Financial Crime World

Switzerland Adapts to International Financial Regulations: Compliance Challenges Ahead

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Overview of Recent Regulatory Changes in Europe and Their Impact on Switzerland

The implementation of the Markets in Financial Instruments Directive (MiFID II) and its corresponding regulation, MiFIR, in January 2018 marked a significant revision of the European Union’s (EU) financial regulations. In response to these changes, Switzerland has been adapting its own regulatory framework.

Key Legislation: FinSA and FinIA

The Federal Council published the dispatch for the new Financial Services Act (FinSA) and Financial Institutions Act (FinIA) in November 2015. These laws were adopted by Parliament on June 15, 2018. The FinSA governs the prerequisites and rules of conduct for providing financial services and offering financial instruments, while the FinIA harmonizes authorization requirements for financial institutions.

Impact on the Value Chain

The new provisions will have a significant impact on the entire value chain, requiring multiple fundamental strategic decisions regarding market access, distribution models, and compliance standards.

Financial Market Infrastructure Act (FMIA)

Switzerland’s Financial Market Infrastructure Act (FMIA), which entered into force on January 1, 2016, introduced uniform rules governing the organization and operation of financial market infrastructure. This includes:

  • Stock exchanges
  • Multilateral trading systems
  • Central counterparties
  • Central custodians
  • Transaction registers
  • Payment systems

The FMIA also imposes new requirements for organized trading systems.

Combating Money Laundering and Terrorist Financing

The pressure to combat money laundering and terrorist financing in the financial sector has increased significantly in recent years. As a result of the examination conducted in spring 2016 on whether the provisions of the Financial Action Task Force (FATF) have been properly implemented in Swiss law, Switzerland is currently undergoing an in-depth follow-up review process.

Upcoming Changes

  • The revised Agreement on the Swiss banks’ code of conduct with regard to the exercise of due diligence will be published in July 2018, with an entry into force on January 1, 2020.
  • The Financial Market Supervisory Authority (FINMA) is revising the Anti-Money Laundering Ordinance-FINMA, which will also enter into force on January 1, 2020.

Alternative Investment Fund Managers Directive (AIFMD)

The AIFMD regulates access to the EU market for fund managers coming from non-EU member states such as Switzerland. It defines the conditions under which asset management may be delegated. Swiss asset managers of collective investment schemes have only had access through relevant national laws on private placement until 2015.

Implications for Product Strategies and Business Models

Under certain circumstances, they may benefit from the new passport regime from 2015 onwards. The EU Commission will replace these national laws with the EU passport regime in 2018, presenting strategic implications for product strategies and business models.

Compliance Challenges Ahead

Switzerland must navigate several challenges to maintain its position as a financial hub while adhering to international regulatory standards:

  • Implementing FinSA and FinIA provisions
  • Adapting to FMIA requirements for organized trading systems
  • Combating money laundering and terrorist financing through safety measures
  • Evaluating impacts on existing processes and control mechanisms
  • Adjusting account opening processes and extending due diligence requirements
  • Meeting AIFMD requirements for access to the EU market

By addressing these challenges, Switzerland can ensure its continued relevance in the global financial landscape.