Strategic Regulatory Foresight Banking Report

2021-2023 Switzerland and Europe

Looking back at the past and forward to the years ahead, the COVID-19 pandemic has been, and will continue to be, the cause of unprecedented disruption to businesses and the global economy. As regards the financial markets, regulators around the globe have taken comprehensive measures to adapt the regulatory framework to maintain the functionality of the financial markets and safeguard stability and trust. Overall, successfully manoeuvring through this crisis requires financial market participants to remain alert and operate in a regulatory landscape that is rapidly changing due to public health requirements.

Even though other topics of utmost importance and affecting all levels of society, such as climate change, digital technologies or the handling of data, have been pushed into the background by the COVID-19 pandemic, they are not any less important.

On the contrary, now is the time to make a particular effort to tackle these challenges and make them the key themes of the massive reconstruction programmes established by governments. The COVID-19 crisis has, in fact, shown the weak spots and highlighted the need to digitalise and become more resilient, in harmony with nature and in a sustainable manner. Given the importance of the financial industry for the economy and society as a whole, it is particularly affected by these societal trends and corresponding action is required. As touched upon, apart from COVID-19, sustainable finance is another key regulatory topic for the time ahead. “Finances will be green, or they will not exist in the future”, French Finance Minister Bruno Le Maire pointed out. In response, legislators around the world are adopting comprehensive sustainable finance strategies and corresponding legislation. Given the dynamic of the green regulatory tsunami, these new legal requirements will significantly affect established processes, internal structures and product innovation. At the same time, these sustainability-related trends offer extraordinary opportunities for the benefit of the environment, society and the economy alike.

Against this background, this Strategic Regulatory Foresight Banking Report highlights the main regulatory initiatives in Europe and Switzerland. This report gives you an easy-to-read but fundamental overview of the upcoming regulations in Europe and Switzerland and distils the main regulatory themes concerning the financial industry for the next few years. The following key points are discussed:

Regulatory developments

Regulatory developments in Switzerland
  • Sustainable finance – Swiss movement
  • Amendments to the Swiss legislative framework for combating money laundering and terrorist financing
  • Institutions regulated under the Financial Institutions Act
  • FINSA: regulatory implementation
  • LIBOR (Swiss view)
  • Revised Swiss Data Protection Act (D-FADP)
  • Accounting rules for banks (ARB)
  • Initial margin for uncleared OTC derivatives – phases 5 & 6
  • DLT, blockchain and new categories of securities and registers – the Federal Council’s proposal
  • Next generation of Swiss recovery plans – recommendation
Regulatory developments in Europe
  • Sustainable Finance Regulation – Green Deal and recovery from COVID-19
  • Brexit
  • Investment Firm Directive
  • Intermediate Parent Undertaking Rules (IPU)
  • Whistleblowing Directive
International regulatory developments
  • How COVID-19 has changed the regulatory landscape in the financial sector
  • 2021 Basel III reform

Regulatory Outlook 2021-2023

Regulatory Outlook 2021-2023

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2021 Basel III reform

The Basel III framework consists of a collection of standards published by the Bank for International Settlements’ Basel Committee on Banking Supervision (BCBS, henceforth ‘Basel Committee’) in response to the 2007 global financial crisis. Compared with previous versions (Basel I, Basel II, Basel II.5), Basel III addresses weaknesses and vulnerabilities in the regulatory framework in order to improve the global banking system’s resiliency, ensuring that it is better able to withstand future potential financial crises.

In December 2017 the Basel Committee published the final version of its framework ‘Basel III reforms’, often referred to as ‘Basel IV’. This complemented the previously introduced Basel III framework and aims at restoring credibility in the calculation of risk-weighted assets (RWAs), reducing unwarranted variability and improving the comparability of capital requirements among banks. All key changes introduced with Basel IV can be found in our new Strategic Regulatory Foresight Banking Report.

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Sustainable Finance Regulation

Sustainable Finance is now in the focus of public and political attention. This is because the global financial system has an important role to play in the implementation of the United Nations 2030 Agenda (Sustainable Development Goals) and the Paris Climate Agreement. By directing financial flows into sustainable activities and integrating environmental, social and governance (ESG) criteria into business and investment decisions, the financial sector has great potential to change markets and to shape sustainable economic systems.

In March 2018, the European Commission’s Action Plan on Sustainable Finance provided decisive impetus to the topic of sustainable finance. The Action Plan sets out a comprehensive strategy to connect sustainability and finance, by amending financial regulations and policies and explicitly introducing sustainability aspects.

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Contacts:
Brexit – implications and way forward

After years of negotiations, Brexit is now a reality. The United Kingdom has completed its exit from the EU and, after an 11-month transition period, is no longer part of the EU single market and customs union. The transition period ended on 31 December 2020 with the Brexit deal. However, the Brexit deal leaves many relevant questions open for companies, especially in the financial sector, where no comprehensive agreement could be reached.

Given the complexity of the UK’s exit from the EU and the significant and long-term impact on the financial services sector, we are supporting you with the efficient implementation of regulatory requirements with our end-to end-services like Regulatory Radar, impact analysis of manufacturers/distributors, detailed legal framework assessment, entity structuring, strategic gap analysis, regulatory transformation, workshop-based approach.

Contacts:
Investment Firm Directive

The Investment Firm Regulation (EU) No 2019/2033 (IFR) and Directive (EU) 2019/2034 (IFD) introduced changes to MiFIR and MiFID II for the provision of investment servicesand activities in the EU by third-country firms.

These changes include new reporting requirements for third-country firms, namely that they report to ESMA on an annual basis and also mentioning the possibility for ESMA to ask third-country firms in the ESMA register to provide data relating to all orders and all transactions in the EU, whether on a firm’s own account or on behalf of a client, for a period of five years.

On 28 September 2020, ESMA published the final report on technical standards, which now have been submitted to the European Commission for the adoption of the final legal text. At the time of writing, is the standards are expected to enter into force on 26 June 2021.

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Money laundering and terrorist financing

Money laundering legislation in Switzerland, which has been a member of the FATF since 1990, was last reviewed in 2016. In its report, the FATF found that Switzerland’s money laundering policy was partially compliant with nine of the 40 FATF recommendations, and that its implementation was therefore not adequate overall. Since then, Switzerland has been in the ‘enhanced follow-up’ process, under which it must regularly inform the FATF about the progress made in remedying the shortcomings of its anti-money laundering system until this is next reviewed in 2021.

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Institutions regulated under the Financial Institutions Act

With the enactment of the Financial Institutions Act (FinIA) and the Financial Institutions Ordinance (FinIO) on 1 January 2020, the authorisation and supervision of portfolio managers and trustees became subject to new regulation. Portfolio managers and trustees now require authorisation from FINMA. However, they will be monitored by the supervisory organisations in respect of compliance with the obligations laid down in the FinIA and FinIO as well as compliance with the Financial Services Act (FINSA) and Anti-Money Laundering Act (AMLA). The supervisory organisations also require authorisation from FINMA and will be supervised by FINMA. If there are any violations, FINMA is responsible for enforcing financial market law. In addition, the organisational requirements for managers of collective assets, fund management companies and securities firms as well as branches and representations of foreign financial services firms are regulated in FinIA.

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FINSA: regulatory implementation

On 1 January 2020, the Swiss Financial Services Act (FINSA) entered into force. Most of the topics regulated by FINSA have a grace period of two years and therefore will become applicable by 1 January 2022. FINSA is often mentioned in the same breath as the EU’s MiFID II. In principle, MiFID II pursues similar goals to FINSA, but FINSA deals with many topics that are either found in another EU legal standard or are completely new or complementary.

For more information on the requirements of the new Swiss law and our related services, please visit our website.

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Contacts:
LIBOR

Due to significant manipulation in the past, international efforts have been made to replace the London Interbank Offered Rate (LIBOR) by the end of 2021 at the latest. With the introduction of the Swiss Average Rate Overnight (SARON), an important basis for the replacement of CHF LIBOR was established. But what is the current status of the replacement and are further regulatory efforts being made in Switzerland?

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Contacts:
Revised Swiss Data Protection Act (D-FADP)

Due to rapid technological and social developments, the Federal Act on Data Protection (FADP) is no longer up to date and therefore it is currently being revised. The intention is to adapt it to the changed scientific and public requirements, improve the transparency of data processing and strengthen the self-determination of data subjects. Furthermore, the revision will enable the ratification of the revised ETS 108 data protection convention of the Council of Europe. The revised FADP (D-FADP) seeks to align with the requirements of the GDPR and its ratification is crucial to ensure that Switzerland continues to be recognised by the EU as a third country with an adequate level of data protection and that cross-border data transfers remain possible to the same extent as today. 

What has happened so far and where are we now? Who is affected by the revision of the FADP? What are the main changes? All answers can be found in our new Strategic Regulatory Foresight Report.

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Accounting rules for banks (ARB)

On 14 November 2019, the new FINMA Accounting  Ordinance and the totally revised FINMA circular 20/1 ‘Accounting – banks’ were published. Both pieces of legislation entered into force on 1 January 2020. Although the accounting rules for banks have been formally substantially revised, the adjustments to be made by banks in their financial statements are minor, with the exception of the approach to creating value adjustments on non-impaired receivables.

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DLT, blockchain and new categories of securities and registers

In March 2019, the Federal Council proposed a series of amendments to the existing legislation in order to bring clarity in the regulatory landscape with respect to blockchain and distributed ledger technology (DLT). These amendments were submitted for consultation. As a result, the proposal has been revised and refined in a number of areas and comprises amendments to nine federal acts. The proposal is now in the hands of the Parliament for its formal adoption. In June 2020, it was debated at the National Council and adopted with minor amendments.

More specifically, the proposal is intended in civil law, in debt recovery and insolvency law, and in financial markets law. For more details read our Strategic Regulatory Foresight Banking Report or get in contact with our PwC experts.

Contacts:
Regulatory Radar

Given the green regulatory tsunami, there is an inherent risk of missing out on critical topics or taking required actions too late. The Sustainable Finance Regulatory Radar, a web-based platform, is our response to the regulatory avalanche, allowing users to keep track of the latest sustainability-related trends worldwide. We use it to provide clients with a comprehensive overview of the latest regulatory developments in various jurisdictions globally, including impact assessments and recommended actions.

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Contacts:
Compliance of the future

Compliance functions are under pressure to do more work and provide greater assurance with fewer and fewer resources. The answer is to make your investment in compliance go further by managing the right blend of people, technology and processes. This is especially important during COVID-19, with compliance risks increasing due to employees working from home, reduced staffing capacity, limited system availability and other factors.

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Contacts:
Benchmarking legislative systems

Across the globe, there is a growing trend towards greater transparency, participation, government accountability and effective policy-making in order to build trust between communities and governments. Overall, good governance is one of the key themes concerning the public sector, governments and legislative and political systems. In order to continuously improve in these areas, benchmarking has emerged as an effective tool to evaluate and guide public sector reform efforts. Considering the broad range of important public sector tasks and to be internationally competitive, benchmarking can add clear value for accurately understanding and assessing one’s own performance.

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Sustainable finance

The financial services sector today is coming under increasing worldwide regulatory pressure. With society’s understanding that banks, insurers, private equity, impact investors, pension funds, family offices and other market participants are the key drivers in financing and implementing the transformation to a sustainable economy, sustainable finance is gaining traction. Therefore, in the years to come, comprehensive sustainable finance strategies and legislation will significantly affect established processes, internal structures and product innovation. Becoming an organisation that is fully equipped to find and make sustainable investments is demanding. We can help you navigate the complexities of mapping opportunities and risks relating to sustainability.

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Contacts:
FINSA client advisor certificate

FINSA increases the compliance requirements for client advisors of non-FINMA supervised domestic and foreign financial service providers with clients in Switzerland. They must generally be entered in the newly established client advisor register under FINSA and have adequate know-how of the financial services provided, as well as know-how of the applicable compliance rules.

Do your client advisors comply with the new requirements under the Swiss Financial Services Act (FINSA)? Our response to the new requirement to prove knowledge of financial services and know-how related to behavioural rules under FINSA is the FINSA Client Advisor Test. It is the only tool that comprehensively certifies that a client advisor has the knowledge and know-how required according to Art. 6 FINSA.

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Dr. Antonios  Koumbarakis

Dr. Antonios Koumbarakis

Sustainability & Strategic Regulatory Leader, PwC Switzerland

Tel: +41 58 792 45 23

Dr. Günther Dobrauz

Dr. Günther Dobrauz

Partner and Leader Legal, PwC Switzerland

Tel: +41 58 792 14 97

Moritz  Obst

Moritz Obst

Strategic Regulatory & Sustainability Services, Legal, PwC Switzerland

Tel: +41 58 792 47 19