Steps to take in the implementation of FinSA requirements
The Financial Services Act (FIDLEG) is expected to enter into force on 1 January 2020. As the implementing provisions are now known – the consultation procedure lasted until 6 February 2019 and the most important consultation submissions are known – it is now a good time to carry out a comprehensive assessment in order to clarify the most important issues in good time and then complete implementation by the end of 2019.
How are financial service providers affected by the new regulations?
The FIDLEG affects financial service providers in the following aspects, among others:
- Obligation for client advisors of financial service providers to be entered in an advisor register if the financial service provider (as employer) is not supervised under FINMASA in Switzerland
- Training measures, especially for compliance staff and client advisors
- Segmentation of customers into three categories with different levels of protection:
- Private clients
- Professional Clients
- Institutional Clients
- Disclosure of business- and product-specific information
- Transparency with regard to costs and conflicts of interest
- Adequacy and suitability tests in investment consulting and asset management
- Best possible execution of orders in terms of price/cost, time, etc.
- Preparation of prospectuses for public placement
- Creation of key investor documents for public offerings of financial instruments
- Instructions and controls, handling conflicts of interest and retrocessions
- Obligation to join an ombudsman office
What steps should be taken now to prepare for timely FinSA readiness?
Since FinSA does not only lead to adaptations of processes, systems and documents, but may also lead to fundamental changes in the business model, a number of options should be analyzed before implementation. Although the starting positions of the financial institutions concerned differ widely (e.g. with regard to customer segments, share of customers from EEA states, range of services, degree of implementation of MiFID II, etc.), financial companies must answer the following important questions for themselves:
- Are adjustments to the product portfolio and pricing necessary?
- How should customer categorisation, appropriateness and suitability testing be applied?
- How much cost transparency should be provided?
- How should conflicts of interest and retrocession payments be dealt with?
- By when do I have to change my business model in order to comply with legal obligations?
In preparation for the implementation of the necessary adaptations of the business processes and models, an assessment of the current situation should be made. The following questions are at the centre of this process:
- Which training measures need to be implemented? As a foreign financial services provider, how can I ensure that my client advisors concerned can prove to the registration office that they have the necessary specialist knowledge and knowledge of their conduct to be entered in the advisors’ register?
- Which business units and areas are affected by FinSA? Are there any registration obligations?
- To what extent has MiFID II been implemented? What else needs to be done with respect to FinSA requirements?
- How are our customers distributed among the three categories? What is the potential for opt-in and opt-out?
- Which documents (directives, guidelines, contracts, forms, general terms and conditions) have to be adapted?
- How is the product portfolio affected (e.g. in terms of profitability and risk classification)?
- Which business relationships (e.g. with external asset managers) are affected?
- Which processes for customers, products, suppliers and order execution are affected?
- Which IT applications need to be adapted?
- What adjustments are necessary to the control systems?
Only if financial service providers answer these questions in time can they ensure timely preparation for the entry into force of FinSA on 1 January 2020.
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