments. As such, deal roadshows typically are ultimately aimed at the purchase or sale of a particular financial instrument.
"It is key to avoid that the roadshow qualifies as ‘investment advice’ or the ‘acquisition or disposal of financial instruments’"
Within the notion of deal roadshows it is typically further distinguished between roadshows that are held at an early stage of a transaction and roadshows that are held at a later stage, i.e. when the transaction is already more advanced.
If done at an early stage of a possible transaction, a roadshow serves the purpose of merely 'testing the water' or 'pre-sounding' with investors whether they would be interested at all in a specific financial instrument from the relevant issuer.
This is done mainly when an issuer plans to publicly issue a certain instrument the first time or when it is an instrument with innovative features. At this point in time, no particular financial instrument exist and it is not even clear whether it will ever be issued. However, deal roadshows are also often done in parallel to a specific offering of financial instruments.
The main purpose of such roadshows is to present the offered instruments and to answer specific questions from professional investors or banks in relation to the specific features. At this point in time, the transaction is already at a rather advanced stage and it is already clear that a financial instrument will be issued and what the specifics of such instrument will be.
Relevant concepts of the FinSA potentially applicable to roadshows
There are three legal concepts under the FinSA that are potentially relevant in the context of a roadshow:
Advertisement pursuant to Article 68 of the FinSA;
The provision of a financial service pursuant to Article 3(c) of the FinSA; and
Making an offer pursuant to Article 3(g) of the FinSA.
It is important to note that these are three individual concepts that have different regulatory requirements and that may – or may not – be triggered simultaneously in the context of a roadshow.
Under the FinSA, the advertisement of financial instruments in the sense of Article 3(a) of the FinSA (or for financial services pursuant to Article 3(c) of the FinSA) is regulated.
The concept of advertisement under the FinSA is a rather broad and, pursuant to its definition in Article 95(1) of Financial Services Ordinance (FinSO), covers any communication that is aimed at investors and serves to draw attention to specific financial services or financial instruments.
Advertisement for financial services must be labelled as such (Article 8(6) of the FinSA). This duty does not apply to advertisement for financial instruments, but advertisement for financial instruments must still be clearly identified or identifiable as such (Article 68(1) of the FinSA).
In addition, any advertisement for financial instruments needs to include a reference to the prospectus or the key information document relating to the respective financial instrument (to the extent available) and where such documents can be obtained (Article 68(2) of the FinSA).
Furthermore, advertising and other information on financial instruments intended for investors must correspond to (i.e. not contradict) the details given in the prospectus and the key information document.
“This article hopefully serves as a basis for doing this in advance of a roadshow in Switzerland.”
In order to avoid that a non-deal roadshow qualifies as advertisement under the FinSA, information about financial instruments – such as a company's shares – should ideally be avoided.
If the roadshow materials do include certain information financial instruments – such as information about shares and their latest price on the relevant exchange, or outstanding bonds in the general slides about the company – a disclaimer should be added to the effect that this qualifies as advertisement.
Given the rather broad definition of advertisement in the FinSO, deal roadshows will in most cases constitute an advertisement for a financial instrument. Therefore, as a general rule, and to ensure compliance with the requirement that advertisement for financial instruments must be identifiable as such, a disclaimer should be added whenever existing or specific potential financial instruments are mentioned.
When the deal roadshow is done after the 'testing' or 'pre-sounding' phase, it should also be stated clearly that the roadshow documents do not qualify as a prospectus or a key information document in the sense of the FinSA – this is mainly to avoid a potential prospectus liability for such documents.
In case the transaction is already more advanced and a prospectus or a key information document already exists, the roadshow documents must:
State where these offering documents can be obtained; and
The information presented during the roadshow must not contradict the information in these offering documents.
When compared to advertisement, the concept of financial services is relatively narrow. It only covers a list of specific services with respect to financial instruments that are provided to clients (Article 3(c) no. 1-5 of the FinSA).
The FinSA does not contain a definition of 'clients'. However, the legislative materials highlight that the FinSA means, and is designed to protect, 'end customers"'. Out of said enumerative list, three activities are of specific importance in the context of roadshows:
Acquisition or disposal of financial instruments;
Receipt and transmission of orders in relation to financial instruments; and
Provision of investment advice.
In connection with the 'acquisition and disposal of financial services', the ordinance quite vaguely states that it covers "any activity addressed directly at certain clients that is specifically aimed at the acquisition or disposal of a financial instrument" (Article 3(2) of the FinSO).
Notwithstanding this broad definition, it is very important to highlight that the implementing ordinance, FinSO, clearly – and unambiguously – excludes the placement of financial instruments as well as the associated services from the definition of a 'financial service' under the FinSA (Article 3(3)(c) of the FinSO).
In other words, IPO or bond roadshows and similar events for the mere placement of financial instruments as such do not qualify as a financial service. The broad definition in Article 3(2) of the FinSO was mainly introduced to cover, and regulate, certain roadshows for foreign funds in Switzerland where not only the funds and their features are explained, but entire investment strategies are frequently discussed with potential investors.
In light of the abolishment of the license for fund distributors in Switzerland, the legislator obviously wanted to ensure that investor's interests are still protected at such events.
If the activities at a roadshow were to qualify as a financial service, issuers or investment banks would be subject to certain conduct rules, client segmentation requirements and even the duty to register client advisers in a register.
In order to avoid that a deal roadshow is qualified as a financial service, it is key to avoid that the roadshow qualifies as 'investment advice' or the 'acquisition or disposal of financial instruments'.
To ensure this, first, any statements that could be investment advice, such as suggesting that a financial instrument would be a good investment for the attending persons or that a financial instrument would be a good addition to an investor's portfolio, should be avoided.
Further, during deal roadshows any statements should be limited to describing the instrument and its features but not discuss any needs or opportunities for the investors. Moreover, when running a deal roadshow, no orders should be accepted and forwarded with respect to financial instruments on the investors' behalf (note that solely acting on behalf of an issuer would still be exempted from the notion of the provision of a financial service).
To mitigate the risk of providing a financial service even further, the attendees could also be limited to such that do not – or not typically – qualify as 'end customers'. In other words, inviting private banks and asset managers or investment advisers is safer than inviting investors directly.
Slides for roadshows often include disclaimers explicitly stating that no investment advice is given, and it is advisable to do so. However, merely adding disclaimers does not help if the actual behaviour does not follow.
An offer within the meaning of the FinSA exists if a communication of any kind (oral or in text form) is made which:
Contains sufficient information on the terms of the offer and the financial instrument; and
Is customarily intended to draw attention to a certain financial instrument and to sell it.
Accordingly, each offer has an objective component (sufficient information) and a subjective component (the intention by the offeror to sell a specific financial instrument).
An offer under the FinSA can trigger a prospectus requirement – when considered to be public (Article 35 of the FinSA) – or the duty to prepare a key information document – when addressed to retail investors ('private clients' in the FinSA) and concerning certain financial instruments with a derivative component (Article 58(1) of the FinSA).
To avoid that a roadshow presentation triggering a prospectus requirement or requirement to have a key information document, references to financial instruments should be avoided.
In the case of a deal roadshow when it is all about specific information on a financial instrument, the selection of attendees is important: the requirement to have a prospectus or a key information document can be avoided by exclusively inviting 'professional clients' within the meaning of the FinSA.
Under the FinSA, the definition of 'professional clients' is relatively broad and includes Swiss or foreign financial intermediaries (banks, securities houses, portfolio managers, trustees, managers of collective assets, fund management companies, collective investment schemes and persons who are responsible for the safekeeping of assets held in them, persons who represent foreign collective investment schemes in Switzerland), insurance companies, central banks, public entities with professional treasury operations, occupational pension schemes with professional treasury operations and other occupational pension institutions providing professional treasury operations, companies with professional treasury operations, large companies, and private investment structures with professional treasury operations created for high-net-worth retail clients.
In the absence of indications to the contrary, the offeror may, for the purposes of relying on the exemption from the prospectus obligation, assume that professional clients have not declared that they wish to be treated as retail clients.
The devil is in the detail – so be prepared
It comes as no surprise that it is not black and white when analysing whether a certain roadshow qualifies as advertisement, a financial service or an offer.
What can be done, however, is to take precautions by way of disclaimers, selection of invitees and the preparation (and training) of dos and don'ts in advance of such events. This article hopefully serves as a basis for doing this in advance of a roadshow in Switzerland.
T: +41 43 222 12 96
Benjamin Leisinger is a partner in Homburger's banking and finance and capital markets teams. His area of expertise also includes corporate and commercial law.
Benjamin regularly advises Swiss and international financial institutions in financing transactions, particularly in the capital markets, and regarding regulatory matters, including licensing and regulatory capital.
Benjamin has a doctor of law degree from the University of Basel, and a LLM from the University of Chicago.
T: +41 43 222 17 23
David Borer is an associate at Homburger. His practice focuses on finance and capital markets law.
David regularly advises on syndicated debt financings, real estate financings, asset-based financings (covered bonds and securitisations) and securities offerings. Other areas of work include real estate transactions and mergers and acquisitions (M&A).
David has a masters' degree in law from the University of Berne, and a LLM from Tulane University Law School.