Access to the United Kingdom financial market by Swiss providers under the “Berne Financial Services Agreement”: what music for the future?
After more than two years of negotiations and in-depth evaluations of their respective regulations, Switzerland and the United Kingdom – two states facing difficulties in accessing European financial markets – signed the “Berne Financial Services” on December 21, 2023. Agreement”, a mutual recognition agreement in many financial segments. The two States recognized the equivalence of their regulations and their supervisory system in the field of banking, asset management, investment services, insurance and financial market infrastructures. The interest of this agreement for the Swiss financial center lies in access, under facilitated conditions, to the United Kingdom market on a cross-border basis.
Once the agreement has been ratified by the Parliament of both countries, Swiss banks, securities firms, fund management companies, collective asset managers and wealth managers will be able to provide a wide range of investment services in the United Kingdom on the condition that they are authorized by FINMA to provide the same services in Switzerland – and that they actually provide them – and that they are not already authorized in the United Kingdom under the Financial Services and Markets Act 2000. Swiss establishments will be thus exempted from complying with the authorization conditions and prudential measures of the United Kingdom, the latter relying on Swiss authorization to practice and prudential measures. Services may be provided on a cross-border basis or through the temporary presence of employees on British territory, provided that this presence does not create a permanent establishment. Before providing any investment service, Swiss financial institutions must notify the Financial Conduct Authority (FCA) and FINMA, in accordance with agreed terms, of the authorized services they intend to provide in the United Kingdom, the type of financial instruments which will be the subject of these services and the targeted clients. They will then be entered in a register.
Cross-border risk management poses a significant challenge and cost for financial service providers; it also constitutes an important concern for FINMA.
The authorized investment services are numerous and the authorization to provide them will depend on whether the Swiss establishment is authorized to provide them in Switzerland. For financial service providers under Swiss law, the agreement covers the receipt and transmission of orders relating to the financial instruments designated by the agreement (such as transferable securities, money market instruments, fund shares , options and derivatives), the execution of orders on behalf of clients, wealth management, investment advice and the granting of credits to execute transactions on financial instruments.
Once announced to the FCA and registered in the UK register, Swiss financial service providers will be able to provide services to clients designated under the agreement, namely eligible counterparties (similar category to institutional clients), professional clients per se and wealthy clients (High Net Worth Covered Clients (HNWCC)). This latter category differs slightly from that of wealthy private client entitled to request to be treated as a professional client under the FinSA. These are individuals with a net worth of more than GBP 2 million who, taking into account the service offered and the transactions envisaged, are able to make their own investment decisions and understand the risks involved, to provided that they have declared in writing that they wish to be treated as HNWCC for the service which will be provided to them and that they understand in doing so to waive the protection offered by United Kingdom legislation. Similar rules are provided for private investment structures which act on behalf of individuals resident in the United Kingdom.
Swiss financial service providers who provide their financial services in the United Kingdom will be subject to the rules applicable in Switzerland, such as the FinSA conduct rules. They will, however, be required to communicate additional information to British customers prior to the provision of services, relating in particular to their lack of authorization in the United Kingdom, to the law applicable to the business relationship or even to the absence of certain rights. arising from British regulations. They will also be required to report certain information to the FCA annually.
Cross-border risk management poses a significant challenge and cost for financial service providers; it also constitutes an important concern for FINMA. The provision of financial services is in principle regulated by each State and foreign regulations are far from uniform, which generally makes access to a foreign market – when possible – expensive and very complex at the operational level. The Berne Financial Services Agreement will allow Swiss providers to promote and provide financial services not only without authorization requirements but also in accordance with their own prudential rules. Risk management for service providers will thus be greatly facilitated. The adoption of the agreement portends encouraging development prospects for the Swiss financial industry in one of the world’s main financial centers.
