Thirty months after the Swiss Federal Council adopted the dispatch on FIDLEG (Finanzdienstleistungsgesetz) and FINIG (Finanzinstitutsgesetz), on 12 June 2018 the National Council resolved the final outstanding open points and adopted FIDLEG & FINIG on 15 June 2018. A consultation draft for the ordinances of the two regulations is expected in autumn 2018. FIDLEG & FINIG are the Swiss counterparts of the European MiFID II & PRIIPs regulations, which came into force in January 2018. Both sets of regulations (MiFID II/PRIIPs and FIDLEG/FINIG) seek to improve client protection and create a level playing field for financial intermediaries.

With players in the financial services industry already having undertaken a major effort to implement MiFID II and PRIIPs, they may now face similar challenges with FIDLEG. This first blog post in our FIDLEG series draws parallels with the most challenging requirements already experienced during the MiFID II implementation journey.

FIDLEG and FINIG adopted

Alea iacta est – in its session on 15 June 2018, the Swiss Federal Council adopted FIDLEG and FINIG. The Swiss banking industry now has 18 months to implement the regulations, which are expected to come into force early 2020.

Expected FIDLEG & FINIG implementation timeline

Learnings from the MiFID II implementation experiences

Due to its complexity and comparably low clarity in its guidelines, the implementation of MiFID II was considered cumbersome by the financial services industry, very often resulting in manual workarounds and causing frustration for clients, client facing employees and operations teams.
As the scope of FIDLEG is similar to MiFID II, lessons can be learned from MiFID II to help with the implementation of FIDLEG and ensure compliance with the new requirements. Below, we compare six elements of FIDLEG and MiFID II, outlining potential synergies for the FIDLEG implementation and important differences that need to be taken into account.

1. Basic Information Sheet (BIB – Basisinformationsblatt) – At first glance, the PRIIPs KID requirements may seemed easy to implement. However, the devil is in the detail. One example of a major challenge was the ad-hoc production of KIDs for OTC products due to low standardisation potential and high data availability requirements. In addition, post go-live experience uncovered problems around data quality (e.g. the financial instrument cost calculation) and industry repository reliability, causing some red faces in the sales process.
   
   FIDLEG is unlikely to create similar problems. Based on the adopted level 1 regulation, it seems that a separate Swiss basic information sheet will not be required, provided that an equivalent document from another jurisdiction is available. Recognised foreign documents (PRIIPs KID and UCITS KIID) are expected to be considered equivalent and can be provided instead of a BIB. However, the exact ruling and documents in scope should be provided with the ordinances for FIDLEG & FINIG (expected in autumn 2018).
   
   A key difference between PRIIPs and FIDLEG concerns the timing for the provision of the document to the client. PRIIPs KIDs and FIDLEG BIBs are required for specific retail products, but the requirements to provide FIDLEG BIBs are driven mainly by sales channel. Additionally, FIDLEG only requires a BID to be handed-out when products are recommended personally to retail clients (i.e. not within a discretionary mandate or within an execution-only situation). In spite of these differences, there are opportunities for synergy in handling the information sheet requirements for both PRIIPs and FIDLEG.
   
   
   

   Equality of the PRIIP-KID or two documents?
   
   

2. Client segmentation – The classification standards introduced by MiFID II were clarified at a very late stage, creating problems for financial institutions and resulting in cumbersome manual or semi-manual processes for client advisors.
   
   FIDLEG introduces a similar categorisation into private, professional and institutional clients, including opting-out (become professional) and opting-in (be treated as retail) parameters.
   
   Given these parameters, financial institutions should clearly define opting- out/ in processes early during their FIDLEG implementation to avoid confusion among client advisors and clients. Financial institutions need to decide whether clients can opt-out and opt-in on portfolio or asset class level. An assessment on asset class level increases the accuracy of the subsequent requirements while causing a bigger implementation effort and workload.
   
   In general, the implementation of MiFID II client segmentation can be leveraged for FIDLEG. Special attention should be paid to requirements around the institutional client segment, where reporting and investor protection rules differ slightly. An automated on-boarding process based on clear rules followed by pre-defined workflows, together with the suitability and appropriateness assessment as well as the MiFID II target market assessment, will facilitate the sales process by minimising errors and will also support regulatory compliance.
3. Best Execution – For financial institutions that implemented MiFID I, the successor’s concept of Best Execution was not a major challenge. MiFID II introduced new requirements on disclosure and additional asset classes. However, challenges occurred with gathering the required data for publications on TOP 5 trading venues from systems and repositories, which were prepared for such an exercise.
   
   The FIDLEG Best Execution concept is similar to the previously established concepts but has slightly different disclosure requirements. Not much additional effort may be required by financial institutions to comply with FIDLEG Best Execution rules, depending on the extent of their previous implementation work in this area for MiFID II.
4. Documentation requirements – With the MiFID II go-live, the documentation obligations for client advisors and financial institutions in general increased dramatically. Contracts and communications must be documented and handed out to clients on request. In particular, clients now have the option to request data on an ad-hoc basis, causing serious implementation challenges. The required data was often stored in different systems and was not easily accessible, putting timely delivery of data to clients at risk. FIDLEG contains similar requirements on documentation. In addition, the Swiss civil law requires financial institutions to keep all client-related data for a minimum of 10 years. Financial institutions have already taken steps to re-think and change the way they store and retrieve client data. Where financial institutions have already made changes for MiFID II, only minor adjustments should be required for the FIDLEG implementation. However, where the current system involves considerable manual input or interaction, automation is virtually essential as the entire client base will be affected by the documentation requirements.
5. Inducements and non-independent advice – MiFID II requirements on inducements include rules on independent or non-independent advice and call for quality enhancements by financial institutions if they are to retain inducements received. FIDLEG also requires transparent disclosure of inducements but it does not require non-independent advice or quality enhancements. Under FIDLEG, transparent disclosure and the client’s consent are sufficient prerequisites in order to retain inducements. FIDLEG therefore provides financial institutions the opportunity to take a strategic decision about whether to implement two processes or enforce the stricter MiFID II requirements.
   Two processes may cost more and require additional implementation effort. Depending on the business model of the financial institution, two processes could also provide an opportunity to secure a lucrative source of revenue.
6. Suitability and appropriateness – The introduction of a Target Market concept under MiFID II together with the suitability and appropriateness obligations depicted a challenge for some financial institutions. FIDLEG does not include Target Market requirements and takes a less complicated approach to suitability and appropriateness assessments. In contrast to MiFID II, FIDLEG requires a suitability and appropriateness assessment only when clients are advised, while there are no requirements with execution-only trades or discretionary portfolio management.
   
   Under FIDLEG, the appropriateness assessment is required for each individual transaction, the suitability assessment however can be assessed at portfolio level. A specific ‘suitability report’ is not required under FIDLEG. Nevertheless, there is a similarity to the MiFID II requirements in that each client meeting must be documented.

In many cases, the similarities between MiFID II and FIDLEG create opportunities to use the existing MiFID II set-up to standardise and optimise the sales process when tackling FIDLEG requirements. Additional synergies can be created by establishing automated processes. If you would like to read more about FIDLEG, please take a look on our website or contact our topic experts.

 

Sergio Cruz, Partner, Banking Operations Lead

Sergio is a specialist in Operational Transformation in banking with strong expertise in areas such as risk and regulatory driven transformation as well as finance and trading transformation. With over 20 years’ experience in financial services, his focus is on banking operations where he worked on several large assignments in Switzerland and abroad. Key clients include global banks in Switzerland and UK as well as private banks based in Switzerland.

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Hartmut Birkner, Director, Regulatory Assurance Services

Hartmut is responsible for Deloitte Switzerland’s Regulatory Assurance Services. He has substantial experience working with Swiss and international banking groups and financial services provider. Hartmut has performed MiFID introduction and implementation projects within the investment management industry. He has covered a broad range of topics including the identification of conflicts of interests, licensing and passporting as well as best execution or client order handling questions. His work covered the design and amendment of processes in collaboration with relevant stakeholders as well as drafting internal guidelines.

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Dominik Ouschan, Senior Manager, Financial Services

Dominik is a Senior Manager in Deloitte’s Financial Services Strategy & Operations Consulting team in Zurich and has more than 5 years of experience in consulting. He leads Deloitte Switzerland’s Regulatory Transformations offering and specializes in the effectiveness & efficiency as well as future of the Compliance function. Dominik is the co-author of the Deloitte point of view “Compliance 2025: DNA evolution in the Financial Services Industry”.

With close to 10 years of experience in the banking sector, he has served clients in the private banking, asset management and wealth management industry, primarily in their Corporate Center functions.

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Marc Berner, Manager, Financial Services

Marc is a Manager in Deloitte’s Financial Services Program Leadership team in Zurich and has 5 years of experience in consulting. He specializes in regulatory implementations as well as risk management for central counterparties. Marc drives the Deloitte FIDLEG initiative aiming to offer a tailored solution for each client’s set of requirements.

With 5 years of experience in the banking & financial industry sector, he has served clients in the investment banking, wealth management and stock exchange industry, primary as product life cycle and implementation specialist.

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