FINMA’s new circular on rules of conduct under the LSFin and OSFin was published on November 22, 2024 and comes into force on January 1, 2024. A transitional period of 6 months is provided for a number of provisions. Here is a summary of the new rules of conduct and organization:
Global advice vs. isolated advice: Clients should be explicitly informed whether the advisory mandate covers isolated advice (not taking into account a global analysis of the portfolio) or global advice concerning the entire portfolio.
Wealth management and global advisory services : Institutions must draw the client’s attention to unusual risk concentrations in the portfolio, e.g. when there is a concentration of at least 10% in individual securities or at least 20% in certain issuers. Exceptions are concentrations in connection with investment funds.
Customer risk profile : FINMA provides further details on the granularity of the information to be collected, indicating that the level of detail of the questions should be adapted to the complexity and risk profile of the investments, and to the investment strategies likely to be used for the financial service in question.
In-house products : Establishments will have to specify to the customer whether they use only third-party instruments for individual management, or whether they rely (in part or in full) on in-house products. If in-house products are used, the financial instruments must be selected using a process based on objective criteria customary in the industry. In addition, FINMA prohibits the use of mechanisms that encourage the selection of in-house instruments, such as employee incentive schemes. Finally, the institution must draw the customer’s attention to the inevitable conflicts of interest arising from the consideration of its own financial instruments.
Retrocessions : In contracts presented as forms, information on retrocessions must be visually highlighted. In this regard, FINMA points out that the requirements for information on retrocessions apply to asset management and global advisory services (taking account of the entire portfolio).
Finally, the circular also contains provisions concerning securities lending and CFDs (contracts for difference).
These points and their implications for financial institutions will be discussed in our next newsletter.
You can find the circular here.
