The rules and provisions under the new Swiss Financial Institutions Act (FinIA) will have an impact on proprietary traders in securities as participants to trading venues. Entities that have so far not been subject to regulation will need to become licenced as investment firms.
1. Summary of the key changes for proprietary traders in securities
The Financial Services Act (FinSA) and the Financial Institutions Act (FinIA), will likely enter into force on 1 January 2020. These new rules and provisions will have an impact on many family offices trading on their own account in securities and other proprietary trading firms that have so far not been subject to regulation as a securities dealer/investment firm, because they have not exceeded the annual turnover of CHF5bn in securities. Under the FinIA, they will however require a licence as a securities dealer/investment firm if they are members of a trading venue.
2. Current Swiss regulation of proprietary trading in securities vs. the future regulation of proprietary trading in securities under the FinIA
a) Currently: Proprietary trading in securities requires a licence as securities dealer if the annual turnover exceeds CHF5bn
Under the current law, proprietary trading in securities only requires a securities dealer licence/investment firm licence if the annual turnover in securities exceeds CHF5bn. Additional licences might be required, such as a banking licence, if additional financial market activities are conducted, such as the banking activity.
b) New regulation under FinIA: Proprietary trading in securities requires a licence as an investment firm if the entity is a member of a trading venue
Under the FinIA, the term “securities dealer” will be replaced by the term “securities firm” to align the Swiss terminology with the EU terminology. The Federal Dispatch accompanying the FinIA claims that the current regulatory regime applicable to securities dealers will also be applicable to investment firms under the FinIA-regime. One notable exception from this general principle is, however, the obligation of proprietary traders in securities that are members of a trading venue to become licensed as an investment firm. Pursuant to the FinIA, an investment firm is thus an entity that in a professional manner:
- trades securities in its own name for the account of the clients
- trades securities for its own account short-term, or
- mainly operates on the financial market,
- could jeopardise the functioning of the financial market
- acts as a member of a trading venue, or
- publicly continuously sets firm bid and offer prices for individual securities.
The current categories of investment firms that are “issuing houses” and “derivatives firms” will be abolished under the FinIA.
A licence as an investment firm under the FinIA-regime, however, is not required if a proprietary trader in securities is already licensed as a bank according to the Swiss Banking Act. The banking licence is the most demanding licence and encompasses all the other financial licences, meaning that with a banking licence, all other financial market activities can be conducted.
3. When do proprietary traders in securities have to become licensed as an investment firm?
Entities engaging in proprietary trading activities in securities that need to become licensed for the first time must report their existence to the Swiss Financial Market Supervisory Authority FINMA within six months after the entry into force of the FinIA (likely by 1 July 2020). The licensing application must be filed with FINMA within three years of the entry into force of the FinIA (likely by 1 January 2023). Applicants will be allowed to further trade without having an investment firm licence until the decision is made about the application, if they are a member of a Self-Regulatory Organisation for Anti-Money-Laundering Purposes and comply with their rules and provisions.
5. How can we help you?
PricewaterhouseCoopers has extensive experience in all matters related to the licensing process of investment firms and other regulated entities.
We offer you a free consultation on how your institution will be affected by the new provisions of the FinIA and the FinSA and offer to perform the notification filing with FINMA free of charge.
Please do not hesitate to contact us.
- Today, many family offices trading on their own account in securities and other proprietary trading firms that do not exceed the annual turnover of CHF5bn in securities are not subject to regulation.
- Under the FinIA, this will change.
- All such proprietary traders in securities that are members of a trading venue will have to become licensed as investment firms.