Action required: the new regulations on OTC

This post is also available in: German

Action required: the new regulations on OTC derivatives will enter into force on 1 January 2016, affecting entities in all industries – including non-financial services.

The new Swiss Financial Market Infrastructure Act (FMIA) will impose new obligations on entities in many industries, such as (but not limited to) banking, finance, pharmaceuticals, chemicals, consumer goods and others with derivatives on their books. The first obligations of the FMIA will begin to take affect as soon as 1 January 2016.

Which derivatives are affected?

All derivatives, meaning financial contracts whose value depends on one or several underlying assets and which are not cash transactions, are subject to the clearing, reporting and risk-mitigation obligations, with the exception of:

  • Structured products
  • Securities lending and borrowing as well as repurchase agreements
  • Commodities derivatives if physically delivered, not traded on a venue, and not settled in cash upon unilateral choice
  • Currency swaps and forwards settled on a payment versus payment basis (the reporting obligation however still applies)

Will I be affected?

You will be affected if you are either a (small) financial counterparty or a (small) non-financial counterparty. A financial counterparty (FC) is any (Swiss-domiciled) bank, securities dealer, insurance and re-insurance company, parent company of a financial or insurance group or financial or insurance conglomerate, fund management company, or asset manager of collective investment schemes, collective investment schemes, occupational pension schemes and investment foundations (art. 48 et seq. OPA). To be classed as small, an FC requires a rolling average for its gross position in all outstanding OTC-derivatives transactions, calculated over 30 working days, that is below the threshold of CHF 8 billion of all outstanding OTC derivatives of all group companies.

A non-financial company (NFC) is any company which operates outside the finance industry. To be classed as small, an NFC requires gross positions in relevant outstanding OTC-derivatives transactions, calculated over 30 working days, that are below the following thresholds: CHF 1.1 billion (equity and credit) and CHF 3.3 billion (interest rate, commodities and other derivatives).

 What are my obligations?

In general, companies trading in derivatives subject to the FMIA must comply with the following obligations:

  • Clearing: clearing of certain derivatives which are designated OTC derivatives by the Swiss Financial Market Supervisory Authority (FINMA) via a FINMA-approved or recognised central counterparty is required, unless a small FC/NFC is involved.
  • Reporting: all derivatives (including exchange-traded derivatives) must be reported to a trade repository no later than one working day following the transaction.
  • Risk mitigation: OTC derivatives not being cleared are generally subject to risk-mitigation duties such as confirmation, reconciliation, dispute resolution, portfolio compression, valuation and an exchange of financial guarantees, unless exemptions apply to the small FC/NFC in question.
  • Trading on a trading venue: certain FINMA-designated derivatives might, at some point in the future, be subject to the obligation to be traded on a trading venue.

When do my obligations enter into force?

According to the consultation documents, the first obligations under the FMIA will enter into force on 1 January 2016.

These obligations require written documents setting forth how you clear over a central counterparty, establish the thresholds, report to the trade repository, implement risk measures and carry out trading. In case of a bank, it must ensure that an arranged postponement of termination of contracts by FINMA (based on Art. 30a BA), is enforceable.

What are my key considerations?

  • An impact analysis of how your business activities/group will be affected by the FMIA.
  • To what extent will you be able to rely on the processes and documentation that have been set up for EMIR purposes?
  • To what extent will you be able to rely on foreign legislation to fulfil your obligations under the FMIA?
  • To what extent will you be able to outsource the fulfilment of your obligations to a group company or third party?
  • To what extent will you have non-cleared derivatives on your books requiring the implementation of complex risk-mitigation measures?
  • Which OTC-derivatives obligations are affecting your activities?
  • With which financial market infrastructure(s) in which jurisdiction(s) do you want to fulfil your obligations?
  • When will you have to implement these obligations?


Find out how the new regulations on OTC derivatives are affecting your business and contact:

Guenther Dobrauz, Partner
Leader Legal FS Regulatory & Compliance Services
Office: +41 58 792 14 97
PricewaterhouseCoopers AG Birchstrasse 160 | Postfach | CH-8050 Zurich

Martin Liebi, Senior Manager
Head Capital Markets within Legal FS Regulatory & Compliance Services
Office: +41 58 792 28 86
PricewaterhouseCoopers AG Birchstrasse 160 | Postfach | CH-8050 Zurich

Published by

Martin Liebi

Dr. iur. Martin Liebi LL.M., attorney-at-law, CAIA, advises on and implements as Head Capital Markets within Pricewaterhouse Coopers Ltd. Legal FS Regulatory & Compliance Services practice, a wide array of regulatory change management programs.

Martin Liebi has more than 14 years experience with leading Swiss and US law firms in the areas of capital market law, banking law (private banking, asset management, and investment banking), financial market regulation, securities law, corporate law, M&A, and general commercial law.

He has been head legal with a Swiss Private Bank and head compliance with a Swiss Fund-of-Hedge Funds. He has studied law at Stanford University (LL.M.), the University of Zurich (Dr.iur.), the University of Fribourg (Lic.iur.), and Leiden University (LLC). He holds also a Management Degree from Harvard University.

He serves as judge at the commercial court of Zurich and is a lecturer at the University of Zurich’s LL.M. program in Banking & Finance (Regulation of European Capital Markets as well as Regulation of Banks and Securities Dealers). Martin Liebi publishes and holds talks regularly about current topics in financial markets law.