FINMA Circular on Rules of Conduct: Expiration of Implementation Period
On January 1, 2025, FINMA Circular 2025/2 on Rules of Conduct under the FinSA/FinSO ("Circular") came into force. FINMA has granted financial service providers a transition period until June 30, 2025 to implement certain provisions contained therein. In view of the upcoming deadline, this post shall provide a general overview of the Circular. For a detailed analysis please check the German text.
The Circular specifies individual requirements of the Financial Services Act ("FinSA") and the Financial Services Ordinance regarding the conduct and organisation duties of financial service providers. It reflects the practice and expectations of the regulator with regard to the points covered therein, is intended to create legal certainty and shall ensure uniform application of the law by FINMA, the Supervisory Authorities and the audit companies. It is an interpretation by FINMA of the FinSA and not positive law.
The Circular applies to all financial service providers, i.e. all "persons who provide financial services on a professional basis in Switzerland or for clients in Switzerland" (Art. 3 lit. d FinSA).
The Circular, which is relatively brief at six pages, is supplemented by the 23-page Explanations dated October 31, 2024. These contain details that are essential for interpreting the Circular.
The Circular in general terms deals with the below listed topics. A more detailed analysis can be found in our German text.
Duty to inform clients about type of investment advice: Service providers must clearly state whether investment advice is portfolio-based (requires a suitability assessment) or transaction-based (requires an appropriateness check). No transition period applies for this obligation since it is already mandated by law.
Risk disclosure with special focus on contracts for difference: Clients must be informed about leverage, margin calls, and loss risks. Quarterly loss disclosures to retail clients are required. Transition period until June 30, 2025.
Concentration risks: Clients must be warned about unusual concentration risks (e.g., ≥10% in one security, ≥20% in one issuer). Exceptions apply to collective investment schemes with regulated diversification rules. Transition period until June 30, 2025.
Suitability and appropriateness assessments: The Circular specifies the FinSA rules on suitability and appropriateness tests. No transition period granted.
Use of client securities / Securities lending: Rules for borrowing/lending client securities are specified. Continuation of previous FINMA guidance. No transition period.
Conflicts of interest: Specified rules on disclosing and managing conflicts when using proprietary products. Customers must be informed about any economic ties or incentives. 'Double dipping' is allowed but must be disclosed. Transition period until June 30, 2025.
Third-party compensation / Retrocessions: Must be clearly disclosed (according to current practice) and visually highlighted in standard contracts. This might lead to a repapering of the asset management / advisory agreements. Alternatively, clients may be specifically informed and (again) asked for acknowledgment. Transition period until June 30, 2025.
Although the Circular reiterates many existing legal standards and FINMA practices, it introduces some notable clarifications and new expectations of the regulator. Financial institutions are advised to conduct a comprehensive gap analysis to ensure compliance.
In most instances, discrepancies may be resolved in an elegant manner. We are happy to assist.
