The consultation procedure on the FinSO and the FinIO has been launched on 24 October. The FinSO in particular deals with the content of the Swiss Key Information Document. Inspired by the PRIIPS Regulation, the FinSO avoids certain controversial aspects at European level.
FinSO Key Information Document (“Swiss KID”)
On 24 October, the Federal Council opened the consultation procedure on the Financial Services Ordinance (FinSO) and the Financial Institutions Ordinance (FinIO).
The draft FinSO defines the structure and content of the Swiss "Key Information Document" (KID). This document describes the characteristics, risks and costs of a financial instrument. Investment firms shall provide a KID to investors benefiting from the highest level of protection (private clients). This section of the FinSO is the counterpart to the PRIIPS Regulation in the EU.
A "Swiss KID" is mandatory if a financial instrument is offered to clients in Switzerland. Similar forms drawn up under certain foreign legislation may also be used. PRIIPS KIDs and Produktinformationsblätter in Germany are mentioned as equivalent. FinSO does not impose any duties in case of an outbound cross-border offer of financial instruments from Switzerland. The local rules at the private customer's place of residence are relevant.
The Swiss Key Information Document must be prepared: (a) in an official language; (b) in English, or (c) in the client's language of correspondence. FinSO is rightly flexible on this point. At EU level, the KID must be written in an official language of the Member State where the PRIIP is distributed or in another language accepted by that Member State. The Key Information Document for collective investments shall in any case be written or translated into an official Swiss language.
No replication of aspects that are controversial at EU level
An exception is provided for financial instruments deemed simple to understand, in particular equities and fixed-income instruments that do not have the character of derivatives. FinSO provides examples (bonds with variable interest rates or with inflation protection).
Though inspired by the PRIIPS KID, the FINSA KID is not a true copy. FinSO avoids certain aspects controversial at EU level. A manufacturer is not required to include a synthetic risk indicator. FinSO does not define concrete calculation rules for performance scenarios or the different types of costs.
The chosen approach is sound. As the Federal Council notes, the current European standards only constitute "the best possible political compromise at the moment". These rules are likely to be revised in the near future. Swiss actors who so wish can apply the EU standard on a voluntary basis. An alternative approach, leaving more room for self-regulation, is also permitted. An intervention by the civil judge in case of defective advice remains possible, in any case.
A similarly flexible approach may be contemplated in other areas in view of the international dimension of the Swiss financial place. FinSO could in particular provide that a classification of clients under a foreign law is also recognized in Switzerland as it does for PRIIPS KIDs or German Produktinformationsblätter. According to the Federal Council, a financial firm may determine under its own responsibility that a foreign client segmentation is equivalent to Swiss law. The MiFID 2 segmentation is mentioned as an example.
New rules expected for 2020
The new rules are expected to come into force on 1 January 2020. After this date, current simplified prospectuses may still be used, on a transitional basis, for one year (structured products) or two years (collective investments). The consultation period for FinSO and FinIO expires on 6 February 2019.
Summary
- On 24 October, the Federal Council opened the consultation procedure on the FinSO and the FinIO. The FinSO in mainly about the information document, Swiss KID.
- The new rules are expected to come into force on 1 January 2020.
- A "Swiss KID" is mandatory if a financial instrument is offered to clients. Similar forms drawn up under certain foreign legislation may also be used.
