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.

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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

SEC issues statement reminding virtual exchanges to register Also warns other parties to transactions

US regulators are catching-up
Last night’s statement from the SEC is another in a line of sequentially increasing announcements from US regulatory and tax authorities showing that after several years of a wait-and-see posture, the US is now moving to catch-up enforcement of activities in the virtual marketplace.

SEC statement of 7 March 2018 regarding virtual exchanges
The SEC’s Divisions of Enforcement and Trading and Markets has issued a statement stating that online trading platforms trading virtual assets that qualify as securities under US securities law must either (1) register with the SEC as an exchange and meet the regulatory requirements of such status, or (2) qualify for an explicit exemption.

The statement addresses parties other than exchanges
Platforms that offer digital wallet services may also need to register with the SEC and meet the regulatory requirements of such status. Finally, other market participants such as promoters, broker-dealers, transfer agents, and clearing agencies may also have a registration requirement.

Coming enforcement efforts
Although not expressly mentioned in the statement, this is another step in the SEC and other US regulatory and tax authorities signalling that they intend to regulate the virtual assets world as aggressively as they do the traditional financial one. The statement of 8 March comes on the heels of highly publicized enforcement actions by the SEC and the launch of investigations by the IRS. This activity will only increase from now on.

Jurisdictional considerations
What the statement does not explain is when an online activity falls under the jurisdiction of the SEC as a geographical matter (as opposed to purely a question of subject matter jurisdiction). Exceptions are provided for under US law and the SEC regulations for parties that are not US Persons. Here, unlike under the US tax system, US Persons are usually limited to people or entities present in the US (there are a few exemptions to this rule). The SEC has not expressly stated that this general physical presence principle also applies to virtual currency activities, so any forthcoming US regulations could prove challenging in navigating what crypto activity does and does not fall under US jurisdiction.

Contact Us

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

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

Thomas Plank
US Lawyer & Senior Manager, Financial Services Tax
+41 75 413 18 06
thomas.plank@ch.pwc.com

EMIR II: The European Parliament’s (preliminary) answer to EMIR as we know it

EMIR II brings with it many simplifications for market participants, not just in the EU/EEA, but globally. The reporting duty being simplified will noticeably reduce the burden, particularly for non-financial counterparties.

Moreover, financial counterparties themselves can also look forward to benefits: the introduction of a small financial counterparty category will limit the scope of the clearing obligation, while intra-group transactions with non-financial counterparties will be fully exempt from the reporting obligation. The current exemption for pension schemes will be continued for at least another three years.

Only Securitisation Special Purpose Entities and Alternative Investment Funds registered under national law in the European Union are expected to be negatively impacted by EMIR II.

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Contact Us

Guenther Dobrauz
Partner, Leader PwC Legal Services Switzerland
Office: +41 58 792 14 97 | Mobile: +41 79 894 58 73
Email: guenther.dobrauz@ch.pwc.com

Michael Taschner
Senior Manager | PwC Legal Services Switzerland
Office: +41 58 792 10 87 | Mobile: +41 79 775 95 53
Email: michael.taschner@ch.pwc.com

Alexandra G. Balmer
Consultant | PwC Legal Services Switzerland
Office: +41 58 792 14 24 | Mobile: +41 79 267 81 04
Email: alexandra.balmer@ch.pwc.com

Gregory Columbres
Assistant Consultant | PwC Legal Services Switzerland
Office: +41 58 792 18 41 | Mobile: +41 79 417 88 38
Email: gregory.columbres@ch.pwc.com

Sanction Compliance Health Check

The regulatory environment has been changing for some years now. Although existing sanctions against Iran for example have been lifted, there are still considerable difficulties in dealing with sanctions in general. Moreover, technological developments such as new payment transaction technologies have led to significant challenges for financial intermediaries

Due to the international activities of Swiss-based companies and the extraterritorial character of US (OFAC) and EU sanctions, it may be necessary for Swiss-based companies to consider not only the Swiss sanctions of SECO.

Our Service:

Carrying out a sanction compliance health check is recommended if the following circumstances are shown to exist:

    • Not (or only partially) implemented sanction risk management,
    • Minimisation of existing risks,
    • Enhancement or optimisation of existing procedures,
    • Expansion into new countries/markets,
    • Changes in business activities,
    • Acquisition of new companies, or
    • Knowledge of gaps or inaccuracies.

You can count on us!

If you, as a financial intermediary, would like to be compliant in the area of sanctions regulation, or if you would like to review or expand your existing sanctions system, we will be happy to actively support you as your partner:

  • We support you in carrying out a health check and checking compliance with your obligations in accordance with local (e.g. SECO, UNO) and international (e. g. EU, OFAC) sanctions regulations.
  • We provide you a clear report with the results of our health check.
  • We support you in the practical implementation of a suitable compliance management system.
  • We support you in the development, improvement, and implementation of your organisation, policies, guidelines, procedures, training, and controls.

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Your contacts

Michèle Hess 
Partner
Regulatory & Compliance Services
Direct: +41 58 792 46 67
Mobile: +41 79 878 00 85
michele.hess@ch.pwc.com

Susanne Hofmann
Director
Legal Compliance Leader Switzerland
Direct: +41 58 792 17 12
Mobile: +41 79 286 83 67
susanne.hofmann@ch.pwc.com

Stay up to date by following our PwC Legal Social Media Channels (LinkedIn, Twitter, Facebook) and our website.

A primer on the regulation of FX trading and the asset management of FX in Switzerland

Trading in currencies and FX financial instruments is increasingly subject to regulation on multiple levels:

  • Trading
  • FX spot transactions
  • FX financial instruments transactions
  • Entities trading in currencies and FX financial instruments
  • Asset management related to currencies and FX financial instruments

Trading in FX is subject to the FX Global Code which is not a mandatory law, but industry best practice. Trading in FX derivatives is subject to multiple obligations depending upon the status of the counterparties involved, such as reporting and risk mitigation (trade confirmation, portfolio reconciliation, compression, dispute resolution and valuation, as well as initial and variation margins).

Currency trading, money exchange activities, trading in bank notes and coins, as well as banks, securities dealers, and asset managers are generally subject to anti-money laundering requirements, such as registration, supervision, and identification of counterparties requirements. Anti-money laundering obligations are the basic regulatory requirements that apply to most entities trading in the FX markets. Depending upon their additional activities, they might require a license as a bank, securities dealer, bilateral organised trading facility (OTF), or asset manager or a combination of these licenses.

  • Accepting client deposits in particular related to FX or issuing OTC derivatives which are not securities generally requires a banking license. The banking license is the highest regulated license category.
  • Trading in FX derivatives, 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 license. The licensing requirements also apply to entities publicly issuing FX derivatives. Bilateral systematic internalisation of FX derivatives and FX financial instruments is subject to additional regulatory requirements under the Financial Market Infrastructure Act.
  • Asset management activities related to Swiss and foreign collective investment schemes regarding FX and related financial instruments generally require a license. The distribution of collective investment schemes to non-qualified investors of collective investment schemes as well as the representation of foreign collective investment schemes also require a license. Individual portfolio management and advisory activities are, under the current regulatory regime, not subject to a licensing requirement (except AML-registration). This will however likely change under the new regulatory regime planned to enter into force soon.

Read Full Report

Contact Us

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

OECD Releases New CRS Anti-Avoidance Consultation Document

On 19 February 2018, the Organisation for Economic Co-operation and Development (“OECD”) released a consultation document on the misuse of residence by investment schemes to circumvent the OECD Common Reporting Standard (“CRS”). As an increasing number of jurisdictions are offering so-called “residence by investment” (“RBI”) or “citizenship by investment” (“CBI”) schemes, the OECD is seeking public input to obtain further evidence on the misuse of such RBI/CBI schemes.

The OECD’s consultation document aims to:

  1. assess how RBI/CBI schemes are used to circumvent the CRS;
  2. identify the types of schemes that present a high risk of abuse;
  3. remind stakeholders of the importance of correctly applying relevant CRS due diligence procedures to aid in avoiding such abuse; and,
  4. explain the next steps the OECD plans to undertake to further address this issue.

The OECD will take public input into account in order to determine how to best proceed with the RBI/CBI schemes issue. Parties interested in providing input have until 19 March 2018 to email their comments to the OECD. All comments must be sent to CRS.Consultation@oecd.org and addressed to the International Co-operation and Tax Administration Division.

Please refer to the following link for access to the OECD’s consultation document.

Implementing Interest Rate Risk in the Banking Book (IRRBB) in Switzerland

The Basel Committee on Banking Supervision (BCBS) finalised its Pillar 2 capital framework for Interest Rate Risk in the Banking Book (IRRBB) in April 2016. The new framework replaces its previous version from 2004 and sets out nine principles for banks and three principles for supervisors for the management and supervision of IRRBB. FINMA proposed in a consultation in Q4 2017 to adapt IRRBB in Switzerland effective 1 January 2019.

To read more about the FINMA implementation of IRRBB, the action points for banks and how PwC can help click on the following link:

Read more

Your contacts at PwC

Andrea Martin Schnoz
Director Assurance
andrea.schnoz@ch.pwc.com
Tel. +41 58 792 23 35

Dr Manuel Plattner
Director Advisory
manuel.plattner@ch.pwc.com
Tel. +41 58 792 24 44

Philip van Hövell
Senior Manager –
Data Analytics & Modelling
philip.van.hoevell@ch.pwc.com
Tel. +41 58 792 10 76

Dr Sebastian Gerigk
Senior Manager Advisory
sebastian.gerigk@ch.pwc.com
Tel. +41 58 792 29 46

FINMA publishes Initial Coin Offering (ICO) guidelines

In its media release of 16 February 2018 the Swiss Financial Market Supervisory Authority FINMA published its long-awaited guidance on Initial Coin Offerings (ICO) which defines the minimum information required and principles for requests for negative clearance.

An ICO is a digital form of public fund-raising for entrepreneurial purposes. Blockchain-based “coins” or “tokens” are sold in exchange for cryptocurrencies (e. g. Bitcoin) or FIAT currencies. The token represents a certain value or service that the issuer defines prior to the ICO.

In its media release of 29 September 2017 FINMA already acknowledged the innovative potential of this technology and pointed out to intersections between ICOs and the applicable financial market laws. In its new guidance FINMA rightly points out that generalized statements with respect to the applicability of financial market laws is not possible due to the variety of tokens and ICOs. Instead, every ICO must be assessed individually on a case-by-case basis.

Types of token

FINMA basically distinguishes between three different types of tokens (although hybrid forms are possible):

  • Payment tokens: These are considered standard crypto currencies. They can be used as means of payment for the purchase of goods or services as well as for the transfer of money and values. They are not associated with any other functions or projects.
  •  Utility tokens: They provide access to a blockchain-based applications or services.
  • Investment tokens: These tokens represent assets (such as shares of companies, revenues or entitlements to dividends or interest payments). Depending on its design, this type of token is similar to a share, bond or derivative financial instrument.

Legal assessment

FINMA came to the conclusion that it is particularly the Anti-Money Laundering and securities regulations that are concerned with respect to ICOs. Conversely, the Banking Act (“BA”) and the Collective Investment Schemes Act (“CISA”) are typically not concerned.

Based on the functionality of the various tokens FINMA makes the following legal considerations with respect to ICOs:

  • Payment ICOs: Payment tokens fall within the scope of the Anti-Money Laundering Act (“AMLA”) but do not qualify as securities under the Financial Markets Infrastructure Act (“FMIA”) and the Securities Trading and Exchange Act (“SESTA”).
  •  Utility ICOs: Utility tokens are basically not qualified as securities provided that they are intended to provide access digitally to an application or service and may be used in this capacity at the moment of issuance. Conversely, if a utility token is also used for investment purposes it is qualified as security.
  •  Asset ICOs: Asset tokens are treated as securities by FINMA.

Combinations of the various types are also possible.

FINMA recognizes the innovation potential of ICOs and the block chain technology but also highlights risks that result for investors.

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

Simon Schären
Manager
Legal FS Regulatory &
Compliance Services
+41 58 792 14 63
simon.schaeren@ch.pwc.com

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

Orkan Sahin
Assistant Manager
Legal, FS Regulatory & Compliance Services
+41 58 792 19 94
orkan.sahin@ch.pwc.com