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FINMA proposes package of measures to strengthen client protection

The Swiss Financial Market Supervisory Authority FINMA takes the view that Swiss financial market legislation needs to be improved as regards client protection. To reduce the asymmetrical power relationship between financial services providers and clients and strengthening the market, FINMA has written a position paper proposing as key measures clear rules of business conduct for financial services providers and better product documentation. It also sees the strategic extension of supervisory powers as necessary. These measures are to be implemented through legislation.

In order to improve protection for clients, FINMA proposes introducing a package of mutually complementary regulatory measures. FINMA published a discussion paper on regulating the production and distribution of financial products to retail clients in October 2010 stating that, under the current legislation, clients are neither sufficiently informed nor adequately warned about products that are not appropriate for them. In FINMA’s public consultation on this subject and the measures that could be taken, many participants also called for regulatory changes to strengthen client protection.

New rules of business conduct for financial services providers

At the core of the proposed package of measures are standardised, cross-sector rules of business for banks, insurers and portfolio managers with which they must comply in their contact with clients. The focus here is on the obligation to inform all clients about the content of a service and the characteristics of financial products, and to warn them about the risks involved. Clients should in future be clearly informed about all the costs associated with a service or the purchase of a product.

Better documentation for clients

FINMA is in favour of financial services providers furnishing clients with complete and readily understandable product documentation. In particular, providers of standardised financial products such as shares, bonds and structured products should be obliged to draw up a prospectus. This document must contain all the key details of the product and the provider and ensure transparency concerning the risks associated with buying the product. To ensure that retail clients are better able to understand compound financial products such as structured products and unit-linked life insurance plans, and are informed about the direct and indirect costs these products entail, FINMA is also calling for brief, roughly two to three-page product descriptions along the lines of the simplified prospectuses produced for securities funds.

Strategic extension of supervision and obligation to provide proof of relevant knowledge

FINMA considers a strategic extension of its supervisory powers as essential to ensuring that the proposed conduct and information requirements are put into practice. Portfolio managers, for example, should in future be allowed to exercise their wide-ranging powers of decision with regard to the investment of client assets only if they have been authorised by FINMA. In addition, all client advisors should prove that they know the applicable rules of business conduct and have the necessary specialist knowledge by taking a compulsory test and regular further training.

Implementation based on a new financial services act

The coherent implementation of the proposed measures requires a financial services act covering all the relevant sectors. Only those rules of business conduct that reflect the specific features of individual sectors should continue to be governed by the existing financial market laws.

In addition to these changes to supervisory law, FINMA also regards measures at the level of civil law as expedient. These should facilitate the enforcement of retail clients’ claims against financial services providers.

Contact
Tobias Lux, Media Spokesperson, phone +41 (0)31 327 91 71, tobias.lux@finma.ch