{"id":14,"date":"2024-03-27T08:52:58","date_gmt":"2024-03-27T08:52:58","guid":{"rendered":"https:\/\/iqeq.com\/ch\/2024\/03\/27\/what-is-so-groundbreaking-about-the-uk-switzerland-berne-financial-services-agreement\/"},"modified":"2024-08-07T13:08:03","modified_gmt":"2024-08-07T13:08:03","slug":"what-is-so-groundbreaking-about-the-uk-switzerland-berne-financial-services-agreement","status":"publish","type":"post","link":"https:\/\/iqeq.com\/ch\/insights\/what-is-so-groundbreaking-about-the-uk-switzerland-berne-financial-services-agreement\/","title":{"rendered":"What is so \u2018groundbreaking\u2019 about the UK-Switzerland Berne Financial Services Agreement?"},"content":{"rendered":"
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By Xi Yu, Compliance Consultant<\/em><\/p>\n

On 21 December 2023, the UK Government and the Swiss Confederation signed the Berne Financial Services Agreement on specific areas of wholesale financial services.<\/strong><\/p>\n

Undoubtedly, the key pillar of the agreement is the mutual recognition that both the UK and Switzerland\u2019s regulatory standards and supervision regimes hope to achieve similar market integrity and investor protection outcomes.<\/p>\n

In this article, we introduce the key features of the agreement and its impact on in-scope financial services providers.<\/p>\n

Sector-specific mutual recognition<\/h2>\n

Under the principle of deference, UK and Swiss firms will be able to provide specific financial services in the host country, provided they adhere to the regulatory requirements applicable in their home country.<\/p>\n

We provide an overview for each of the in-scope industries below.<\/p>\n <\/div>\n<\/section>\n\n

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Asset management<\/p>\n

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Asset management activities are governed by Annex 1 of the agreement. Part 1 reflexively confirms the existing mechanisms for cross-border advertising and offering of collective investment schemes to professional clients and institutional investors, such as eligible counterparties.<\/p>\n

Meanwhile, Part 2 provides the criteria for delegating risk and portfolio management to a firm based in the other contracting country. To no surprise, the delegated entity must be duly authorised or licensed in the local jurisdiction to carry out the relevant activities.<\/p>\n <\/div>\n <\/div>\n <\/div>\n

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Investment services<\/p>\n

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Annex 5 covers the provision of cross-border investment services. We note that the list of investment services virtually replicates the activities governed by MiFID II. These include, notably, portfolio management, investment advice, execution-only services, and ancillary activities, such as investment research or custodian services.<\/p>\n

Under the agreement, firms from both contracting countries will be able to deal with professional clients and eligible counterparties, as well as high net worth clients whose assets exceed GBP 2m or CHF 2m.<\/p>\n

Further, individuals appointed by UK firms to provide investment advice to Swiss clients will no longer need to register with the Swiss Financial Market Supervisory Authority (FINMA). This will do away with the requirement for individual advisers to sit the requirement examinations before dealing with Swiss clients.<\/p>\n

Instead, the agreement requires UK investment firms to certify the appointed individuals\u2019 knowledge of Swiss regulatory rules, warrant that the latter are covered under an adequate PII policy, and be affiliated with a local ombudsman where relevant.<\/p>\n

Note, however, that the exemption from obtaining an individual license with FINMA only applies where the firm does not operate a permanent establishment in the host country and purely provides its services on a cross-border or temporary presence basis.<\/p>\n <\/div>\n <\/div>\n <\/div>\n

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Mutual access to financial markets<\/p>\n

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The agreement seeks to extend mutual recognition to central counterparties and over-the-counter (OTC) derivatives. By way of a side letter dated 21 December 2023, both countries agreed to further cooperate on areas such as benchmarking, credit agencies, trade repositories, reporting and clearing obligations as well as intragroup exemptions.<\/p>\n

The long-term objective is to enable firms from both sides to access the other contracting country\u2019s trading venues. For non-centrally cleared OTC derivatives, the view is to allow firms to rely either on Swiss or UK risk mitigation rules.<\/p>\n <\/div>\n <\/div>\n <\/div>\n

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Wholesale insurance <\/p>\n

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Insurers, insurance distributors, and auxiliary services providers will be able to take advantage of the agreement to provide cross-border coverage for a wide range of general insurance risks listed in Annex 4.<\/p>\n

Eligible UK insurance firms will be exempted from the requirement to maintain a physical presence in Switzerland in order to carry out wholesale insurance activities.<\/p>\n

It\u2019s important to highlight that the agreement expressly precludes life insurance and a number of other insurance products from its purview. Annex 4 also provides additional requirements that will apply asymmetrically in each contracting country. For instance, UK firms will only be able to underwrite insurance risks geographically located in Switzerland.<\/p>\n

On a high-level note, only Solvency II firms that meet solvency requirements without relying on capital relief measures will be eligible to benefit from the agreement\u2019s mutual market access measures. Furthermore, firms must not have any liabilities deriving from underwriting life insurance policies, which will disqualify insurance undertakings that offer packaged products.<\/p>\n

The supervision of auxiliary services to insurance activities is governed by a second side letter also dated 21 December 2023.<\/p>\n <\/div>\n <\/div>\n <\/div>\n <\/div>\n <\/div>\n<\/section>\n\n

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Notification requirements<\/h2>\n

The agreement asks for specific disclosure and reporting requirements depending on the type of cross-border business firms intend to carry out. Generally, these consist of one or more of the following:<\/p>\n