FIDLEG – A sneak peek at potential ordinance changes and implications - Banking blog

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Summer vacations are over and temperatures outside are slowly falling to autumn levels. In contrast, the heat is steadily rising for banks, with the Financial Services Act (FinSA/ German: FIDLEG) expected to come into force on 1 January 2020. The Federal Department of Finance (FDF) will ask the Federal Council to bring FIDLEG and the Financial Institutions Act (FinIA/ German: FINIG) - together with the Federal Council's implementing ordinances - into force on that date. A transition period of two years is anticipated (source: SIF). However, some voices are calling for an initial transition period of one year only, which will force banks to return to their initial project timeline.

Changes to the ordinance

The FDF has also announced its intention that the following key changes to the draft ordinances should be ratified in November 2019:

  • Material changes to risks and cost of financial services don’t need to be communicated to clients after a sale (FIDLEV art. 14 para. 2)
  • The terms (i) risk profile and (ii) investment strategy are included in the definition of the suitability assessment (FIDLEV art. 17)
  • An additional specification defines when a Basic Information Sheet (German: Basisinformationsblatt or BIB) is deemed to be available in the case of an execution-only trade. The specification defines that BIBs only need to be provided if they can be found with “reasonable effort”

What is the current status of your implementation?

For banks that are already well advanced with their FIDLEG analysis or implementation, it is advisable to review the situation. An assessment of whether the strategic direction they have taken is still appropriate or whether adjustments are necessary can produce new insights and yield areas for saving costs. Depending on the length of the transition period finally ratified by the Federal Council, financial institutions should consider the timing of their system changes to address FIDLEG. The advantages of going live earlier with FIDLEG, such as a shorter project phase and lower associated costs, have to be assessed against the potential disadvantages, such as limited flexibility for client-facing employees when serving their clients.

“By failing to prepare, you are preparing to fail.” This Benjamin Franklin quotation also holds true for banks that have not, or have only recently, started their FIDLEG implementation. This means they will need a thorough analysis of the requirements and their impact, as FIDLEG will affect most of their business processes. Careful planning and implementation will facilitate a smooth integration of new processes and tools and avoid a negative impact on the business.

Looking back at the legislative framework for MiFID II, which went live in 2018, late information and unstructured implementations harm operational performance. FIDLEV is expected to be ratified with a comfortable transition period. This should prevent the risk of urgent short-term fixes resulting in operational stress and higher than necessary costs.

An example of how an analysis at this stage could look like is Deloitte’s FIDLEG Maturity Assessment: Our experience-based approach enables you, as a financial institution, to understand the impact of FIDLEG on your organisation and to identify the recommended steps to comply with the standards in a quick way. All that is required from your side is to populate a web questionnaire and you will then receive an overview of the necessary actions for your FIDLEG journey. We support you in setting the course for your future business and operational readiness, thus enabling you to tackle the FIDLEG challenges with the optimal effort in a targeted manner.

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Deloitte FIDLEG Maturity Assessment (source: Deloitte, 2019)

Conclusion

FIDLEG is expected to come into force soon and it will have a substantial impact on banks. Hence, banks should assess the current status of their implementation and identify what further measures are necessary to meet the regulatory requirements. For banks already at an advanced stage with their implementation, a review of progress and outstanding actions can yield benefits from refining their plans and strategic decisions. Banks still in the early stages of their FIDLEG journey should take the opportunity to benefit from the experience and lessons of others in the market. This includes starting a FIDLEG program with a well- structured approach that considers the business opportunities and not just compliance with the legal requirements.

  Sergio icruz

Sergio Cruz - Partner, Financial Services, Zurich

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 a 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. Examples of areas Sergio covers include IBOR reform, FIDLEG / LSFin, FATCA / AEI, Basel requirements as well as cross-border investigations. Key clients Sergio has worked with include Swiss global and private banks as well as major UK and US banks.

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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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Gianluca-flammia

Gianluca Flammia - Senior Manager, Audit & Assurance Financial Services, Geneva

Gianluca is a Senior Manager within Deloitte Audit & Assurance FSI. Based in Geneva, he leads the Risk & Regulatory Assurance team in charge of regulatory, compliance and legal for the financial services industry in Western Switzerland and Ticino. He is an Attorney-at-law and holds a Master of law of the University of Geneva specializing in banking & financial services. With more than 12 years of experience within the banking & financial sector (as a consultant and in-house), he has a deep knowledge of this market as well as of the relating regulations with a particular focus on investors protection (MiFID II /FIDLEG) and AML.

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