Table of contents 5 | 1 Executive Summary 7 | 2 FINMA Discussion Paper 11 | 3 Comparison of Swiss Regulations with International Standards 18 | 4 Need for Action in Practice 22 | 5 Conclusion
1 Executive Summary FINMA Discussion Paper In its discussion paper, FINMA judged investor protection in Switzerland as flawed, and suggests a number of measures which should be incorporated within a future general financial services law. Specifically, FINMA encourages legislation in the areas of prospectus and information requirements, codes of conduct and documentation at the point of sale, cross-border sales of foreign financial products, client segmentation, financial service providers not subject to prudential supervision 1 as well as the creation of an ombudsman. FINMA is already focusing its attention on <strong>Investment</strong> <strong>Suitability</strong> and checking whether financial service providers are observing existing obligations at the point of sale in line with existing legislation. Comparison of Swiss Regulations with International Standards To date, no uniform regulations to protect investors apply in Switzerland. In contrast, several foreign financial markets have attempted to standardize the regulation of financial products in recent years. In Europe, for example, basic regulations have been established for the provision of investment advice with the introduction of the European Markets in Financial Instruments Directive (MiFID). Moving in the same direction, a further tightening of regulatory efforts has also occurred in the major Asian financial centres since the financial crisis. FINMA predominantly orients its implementation proposals toward the MiFID as well as other European regulations, such as the prospectus directive. FINMA aims for a close approximation of European law in the regulations regarding conduct at the point of sale as well as in terms of client segmentation. On the other hand, FINMA pursues an independent approach to guidelines for financial service providers not subject to prudential supervision by suggesting a splitting of supervisory responsibilities. As regards product regulation in the core areas of prospectus and information 1 Financial service providers not subject to prudential supervision are those which are not comprehensively supervised (obligation to obtain a license and continuous monitoring of the licensing requirements as well as other regulated aspects). Ernst & Young <strong>Relaunch</strong> <strong>Investment</strong> <strong>Suitability</strong> requirements, FINMA envisages an arrangement taking existing and future European standards into account. FINMA believes a protocol requirement for consultations is possible, but is sceptical , and does not go as far as some European countries in the implementation of the MiFID framework as a result. As in the MiFID, FINMA also attempts to match client and product profiles. To meet this objective, the practice of product classification has prevailed in major parts of Europe and Asia. However, as in the MiFID, this instrument receives scant mention in the discussion paper. Need for Action in Practice FINMA’s projected strengthening of investor protection requires a review of the advisory systems and processes of financial institutions. An analysis shows that the proposed investor protection measures involve the entire investment advice value chain. Active cross-border institutions are already faced with international regulations, also in connection with the Lugano Agreement. Those who focus on investor protection regulations not only reduce the risk with regard to civil and regulatory issues, but are also able to improve the quality of consulting processes, thereby gaining a competitive advantage. In order to firmly establish investor protection, financial institutions can carry out a minimum, maximum or optimal adaptation of their internal workflows. Each of the three alternatives has its advantages and disadvantages. This adjustment is complicated by the lack of international harmonization. As a result, financial institutions require modular systems in order to take account of the different regulations. Because the regulations continue to change, the solutions should also be as flexible as possible. A consistent market focus is required at the strategic level in order to concentrate on the requirements of selected countries. 5
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