With the Brexit transition period having ended on 31 December 2020, the United Kingdom’s powers to grant equivalence to foreign stock markets came into force. As a result, the United Kingdom has approved a regulation which recognises Switzerland’s legal and supervisory framework for stock exchanges as equivalent. The regulation will come into effect on 3 February 2021.
Once the United Kingdom’s recognition of equivalence is legally binding, Switzerland is expected to remove current restrictions from trading Swiss shares on UK trading venues by deactivating its stock exchange protective measure in relation to the United Kingdom. As a consequence of the mutual recognition of stock market equivalence, the existing share trading bans between the United Kingdom and Switzerland will be lifted enabling UK shares to be traded on Swiss stock exchanges and Swiss shares to be traded on UK exchanges.
Switzerland has activated the measure to protect the Swiss stock exchange infrastructure in July 2019 following the EU’s refusal to extend equivalence to Swiss stock exchanges beyond 30 June 2019 due to insufficient progress on the EU-Switzerland Institutional Framework Agreement. The granting of equivalence by the EU is necessary for EU investment firms to trade on Swiss stock exchanges shares which are also traded on an EU regulated market or trading venue (so called share trading obligation). The share trading obligation was introduced by the Financial Instruments Directive (“MiFID II”) and the Markets in Financial Instruments Regulation (“MiFIR”) in 2018 and requires investment firms to ensure that the trades they undertake in shares that are admitted to trading on an EU regulated market or trading venue take place on (i) an EU regulated market (or multilateral trading facility), (ii) an EU systematic internaliser or (iii) a third country trading venue assessed as equivalent under the MiFID II. By failing to recognise Swiss stock exchanges as equivalent beyond 30 June 2019, EU investment firms were since 1 July 2019 no longer able to trade on Swiss stock exchanges shares which are admitted to trading on an EU regulated market or EU trading venue and as a result are required to trade dual-listed Swiss shares outside of Switzerland.
In response, Switzerland activated the measure to protect the Swiss stock exchange infrastructure as provided for under the Federal Ordinance on the Recognition of Foreign Trading Venues for the Trading of Equity Securities of Companies with a Registered Office in Switzerland (the “Ordinance”). Under the Ordinance, which was adopted on 30 November 2018, foreign trading venues have to obtain prior recognition from the Swiss Financial Market Authority (the “FINMA”) if they admit certain shares of Swiss companies to trading or facilitate trading in such shares. The FINMA grants recognition if, among other things, the foreign trading venue does not have its registered office in a jurisdiction that restricts its market participants in trading shares of Swiss companies on Swiss trading venues (so called restricting jurisdictions). Since the EU refused to grant equivalence to Swiss stock exchanges, Switzerland amended the list of restricting jurisdictions to include the member states of the EU. Consequently, trading venues in the EU have lost recognition under the Ordinance and are prohibited from offering or facilitating trading in certain shares of Swiss companies since 1 July 2019. Switzerland included the United Kingdom as an individual state in the list of restricting jurisdictions on 1 January 2020 following the United Kingdom’s departure from the EU.
Now, apart from lifting mutual share trading bans, Switzerland and the United Kingdom aim to strengthen their cooperation in other financial services areas. In June 2020, the finance ministers of Switzerland and of the United Kingdom issued a joint statement expressing their intentions to enter into a financial services agreement which is to be based on the mutual recognition of the applicable financial market regulation and the corresponding supervisory framework. The financial services agreement should enable cross-border market access between the two countries for a wide range of financial services in the areas of insurance, banking, asset management and capital market infrastructure but the details are yet to be agreed.