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What is so ‘groundbreaking’ about the UK-Switzerland Berne Financial Services Agreement?

27 Mar 2024

By Xi Yu, Compliance Consultant

On 21 December 2023, the UK Government and the Swiss Confederation signed the Berne Financial Services Agreement on specific areas of wholesale financial services.

Undoubtedly, the key pillar of the agreement is the mutual recognition that both the UK and Switzerland’s regulatory standards and supervision regimes hope to achieve similar market integrity and investor protection outcomes.

In this article, we introduce the key features of the agreement and its impact on in-scope financial services providers.

Sector-specific mutual recognition

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.

We provide an overview for each of the in-scope industries below.

Asset management

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.

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.

Investment services

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.

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.

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.

Instead, the agreement requires UK investment firms to certify the appointed individuals’ 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.

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.

Mutual access to financial markets

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.

The long-term objective is to enable firms from both sides to access the other contracting country’s trading venues. For non-centrally cleared OTC derivatives, the view is to allow firms to rely either on Swiss or UK risk mitigation rules.

Wholesale insurance

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.

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.

It’s 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.

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’s 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.

The supervision of auxiliary services to insurance activities is governed by a second side letter also dated 21 December 2023.

Notification requirements

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:

  • Pre-contractual client disclosure in relation to the firm’s regulatory status, the choice of governing law and jurisdiction, whether the client has access to any financial compensation schemes and dispute settlement services, and, where relevant, the local taxes, levies, or fees to which the client may be subject
  • Provision of annual reports to the firm’s home regulator and the regulator of the host country, including the volume of business and revenue generated through cross-border activities, and
  • Notification to the home regulator and the host regulator of the firm’s intention to provide cross-border financial services under the agreement

The agreement instrument defers to each contracting country to develop its technical standards.

Note that these disclosures vary between sectors and that firms from each side are subject to different reporting requirements. Therefore, financial services providers who intend to take advantage of the mutual recognition mechanism should seek professional advice.

Supervisory cooperation

Cooperation between the Financial Conduct Authority (FCA), the Prudential Regulation Authority (PRA), and FINMA is embedded in the agreement.

For example, the PRA will emit an opinion to FINMA on whether a firm meets the criteria in Annex 4 and is in good standing before the firm is permitted to carry out insurance activities in Switzerland. Reciprocally, FINMA will alert the PRA if a UK insurance firm ceases to meet those conditions or is otherwise likely to cause harm to Swiss clients or the wider Swiss market.

Interestingly, the enforcement powers conferred to each host regulator are also asymmetrical in their remit. FINMA may restrict UK insurance firms from accessing the Swiss market and supervise an orderly wind-down whereas the FCA and PRA are granted similar prerogatives but with respect to Swiss investment firms only.


On the surface, the agreement will eliminate the need to implement two sets of distinct compliance frameworks and possibly avoid potential conflicts of laws.

However, there is a caveat. Where deference to the home regulator’s rules is not established, cross-border services will be subject to the laws of the host country. This will be the case for out-of-scope sectors and firms that are already authorised or licensed with the host regulator.

Nevertheless, the agreement should be of particular interest to financial intermediaries, especially in the investment management industry. For context, the value of the Swiss wealth management market is estimated at CHF 5 trillion, with 60% of foreign private assets. On the UK side, wealth management is projected to reach GBP 7.45 trillion by the end of 2024.

It is also worth noting that the agreement is a living document and consequently, additional sectors may be brought within its purview by supplementary annexes. The UK and Swiss governments have notably agreed to further cooperation on novel regulatory areas such as sustainable finance.

For now, the agreement is awaiting its ratification in the respective legislature of each contracting country before its provisions are transposed into domestic law. In the UK, the Financial Services and Markets Act 2023 empowers HM Treasury to amend the relevant national legislation to give effect to the agreement. The implementation phase of the Berne Financial Services Agreement is expected to be completed sometime in 2025.

Talk to IQ-EQ

To discuss the new Berne Financial Services Agreement or find out more about the support available from IQ-EQ’s expert compliance consulting and technical regulatory reporting teams, contact us today.

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