FIDLEG – How the market participants see it - Banking blog

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With the publication of the eagerly awaited draft ordinance on 24 October, FIDLEG became more tangible and its provisions were sharpened. Based on the information available today, FIDLEG has similar objectives as the equivalent European legislation MiFID II and PRIIPs but applies a principle-based approach and is less detailed and prescriptive. Both legislations cover very similar requirements with a little twist in the details.

In light of the published draft ordinance, Deloitte hosted the webinar “FIDLEG: Seeing beneath the surface ”. The objective of the webinar was to address the provisions refined by the ordinance and outline their operational impact on financial organisations, while highlighting key commonalities and differences to European legislation. Alongside the webinar, the participants provided valuable insights regarding the FIDLEG implementation within their organisations. The fifth blog post in our FIDLEG series considers the outcome of these poll questions and addresses the implications for a successful regulatory journey.

Seeing beneath the surface of the FIDLEG ordinance

Our previous blog posts focused on various aspects of the new FIDLEG requirements (see our previous blog posts). In this blog, we explore the answers to six poll questions provided by the participants of our webinar “FIDLEG – Seeing beneath the surface” (click here for the recording) to share valuable insights on the FIDLEG implementation from an industry point of view. Although not statistically significant, the poll results help to provide a glance at different aspects of the FIDLEG implementation at this point in time.

FIDLEG from an industry perspective

1) How do you describe the progress within your organisation with regard to the implementation of the FIDLEG requirements?

Chart1Most organisations have assessed the impact of the FIDLEG regulation or have already started with implementing the FIDLEG requirements, which underlines the great awareness of FIDLEG among industry stakeholders. Considering the complexity of a typical implementation, it is essential to start now to ensure FIDLEG compliance by 1 January 2020. Further, the existing talent with relevant knowledge in - and outside of organisations provides a valuable know-how pool that should be leveraged before it diverges to other programmes and initiatives.

2) Which FIDLEG requirements do you expect to have the biggest impact on your organisation? (multiple choices were possible)

Chart2.1

The majority of organisations identified client segmentation and the subsequent suitability and appropriateness checks as the two most important concepts impacting their operations. The classification into retail, professional or institutional client forms the foundation of suitability and appropriateness considerations, and eventually defines the product and service offering.

Suitability and appropriateness is at the core of investor protection and requires organisations to substantially amend their advisory processes. Both requirements diverge from the existing MiFID II legislation and provide opportunities for organisations to approach the FIDLEG provisions tailored to their client base.

As FIDLEG offers more flexibility for clients to opt-in/-out of their classification and offers more leeway regarding suitability and appropriateness checks, organisations must decide if they should employ a “one size fits all” or a differentiated approach. While a “one size fits all” approach typically reduces implementation costs, a less restrictive, differentiated approach may extend the product and service offering to clients based in and served out of Switzerland.

3) How did your organisation approach compliance with MiFID II?

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With most organisations in the market having strong relationships with European clients, it does not come as a surprise that over 2/3 of participating organisations fully or partially implemented MiFID II requirements. For those organisations, there are several opportunities to leverage the implementation work already done and take advantage of some of the differences FIDLEG offers in comparison to MiFID II.

In addition to potential synergies with regard to client classification and suitability and appropriateness, the PRIIPS set-up can create an opportunity to standardise existing processes and facilitate the implementation of the FIDLEG requirements around the basic information sheet (BIB). The draft ordinance treats PRIIPs/ WpHG material as equivalent to the BIB, indicating that a separate Swiss BIB will not be required. However, the distribution process for BIB-equivalent documents must be amended to also include BIB documents for applicable products, which do not have a Key Information Document (KID).

4) Do you intend to harmonise MiFID II and FIDLEG in your organisation?

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* Note: Answer possibilities not selected by the participants: (1) Yes – “one size fits all” approach (2) No – regulations are handled separately

Not surprisingly, most financial institutions represented by the webinar participants will harmonise MiFID II and FIDLEG duties. A topic intensely discussed as part of the MiFID II implementation was the ban on inducements. As FIDLEG provisions are less stringent, organisations may retain inducements for non-EEA domiciled clients. A thorough evaluation of the level of reliance on inducements as a source of revenue, taking into account future market developments, is one key design decision organisations should make prior to the effective start of the implementation. Considerations should also be made whether to pass on inducements to clients directly as an additional service provided by the bank. In both cases, the existence of IT functionalities enabling an automated tracking and processing are a prerequisite.

5) For which activities do you consider a collaboration with a third party vendor in your organisation? (multiple answers were possible)

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With FIDLEG, client advisors have to provide retail clients a basic information sheet or equivalent European document before deciding to buy several financial instruments. The resulting challenge is to source an existing information sheet or obtain comprehensive and high quality data of own products to ultimately produce a BIB. The majority of organisations participating in the webinar also identified this challenge as an opportunity to work with third party vendors.

If already implemented, organisations should use this opportunity to assess and re-consider their current arrangements for PRIIPs, or start early to allow sufficient lead time to initiate the collaboration with external service providers to produce and source BIBs.

6) Does your organisation plan to align the FIDLEG implementation with other initiatives?

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Considering the broad impact of FIDLEG and its significant additional efforts across the client advisory value chain, organisations have identified the FIDLEG implementation as an opportunity to align with other initiatives. This includes for a big part of the participants measure for process improvements and automation leading to less manual work, enhanced compliance and simplified documentation and reporting duties.

Still, about 1/3 of the participants does not plan to harmonise the FIDLEG implementation with other initiatives, thus foregoing the synergy potential for a joint design and implementation effort.

Conclusion

Following the publication of the draft ordinance, insights from the webinar poll questions revealed that only one in eight organisations have not yet started their journey to becoming FIDLEG compliant. However, the survey has also revealed that the implementation maturity level is quite diverse with many financial institutions still at the beginning of their journey. A previous MiFID II/ PRIIPs implementation will help with becoming compliant, however, several key decisions are still required. An interesting fact revealed was also that only 2/3 of the banks plan a harmonisation with other ongoing initiatives, potentially not making use of a good opportunity to leverage the implementation efforts to address other pressing issues.

  Sergio icruz

Sergio Cruz - Partner, Banking Operations Lead

Sergio is a Partner at Deloitte’s Operational Transformation banking practice with strong expertise in risk and regulatory driven transformation. Sergio has over 22 years of experience in financial services with focus on banking operations, where he worked on several large assignments both in Switzerland and abroad, covering the implementation of regulatory requirements, the definition and implementation of target operating models and the development of front-to-back processes based on lean methodology. Examples of areas Sergio covered include FATCA / AEI, Basel requirements, cross-border investigations, e-discovery, credit and equity derivative products. Key clients Sergio has worked with include Swiss global and private banks as well as major UK and US banks.

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H. Birkner

Hartmut Birkner - Director, Regulatory Assurance Services

Hartmut is responsible for Deloitte’s Regulatory & Risk Assurance Services in Zurich. He has extensive experience working with Swiss and international banking groups and asset managers. He is a member of the NWE Steering Committee and the European Working Group of Deloitte’s EMEA Centre for Regulatory Strategy. Hartmut focuses on regulatory aspects of legal entity transformations as well as regulatory change with a strong focus on universal banks and asset managers. Prior to joining Deloitte, Hartmut served as general counsel on the executive board of the asset management arm of the third largest Swiss banking group.

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Dominik Ouschan

Dominik Ouschan - Senior Manager, Financial Services, Zurich

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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Felix Magold - Senior Consultant, Strategy and Operations, Zurich

Felix is a Senior Consultant in Deloitte’s Operations Transformation practise in Zurich. He specialises on regulatory change programmes for investor protection regulations (MiFID II, FIDLEG) and capital market reforms (EMIR, MiFIR, FinfraG) across the financial industry.

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