MIFID II, EMIR, RGPD, SRD II… What to make of these European laws that influence Switzerland without really affecting it?
The Swiss village
One of the attractions of the Swiss financial center is its pragmatism. Financial legislation is tedious and complex, as it is everywhere. But they are nevertheless more succinct and practical than their European equivalents.
For example, the LSFin and its ordinance total 80 pages, whereas MIFID II is more than twice as long and specifies each rule in great detail, whereas the LSFin merely sets out principles.
Switzerland is still an island in the middle of the European ocean. So what should we do with these European standards: ignore them? Comply? Watching them from afar?
Regulatory environments
No two regulatory systems in the world are alike. The scope of these regulatory universes also varies, not only from country to country, but also from law to law. This makes it extremely difficult for companies to understand which laws apply to them, and to what extent.
Navigating this jungle of European rules means first and foremost asking the right questions.
Question 1: Could this law be directly applicable to me?
Some laws apply to all companies that do business with residents or nationals of the jurisdiction concerned, even if the company is based in Switzerland. The General Data Protection Regulation issued by the European Union is a case in point. It covers all European residents who have provided data to a company – European or foreign: your employee or customer lives in France? The law applies to you!
This type of legislation has an immediate cross-border impact. FINMA itself closely monitors cross-border risk. In the event of a material breach, it can re-establish the legal order through an enforcement procedure (not counting the risk of direct sanction by the country concerned).
There’s no doubt about it: these laws need to be considered with care.
Question 2: Does this law increase my risk of litigation?
Certain laws are not applicable to companies located outside the jurisdiction concerned. The European MIFID II Directive is a good example. European regulators will not sanction a Swiss financial institution for failing to comply with MIFID II.
However, the Lugano Convention, signed in 2007 by Switzerland, the European Community, Denmark, Norway and Iceland, stipulates that the place of jurisdiction in the event of a dispute may be the customer’s place of residence. In this way, laws that do not a priori concern the company can suddenly become important.
Should the provisions of MIFID II be followed to the letter? This is a question that has no single answer, and one that the financial institution must decide in conjunction with its legal, risk and/or compliance departments.
the answer will depend on the establishment’s clientele, its type of business and its risk tolerance.
Question 3: Does this law have any implications for my investments?
Last but not least, some laws have cross-border implications without really meaning to – and quite often, without even realizing it. In fact, they impose certain obligations relating to the investments that may be in your customers’ portfolios.
One example is the 75% tax that France imposes on dividends from French companies, when the holders are residents of “Non-Cooperative States and Territories”. Is your customer a BVI or Panamanian company? In this case, investing in French companies may expose the investor to higher taxes.
Another example is the MIFIR directive, which requires European companies to publish certain information (pre- and post-trade transparency). If you do business with this type of company, you may be required to provide certain information about your company or your investments.
A final interesting example is the entry into force of the Shareholder Rights Directive II (SRD II). This law confers more extensive rights on shareholders of companies listed in the European Union. In this context, you may be obliged to provide information on the identity of the shareholders concerned, and therefore on your customers.
The Swiss village on European soil
Switzerland may not be part of the European Union, but it is deeply imbued with it. Keeping abreast of regulatory developments in our large neighbor is essential. Compliance isn’t always the case. The most important thing is to identify which European laws are binding and to comply with these obligations.
