Attention to new sanctions related to Russia

The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) sanctions Russian oligarchs, officials and entities.

OFAC has designated seven Russian oligarchs and 12 companies they own or control, 17 senior Russian government officials and a state-owned Russian weapons trading company and its subsidiary, a Russian bank.

What does this regulation mean for U.S. persons?

U.S. persons are generally prohibited from dealings with designated individuals and entities subject to U.S. jurisdiction. This prohibition also applies to employees and board members of designated entities if they are subject to U.S. jurisdiction.

OFAC has issued General License 12, which authorises a time-limited maintenance or wind-down of operations, contracts or other agreements (e.g. authorising the transfer of shares) that were in effect prior to 6 April 2018. Furthermore, General License 13 authorises U.S. persons with shares in a designated entity or blocked entity (50% OFAC rule) to divest or transfer these shares to a non-U.S. person, or to facilitate the transfer by a non-U.S. person to another non-U.S. person of debt, equity or other holdings in the blocked entities listed in this General License.

What does this regulation mean for companies owned or controlled by designated individuals or entities?

Property and interests in property of entities of which 50% or more is directly or indirectly owned by one or more designated individual(s) or entity(ies) are considered as blocked regardless of whether such entities appear on the OFAC’s Specially Designated Nationals and Blocked Persons List (SDN List).

Such participations could lead to significant difficulties not only with U.S. persons and entities, but also with non-U.S. persons (if applicable under the specific regulation) and persons who are risk-averse in the fairly long-term. Furthermore, this scenario could also result in reputational damage.

Will foreign persons (non-U.S. persons) be subject to sanctions for doing business with designated individuals or entities?

Foreign persons (non-U.S. persons) could also be subject to sanctions for doing business with designated individuals, entities and blocked entities (50% OFAC rule) for knowingly facilitating significant transactions, including deceptive or structured transactions, for or on behalf of any person subject to U.S. sanctions with respect to the Russian Federation or their children, spouses, parents, or siblings.

Broad factors for “significant transaction” and “significant financial transaction” include the size, number and frequency of the transaction(s), the nature of the transaction(s) or the level of awareness of management and whether the transaction(s) are part of a pattern of conduct.

You can count on us

Would you like to ensure compliance with sanctions regulations, review or expand your existing sanctions compliance system, or do you have any specific questions about sanctions regulations? We will be happy to actively support you as your partner:

  • We can help you carry out health checks and ensure compliance with your obligations in accordance with the specific OFAC regulation on designated individuals, entities or blocked entities.
  • Furthermore, we can help you carry out health checks and ensure compliance with your obligations in accordance with local (e.g. SECO, UNO) and EU sanctions regulations in general, including a comprehensive report with clear guidance on the next steps you need to take.
  • We can provide you with a memorandum on specific questions with regard to your business model or project.
  • We can offer support with the practical implementation of an adequate compliance management system.
  • We can assist you with the development, improvement and implementation of your organisation, policies, guidelines, procedures, training and controls.

Contact us

Susanne Hofmann
Director
Leader Legal Compliance, PwC Switzerland
Direct: +41 58 792 17 12
susanne.hofmann@ch.pwc.com

Simeon Probst
Partner
Leader Customs & Trade, PwC Switzerland
Direct: +41 58 792 53 51
simeon.probst@ch.pwc.com

Gianfranco Mautone
Partner
Leader Forensic Services and Financial Crime, PwC Switzerland
Direct: +41 58 792 17 60
gianfranco.mautone@ch.pwc.com

Désirée Bysäth (Author)
Assistant Manager
Legal Compliance, PwC Switzerland
Direct: +41 58 792 40 03
desiree.bysaeth@ch.pwc.com

Swiss bond trading report 2018

Regulation of bond trading: Setting the scene

The following chapter will provide an overview of the key regulatory requirements for trading professionally in securities in the form of a bond in Switzerland.

A bond in the form of a «security» in the sense of Art. 2 para. 1 lit. b FinfraG/FMIA is offered at uniform conditions to multiple parties. Securities are, in other words, standardised, certificated and uncertificated financial instruments suitable for mass trading. They are thus either offered publicly in a similar structure and denomination or placed with more than 20 clients, unless they are being created specifically for individual counterparties.

A security in the form of a bond can trigger multiple legal consequences when being traded. These consequences are:

  • Persons professionally trading in securities will potentially have to apply for a licence as a securities dealer (the Swiss equivalent of an investment firm or broker/dealer).
  • Facilities allowing for the multilateral trading of securities require a licence as a stock exchange or multilateral trading facility (MTF).
  • Facilities allowing for the bilateral trading of securities must be operated by a duly licensed operator (the Swiss bilateral version of an OTF,which replaces the Systematic Internaliser in the EU).
  • The public offering of securities requires a prospectus. The listing of securities on a trading venue (stock exchange and MTF) also requires the filing of a listing application and the creation of an accompanying prospectus.

Read the full report

Contact Us

Martin Liebi
Director, PwC Legal Switzerland
Tel: +41 58 792 28 86
martin.liebi@ch.pwc.com

Blockchain: Key challenges to get your solution GDPR compliant

What is the General Data Protection Regulation (GDPR) about?

The General Data Protection Regulation (GDPR) (EU) 2016/679 harmonises personal data protection law on the territory of the European Union (EU). It stipulates rules on data processing and on the transfer of personal data in and outside the EU. Coming into effect on 25 May 2018, it will replace the 1995 Data Protection Directive (Directive 95/46/EC). Non-compliance with the GDPR may lead under some circumstances to severe fines of up to 4% of worldwide annual turnover.

What are the key challenges the GDPR triggers for blockchain?

Depending on the blockchain-based activity the GDPR raises considerable legal concerns. Among the most relevant ones relate to the processing principles of data minimisation and storage limitation. Some key challenges relate specifically to blockchain features, such as:

    • Immutability of transactions
    • Replication
    • Encryption
    • Data controllers and data processors

Read the full article

 

Contacts

Dr. Guenther Dobrauz
Leader|PwC Legal Switzerland, Zurich
+41 58 792 14 97
guenther.dobrauz@ch.pwc.com

Susanne Hofmann
Director|PwC Legal Switzerland, Zurich
+ 41 58 792 17 12
susanne.hofmann@ch.pwc.com

Dr. Idir Laurent Khiar
Manager|PwC Legal Switzerland, Zurich
+41 58 792 17 51
idir.laurent.khiar@ch.pwc.com

Orkan Sahin
Assistant Manager|PwC Legal Switzerland, Zurich
+41 58 792 19 94
orkan.sahin@ch.pwc.com

Restrictions related to the sale, distribution, or marketing of CFD and Binary Options to EU-domiciled retail investors also for Swiss-based financial market participants coming soon

The European regulator ESMA has announced that soon restrictions related to the sale, distribution, or marketing of CFD and Binary Options to retail investors domiciled in the EU will become effective. The prohibitions will also apply  to Swiss based financial market participants engaging in such activities purely on a cross-border basis. The restrictions will become effective one month in case of Binary Options respectively two months in case of CFD after their publication in the Official Journal and will last for three months, but might be prolonged thereafter. Affected market participants have thus some limited time to prepare.

Restrictions applicable to contracts for difference (CFD)

Affected by the restrictions are contracts for differences (CFD), meaning any derivative other than an option, future, swap, or forward rate agreement, the purpose of which is to give the holder a short or long exposure to fluctuations in the price, level, or value of the underlying that must be settled in cash or may be settled in cash at the option of one party other than by reason of default or another termination event. Warrants and turbo certificates are not affected.

The restrictions will consist of the following measures:

  • Leverage limits: leverage limits will apply on the opening of CFD positions. The following initial margin requirements will apply:
    • 3,33% if the underlying is composed of any two of the following currencies: USD, EUR, JPY, GBP, CAD, or CHF.
    • 5% when the underlying is one of the key mentioned international indices, a currency pair of at least one of the currencies mentioned above, or gold.
    • 10% when the underlying is another commodity or another equity index.
    • 50% if the underlying is a cryptocurrency.
    • 20% if the underlying is a stock not listed above.
  • Margin close-out rules per account: margin close-out rules per account and not per position apply if the sum of the funds in the CFD trading account and the unrealised net profits of all CFD positions connected to that account fall to less than half of all initial margins of these CFD-positions. Margin close-out rules of 50% per position are still applicable.
  • Negative balance protection on a per account basis: negative balance protection on a per account basis limits a retail investor’s aggregate liability for all CFDs connected to a CFD trading account with a CFD provider to the funds in the CFD trading account.
  • Restrictions of incentives of CFD trading: no monetary benefits can be provided to retail investors other than the proof of a CFD. These restrictions will apply to all existing and prospective clients.
  • Risk warning: appropriate risk warnings must be included in all communication and publications containing the percentage of retail investors that lost money over the preceding twelve months.

Restrictions applicable to Binary Options

Restrictions will also apply to Binary Options, meaning any cash settled derivative in which the payment at close-out or expiry of a predetermined fixed monetary amount or zero depends on whether one or more specified events in relation to the underlying occur at, or prior to the derivative’s expiry. There will be a three-month prohibition on the marketing, distribution, or sale of Binary Options to retail investors domiciled in the EU.

Contact Us

Martin Liebi
Director, PwC Legal Switzerland
Tel: +41 58 792 28 86
martin.liebi@ch.pwc.com

 

A primer on the regulation of the trading in cryptocurrencies and the asset management related to cryptocurrencies in Switzerland

Cryptocurrencies, which are based on distributed ledger technology, have gained importance in financial services in the recent past. This primer seeks to give an overview of the key obligations under Swiss regulatory laws related to:

  • Trading in cryptocurrencies
  •  Initial coin offerings (ICOs)
  • Entities trading in cryptocurrencies
  • Asset management related to cryptocurrencies
  • Anti-money laundering obligations

Trading in cryptocurrencies is increasingly subject to regulation on multiple levels, namely:

  • Trading
  •  ICOs
  • Entities trading in cryptocurrencies
  • Asset management related to cryptocurrencies

Payment tokens, exchange of cryptocurrencies into fiat money, custody wallets, banks, securities dealers and asset managers are generally subject to anti-money laundering requirements, such as registration, supervision and identification of counterparty requirements. Anti-money laundering obligations are the basic regulatory requirements that apply to most entities trading in cryptocurrency markets. Depending on their additional activities, they might require a licence as a bank, securities dealer (Swiss version of an investment firm), bilateral organised trading facility (OTF) or asset manager, or a combination of these licences. Switzerland is also planning to introduce a new licence category in the near future, called fintech-bank. Licences are required in the cases listed below.

  • Accepting client deposits, in particular when issuing OTC derivatives which are not securities, generally requires a banking licence. The banking licence is the highest regulated category of financial market participation. Cryptocurrencies and their associated private keys may be deposits under the Swiss Banking Act.
  • Trading in cryptocurrencies which are securities, either on behalf of clients or on one’s own account (if certain turnover thresholds are being exceeded), generally requires a securities dealer licence. The licensing requirements also apply to the entity’s public issuing of derivatives. Bilateral systematic internalisation of cryptocurrencies and related derivatives or financial instruments is subject to additional regulatory requirements under the Swiss Financial Market Infrastructure Act (FMIA).
  • Asset management activities related to Swiss and foreign collective investment schemes regarding cryptocurrencies and related financial instruments generally require a licence. The distribution of collective investment schemes and the representation of foreign collective investment schemes also require a licence. Individual portfolio management and advisory activities are, under the current regulatory regime, not subject to a licensing requirement (except for AML registration). However, this is likely to change under the new regulatory regime planned to enter into force soon.

Trading in cryptocurrencies that are derivatives may be subject to multiple obligations depending upon the status of the counterparties involved, such as reporting and risk mitigation (trade confirmation, portfolio reconciliation, portfolio compression, dispute resolution and valuation, as well as initial and variation margins).

Read Full Report

Contact Us

Martin Liebi
Director, PwC Legal Switzerland
Tel: +41 58 792 28 86
martin.liebi@ch.pwc.com

The new European rules for securitisations

The EU has enacted a new set of regulations applicable to securitisations, and a more specific framework for simple, transparent, and standardised securitisations (“the regulation”).

A securitisation is any transaction or scheme that tranches the credit risk associated with an exposure or pool of exposures. Payments in the transaction are dependent upon the performance of the exposure or of the pool of exposures and the subordination of tranches determines the distribution of losses. The regulation is the next building block in the ambitious capital market union (CMU) project and is directly applicable without transposition into national legislation of the EU member states beginning as of 1 January 2019.

The new EU rules on securitisations will affect originators, sponsors, original lenders, special purpose vehicles, institutional investors and anyone selling securitisations to retail investors without differentiation whether domiciled in the EU or in a third country such as Switzerland. There are general rules applicable to all securitisations. Other rules are only applicable to certain categories of securitisations called simple, transparent and standardised securitisations, and the sub-category asset backed commercial paper securitisations. Non-compliance with the rules can be sanctioned with fines of up to EUR 5m. or 10% of the total annual net turnover.

Download report

Contacts

Martin Liebi
PwC | Dr.iur., LL.M., Attorney-at-law
Legal FS Regulatory and Compliance Services | Head Capital Markets
Office: +41 58 792 2886 | Mobile: +41 76 341 6543
Email: martin.liebi@ch.pwc.com

Antonios Koumbarakis
PwC | Legal FS Regulatory and Compliance Services
Office: +41 58 792 4523 | Mobile: +41 79 267 8489
Email: antonios.koumbarakis@ch.pwc.com

FATCA Certification: Extension of Deadline and Draft Certification Texts Published

On 16 March 2018, the Internal Revenue Service (“IRS”) published the FATCA Responsible Officer certification texts on its website (in draft form). Additionally, the IRS extended the deadline for the FATCA Responsible Officer certification. Please refer to the following link for access to the draft FATCA certification texts as well as the notice regarding the deadline extension.

The IRS also announced that the IRS’s FATCA Certification Portal (“IRS Portal”) will not be available until July 2018 (at the earliest). Based on the newly provided information, we understand that the IRS will grant FATCA Responsible Officers an extension of at least three months (as per the activation date of the IRS Portal) for the FATCA Certification. This means that the FATCA Certification deadline will be extended from 1 July 2018 to 1 October 2018 (assuming the IRS Portal is activated on 1 July 2018).

Furthermore, the IRS published different draft certifications texts for the various Financial Institution categories (e.g., Reporting Model II FFI, Local FFI, etc.). An initial review of the draft certification texts indicates no unexpected surprises in terms of the content or scope of the FATCA Certification.

As we continue to analyze the certification texts, we will actively post any new and relevant information. In the meantime, please feel free to contact us in case of any questions.

Contact

Bruno Hollenstein
Partner, Operational Tax
+41 58 792 43 72
bruno.hollenstein@ch.pwc.com

Melanie Taosuwan
+41 58 792 4249
melanie.taosuwan@ch.pwc.com

OECD Issues Model for Mandatory Disclosure of CRS Avoidance Schemes

On 9 March 2018, the Organisation for Economic Co-operation and Development (“OECD”) issued new model disclosure rules that require the mandatory disclosure of OECD Common Reporting Standard (“CRS”) avoidance schemes. The model will require lawyers, accountants, financial advisors, banks and other service providers to inform tax authorities of any schemes they put in place for their clients to avoid reporting under the CRS. Additionally, under the model, reporting of structures that hide beneficial owners of offshore assets, companies and trusts is required. The OECD also hopes to deter the design, marketing and use of these arrangements and schemes and bolster the overall integrity of the CRS.

The document issued by the OECD provides background information regarding the CRS anti-avoidance topic, includes text of the model itself, as well as a commentary to explain the model. As a next step, the model disclosure rules will be submitted to the G7 presidency in an effort to adopt a wider strategy of monitoring and acting upon market tendencies to avoid CRS reporting and hide assets offshore. Within the scope of the CRS anti-avoidance work, the OECD is also addressing cases of abuse of golden visas and other schemes used to circumvent CRS reporting.

Please refer to the link for access to the OECD’s new model disclosure rules.

Additionally, please refer to the link for access to the OECD’s accompanying FAQs.

Contact

Bruno Hollenstein
Partner, Operational Tax
+41 58 792 43 72
bruno.hollenstein@ch.pwc.com

FinTech Action Plan – European Commission launches measures for a more competitive and innovative financial marketplace

For many financial services companies, financial technology (short “FinTech”) and technological innovation in general offer tremendous opportunities in terms of access to finance, operational efficiency, cost savings and competition. On March 8th 2018 the European Commission presented an action plan with a total of 23 measures to make better use of the opportunities offered by technological innovations in the financial services sector. The EU wants to become a global hub for FinTech in the future.

The Action Plan has three main objectives:

  • to support innovative business models to scale up across the single market;
  • to encourage the uptake of new technologies in the financial sector; and
  • to increase cybersecurity and the integrity of the financial system.

The FinTech Action Plan

In order to achieve the above mentioned objectives, the following measures are planned, among others:

  • The Commission will operate a FinTech laboratory in which European and national authorities will be able to collaborate with technology providers in a neutral environment.
  • Continuation of the already opened EU Blockchain Observatory and Forum. The Forum will report on the opportunities and challenges of crypto assets later in 2018 and is already working on a comprehensive study of distributed ledger and blockchain technologies.
  • The use of innovative technologies to interconnect national databases is intended to promote the digitization of information published by listed companies in Europe. In the future, this will enable investors to access essential information in order to make their investment decisions easier.
  • In order to improve the exchange of information on cyber security, the Commission will organise regular workshops.
  • The Commission will present a best practice guide on regulatory sandboxes based on guidance from the European Supervisory Authorities. A sandbox is a safe and controlled space where FinTech companies can test innovations in the market, with or without regulatory relief.

Regulation on Crowdfunding

In the field of crowdfunding, the European Commission has put forward a comprehensive proposal for a regulation which will create a European legal framework for this form of financing for the first time. The European Commission wants to make it easier for start-ups and small businesses to raise funds from investors via the internet. Due to different regulations, it is currently difficult for platforms to expand into other EU countries. Crowdfunding should therefore be subject to uniform rules in the future and the ownership of the license of one country should be sufficient to operate the respective platform throughout Europe.

In contrast, investors should be protected by clear rules on disclosure of information, governance and risk management rules and a coherent approach to the oversight of crowdfunding platforms.

The EU member states and the European Parliament still have to approve the proposal.

Contact Us

Günther Dobrauz
Partner
Leader PwC Legal Switzerland
+41 58 792 14 97
guenther.dobrauz@ch.pwc.com

Tina Balzli
Head Banking
Director
Legal FS Regulatory & Compliance Services
+41 58 792 15 54
tina.balzli@ch.pwc.com

Mark A. Schrackmann
Assistant Manager
Legal FS Regulatory and Compliance Services
+41 58 792 25 60
mark.schrackmann@ch.pwc.com

Digital Client On-boarding in Financial Services

Get up-to-date on the most important changes during the consultation phase

On 18 March 2016 the FINMA Circular 2016/7 “Video and online identification” en-tered into force. With the circular FINMA enabled financial intermediaries to on-board new customers using video conferencing and online procedures.

According to FINMA, initial experiences in connection with video and online identifi-cation have shown that some of the rules are not yet or are no longer optimally suited to financial markets or financial intermediaries. The circular is therefore being amended to take into consideration the feedback as well as the technological changes that have occurred in the interim. Currently the draft of the new circular is in consultation phase.

Read more

Contacts

Christian Hug
Risk Assurance, Senior Manager
christian.hug@ch.pwc.com
Tel. +41 58 792 23 66

Claudia Hösli
Risk Assurance, Senior Manager
claudia.hoesli@ch.pwc.com
Tel. +41 58 792 14 85

Marco Schurtenberger
Risk Assurance, Senior Manager
marco.schurtenberger@ch.pwc.com
Tel. +41 58 792 22 33