In its investigation into the distribution of capital-protected structured products to retail clients at the start of this year, FINMA identified shortcomings in relation to client protection. The law as it stands does not adequately protect the interests of clients when financial products are bought and marketed. FINMA is now putting forward various proposals on how the protection of retail clients could be improved. Implementation of the proposed measures would make a major contribution to strengthening the protection of clients and of Switzerland's reputation as a financial centre. Interested parties are invited to give their views on this topic.
At the start of 2010, FINMA presented the findings of its full-scale investigation into the distribution of capital-protected structured products to retail clients. This was triggered by the Lehman Brothers Holdings Inc. bankruptcy in autumn 2008. The investigation did not find any serious breach of applicable Swiss supervisory law, but it did show that the current regulatory regime does not adequately protect investment advisory and asset management clients. FINMA therefore launched a project to conduct a cross-sector examination of the existing distribution rules. It is today publishing the findings of this investigation, with the aim of promoting constructive dialogue to enhance the protection of clients when financial products are bought and marketed.
The focus is on rules of business conduct when marketing financial products and client information on such products. The law does address these problem areas in certain respects, but not adequately. It merely lays down isolated duties to get and provide information in relation to client needs. There are also only isolated provisions on disclosure of costs associated with a service or product and of an institution's own interests and conflicts of interest. In FINMA's view, it is also inequitable that some financial services providers are not subject to any registration requirement under the law as it stands, but are able to provide their services entirely free from any supervisory standards. Another finding was that transparency regarding financial products also needs to be improved at product level. Prospectuses for investments products must make clients aware of the material risks.
FINMA is advocating the following courses of action:
- Comprehensible description of the risks associated with financial products
- Rules of business conduct in client contact at the point of sale
- Improved documentation requirements at the point of sale
- Stricter regulation of cross-border distribution of foreign financial products in Switzerland
- Simpler product rules and rules of conduct for business with qualified clients
- Registration requirement for not prudentially supervised financial services providers at the point of sale
- Binding, simple and fast settlement of disputes with retail clients
As part of its supervisory activities, FINMA already checks under the existing law whether the financial services providers subject to its supervision comply with the existing obligations at the point of sale. Drawing on the results of this discussion paper, FINMA will look in considerable depth at the matters raised and will ensure compliance with the existing provisions, if necessary by means of enforcement. FINMA is also proposing a general "Financial Services Act" to implement the courses of action that it is advocating. However, experience has shown that even with clear political backing, it takes several years to bring such a legislative project to the point of entry into force. It would be faster, and therefore necessary, to implement a Federal Council ordinance on rules of business conduct in securities trading and the distribution of collective investment schemes, even though this would be limited to certain financial services providers already subject to prudential supervision.
FINMA invites all interested parties to give their views on this topic. Comments on the issues raised in this discussion paper can be submitted until 15 April 2011.
Dr Alain Bichsel, Head of Communications, Phone +41 (0)31 327 91 70, email@example.com