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Reto Luthiger
Jérôme Pidoux
Diana Lafita
Franziska Gall
Alessandro De Vecchi
Around five years after the entry into force of the Financial Services Act (FinSA) and Financial Services Ordinance (FinSO), FINMA has issued Circular 2025/2 (the Circular), making specific aspects of its regulatory practice public. The provisions aim to increase transparency towards clients in the provision of financial services.
Field of Application
The Circular applies to FINMA-licensed financial institutions providing financial services. The differentiation between FINMA-licensed and non-FINMA-licensed financial service providers appears challenging from a conceptual perspective as the FinSA was created to frame an overall architecture for the provision of financial services without making any differences between licensed and non-licensed financial service providers. The Circular participates to define the market standards and it is therefore likely that the provisions of the Circular will be, fully or partially, applied by Swiss courts to interpret the FinSA/FinSO in cases involving non-licensed financial service providers, assuming that the principle of legality is generally fulfilled by the Circular.
Placement Exemption
FINMA has clarified the already existing exemption of placement of financial instruments with or without a firm commitment (article 3 para. 3 let. b FinSO). According to FINMA, this exemption applies to services provided to companies and their shareholders that intend to finance themselves through the capital markets. This exception is already defined in the explanatory report to the FinSO dated 6 November 2019 (p. 19), which sets forth that the exception covers the first step in the placement process, i.e. the initial acquisition of shares by a bank or broker dealer/securities firm (this does not entail any offering of financial instruments from the financial institutions) but not to the second step of offering/placing such financial instruments, for instance via an IPO or a private placement, to investors.
Given that issuers are mainly not FINMA-licensed institutions, the Circular is silent regarding the question whether the direct placement by issuers towards investors is considered a financial service. We are of the view that irrespective of the potentially applicable prospectus duty, the direct placement by an issuer with an operating business (not a fund) to investors does not qualify as financial service as there is indeed no service provided to clients and the activity of offering per se is arguably not conducted on a for-profit basis (meaning that no fees are earned or charged to investors for such offering activity). Such direct placement by an issuer is purely made for financing purposes and the offering activity itself does not pursue a profit, therefore lacking the for-profit element of financial services falling under the FinSA.
Code of Conduct
The table below facilitates a conceptual understanding of the new aspects introduced by the Circular.
| Field of Application | Code of Conduct Duty /Organisational Measure | Obligation | Entry into Force |
| Investment advice | Information duty | Clear differentiation of the financial services renderd to clients, notably in case of investment advice whether it is with regard to a specific transaction (transaktionsbezogen) or portfolio based (portfoliobezogen). | 1 January 2025 |
| Use of CFDs | Information duty | Information on:
i. possible top-ups and the unlimited risk of loss; ii. the leverage effect, how margins work and counterparty and market risks (including slippage); and on a quarterly basis iii. the percentage of retail clients that within the past 12 months lost money, had a total loss of their margin at the closing of their position or had a negative balance after closing their position (by reference to the European Securities and Market Authority (ESMA) communication). |
(i) and (ii) on 1 January 2025; (iii) on 30 June 2025 |
| Portfolio management and investment advice taking into account of the client portfolio
(excluding execution-only) |
Information duty | Disclosure of non-standard concentration risks defined as investments of:
i. 10% or more in the same security; or ii. 20% or more of the same issuer. These disclosures are inapplicable with regard to the exposure to fund investments, provided that these are subject to regulatory risk diversification provisions. |
30 June 2025 |
| Portfolio management and investment advice
(excluding execution-only) |
Suitability and appropriateness | i. Review of knowledge and experience of clients must occur with regard to each relevant asset class.
ii. In case of portfolio management and investment advice taking into account the client portfolio: review of knowledge and experience in connection with investment strategy. iii. Implementation of risk-based questionnaire with level of precision commensurate to the complexity, risks and strategies of the financial services/instruments. |
1 January 2025 |
| Services involving securities lending (execution-only or portfolio management services) | Risk disclosure | The information to be documented in advance follows the provisions in former FINMA Circular 2010/2 so that FINMA’s existing practice is continuing under the FinSA and no new requirements apply. | 1 January 2025 |
| All financial services | Information duty and conflicts of interest | If the financial service provider considers own financial instruments and third-party financial instruments, the financial service provider must take appropriate organisational measures for the selection of financial instruments, based on objective and customary criteria (avoiding favoring own instruments due to conflicts of interest). Unavoidable conflicts of interest resulting from considering own financial instruments must be disclosed to clients. | 30 June 2025 |
| All financial services | Third party compensation / retrocessions | Related information must be visually highlighted in standardized (non-negotiated) contracts and either be made easily available physically or electronically to clients. | 30 June 2025 |
| If the exact amounts of third party compensation cannot be established in advance:
i. the range of expected compensation must be disclosed with regard to each asset class. ii. Additionally, in case of portfolio management and investment advice taking account of the client portfolio, the range of expected compensation in proportion to the portfolio value and investment strategy. |
1 January 2025 |
The following aspects can be highlighted in connection with the provisions mentioned above:
- The level of granularity of quarterly information to be provided to clients holding CFDs instruments does not seem to have sufficient legal background. The implementation of the relevant provisions in number 8 of the Circular is only explained in the Explanations accompanying the Circular, dated 31 October 2024, including by reference to the ESMA Communication regarding contracts for differences ESMA35-43-1135. It is to be seen whether it is acceptable to integrate EU-law into Swiss provisions without further legal basis, adding considerable regulatory burden to the already existing FinSA and FinSO provisions, especially after market players have already concluded the relevant implementation process of such provisions.
- The information on risk concentration, as well as the suitability and appropriateness provisions, apply to “portfolio management” services, but not to execution-only services, as these are referred to by the FinSA as “receipt and transmission of orders in relation to financial instruments” (article 3 let. c para. 2 FinSA).
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