London Calling - Financial Services Agreement Between Switzerland And The United Kingdom To Enter Into Force (Part 1)

On 21 December 2023, the United Kingdom and Switzerland signed an agreement on mutual recognition in the area of financial services, the so-called Berne Financial Services Agreement(the "BFSA")¹. Following ratification by both parties, the BFSA is expected to enter into force on 1 January 2026.

The BFSA facilitates the provision of wholesale financial services to clients in both jurisdictions². To this end, the BFSA generally recognizes the legal and supervisory frameworks of the respective other country for the covered financial products and services and their providers as equivalent. Closer cooperation as well as disclosure and reporting obligations have also been agreed. The BFSA thus promotes market access and cooperation between two large European financial centers, both of which are currently deprived of direct and easy market access to clients in the EU because of their status as non-members³.

In this part 1 of a series of blogposts on the BFSA we focus on investment services provided by UK services providers seeking to access the Swiss market, an area that has undergone significant change under the BFSA. FINMA and the Financial Conduct Authority (the "FCA") recently published guidance on how market access in this area will be regulated in practice, which can be accessed here.

New Exemption for UK Client Advisers

For British financial service suppliers wishing to provide investment services in Switzerland, certain requirements in relation to client adviser (i.e. a natural person who provides financial services) registration will be waived under the BFSA.

Under Swiss law, client advisers of foreign financial services providers must generally be registered in a client adviser register, unless they are employed by a prudentially supervised financial institution and exclusively provide their services to institutional or professional clients (which under Swiss law generally does not include high net-worth individuals that have opted to be treated as professional clients). See our earlier blogpost here for information on the client adviser register more generally.

Once the BFSA has come into force, UK client advisers will be able to provide on a cross-border basis or temporary local support to institutional and professional clients, including high net-worth clients in Switzerland without having to register in a client adviser register in Switzerland, which currently is a unique exemption from Switzerland's domestic regulatory regime in this area.

In this context, "high-net worth clients" means natural persons and private investment structures created for them with eligible assets of at least CHF 2,000,000 who have declared that they wish to be treated as professional clients and are aware of the consequences of doing so. This also means that the other category of high-net worth clients under the Swiss Financial Services Act ("FINSA"), i.e. those who have eligible assets of at least CHF 500'000 and the necessary knowledge to understand the risks associated with their investments, are not included under this exemption.

Conditions of Exemption

However, UK client advisers must comply with several conditions to be able to avail of this exemption.

First, the client adviser's employer must be considered a covered financial services supplier, which generally means they must be incorporated in, or formed under UK law and authorized by the relevant supervisory authority of the UK to supply (and actually be supplying) the relevant covered services in the UK. In addition, the financial services supplier must have notified the FCA indicating the services it wishes to supply through its client advisers in Switzerland. It must also ensure that its activities and that of its client advisers do not amount to a permanent establishment in Switzerland. While there is no hard and fast rule when this is the case, indications include using Swiss phone numbers/business cards, conducting business from a Swiss address (e.g. a coworking space), or spending too much time "on the ground" in Switzerland servicing existing or future clients (particularly in regular intervals such as one week every month).

Secondly, any UK financial services supplier wishing to benefit from the exemption from the to duty to register its client advisers in accordance with art. 28 para. 1 FINSA must satisfy itself that:

• Its client advisers have sufficient knowledge of the FINSA code of conduct and that they possess the necessary knowledge and expertise required to perform their activities;
• Its client advisers have professional indemnity insurance coverage or equivalent collateral; and
• If it intends to provide services to high-net worth individuals, it has to be affiliated with a Swiss ombudsman.

Thirdly, the supplier must furnish a disclosure document to the Swiss clients it intends to provide financial services to, which must "clearly and prominently" state:

• That the financial services supplier is an entity incorporated in, or formed under UK law and is authorized and supervised by the relevant UK supervisory authority;
• That the duty to register its client advisers in accordance with art. 28 para. 1 FINSA is disapplied in accordance with the Agreement; and
• Information on its affiliation with an ombudsman.
  

Notification Requirements

Prior to accessing the Swiss market, UK financial services providers must notify the FCA once before they start providing services to covered Swiss clients through their client advisers on a temporary basis.

General Legal Requirements and Outlook

It should also be remembered that the above financial regulatory and supervisory requirements and exemptions are separate from other legal rules of general application, such as the question of who is allowed to provide services in Switzerland from a visa/entry requirements perspective and anti-money laundering laws. These must always be assessed and observed separately.

Notwithstanding any exemptions and simplifications under the BFSA, UK financial services providers wishing to provide their services in Switzerland must therefore be mindful of their legal obligations and should seek specific Swiss legal advice prior to providing their services cross-border. Our specialists are available to answer any questions and help avoid the pitfalls of this emerging area of financial services regulation.

Footnotes

1. The full text of the Agreement is available here and the key points are listed in the HM Treasury fact sheet here.
2. Which in the case of the UK means only Great Britain and Northern Ireland and not to any other UK territories such as Gibraltar.
3. Since a double taxation agreement between the two countries already exists, the Agreement does not deal with this particular topic.