Intelligence In Finance

FinSA - Financial Services Act

The Financial Services Act (FinSA), which entered into force on January 1, 2020, aims to provide stronger protection for investors and to establish comparable standards for financial service providers.

Financial activities such as asset management have since been subject to a FINMA licensing requirement. This means that financial intermediaries must meet a whole range of obligations as well as organisational and staffing requirements in order to be permitted to offer their services.

FinSA introduces expanded codes of conduct for all financial institutions and defines detailed information that must be provided to clients regarding the services and products offered. In contrast, the Financial Institutions Act ("FinIA") establishes the above licensing requirement.

Both the FinSA and the Financial Institutions Act ("FinIA") are part of Switzerland's regulatory financial market architecture: Both laws serve to create a level playing field, strengthen the competitiveness of the financial center, and improve client protection.

The core of client protection includes client segmentation, the obligation to provide product and cost information about the financial services and instruments offered, and the standardized appropriateness and suitability assessment. Clients should be better informed about risks before utilizing a financial service, enabling them to understand these risks more effectively.

 

FIDLEG - Key Points

Customer Segmentation

For client segmentation, FinSA distinguishes three client groups: "Retail clients", "Professional clients", and "Institutional clients". The classification is primarily determined by clients' knowledge and experience with financial instruments.

Retail clients are defined as clients who are not professional clients. The highest possible investor protection is afforded to retail clients. They must be comprehensively informed about the risks, product features, and the expected or calculable costs. Financial intermediaries are also confronted with extensive accountability, information, and documentation obligations.

"Professional/Institutional Clients" is a subcategory of “Professional Clients”, which includes domestic and foreign banks and insurance companies, central banks, or public-law entities such as the federal government and cantons. These institutions benefit from the lowest level of protection.

The group «Institutional Clients» is a subcategory of «Professional Clients». This includes supervised legal entities, larger companies, and other institutions such as municipalities, governments, or central banks. These institutions benefit from the lowest level of protection.

 

Opting-in / Opting-out

Clients have the option to be categorized under a different client group. This reclassification is referred to as "opting-in" or "opting-out". As a result, the client is subject to a higher or lower level of client protection, which accordingly increases or decreases the scope of information and clarifications to be obtained.

 

Information obligations

Financial service providers inform their clients, prior to the conclusion of a contract or the provision of a service, about their specific field of activity, their supervisory status, and the possibility of mediation proceedings before a recognized ombudsman's office. They inform their clients about the recommended financial service, the associated risks, and the costs, and disclose any existing economic ties to third parties.

As part of its due diligence obligations, the financial intermediary is required to diligently obtain prior clarity regarding the client’s financial circumstances and investment objectives, as well as the client’s knowledge and experience.

 

Appropriateness and Suitability Assessment

Financial service providers must conduct a thorough appropriateness and suitability assessment based on the client's information. In simple terms, they must determine whether the respective financial service is appropriate and suitable for the client.

It is essential to obtain detailed information about the client’s knowledge and experience, as well as their financial circumstances and investment objectives (e.g., investment horizon, purpose and risk appetite).

As part of the appropriateness assessment, it must be determined whether the client understands the selected investment strategy or asset allocation and can evaluate the associated risks. The client's risk tolerance and risk capacity are determined based on their risk profile. The recommended investment strategy or asset allocation is based on the client's risk profile.

The suitability assessment ensures that the chosen investment strategy takes into account the client's needs and financial circumstances, making it tailored and appropriate for the client.

If the information received by the financial service provider is insufficient to assess the appropriateness or suitability of a financial instrument, the provider must inform the client of this before providing the service and advise against it.

 

Documentation and accountability obligations

Financial service providers must appropriately document the services agreed upon with the client. Upon the client's request, the financial service provider must provide an account of the financial services rendered, the composition, valuation, and development of the portfolio, as well as the associated costs.

Transparency and Due Diligence Obligations

Financial service providers, when processing client orders, adhere to the principle of good faith and fair dealing, as well as the principle of equal treatment. The asset manager must therefore ensure that all client orders are executed promptly and in the clients' best interest.

 

Conflict of Interest

Financial service providers must take appropriate organizational measures to avoid conflicts of interest that may arise in the provision of financial services. If a disadvantage to clients cannot be ruled out, this must be disclosed to the client.

 

Third-party compensation

Financial service providers may only accept compensation from third parties (e.g., brokerage fees, commissions, kickbacks, etc.) in connection with the provision of financial services if they have expressly informed clients in advance and the clients have waived this.

You can find the complete and detailed description of all obligations in our information brochure, which is made available to every client in an appropriate manner before the start of a business relationship.

Our team is also at your disposal should you require any further information.

 

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