FINMA Published New Circular “Outsourcing – Banks and Insurers”

On December 5, 2017 the Swiss Financial Market Supervisory Authority (“FINMA”) published its Circular 2018/03 “Outsourcing – banks and insurers”, which introduces changes for banks and covers for the first time also insurance companies The revised outsourcing circular will enter into force on 1 April 2018.

Principle-based regulation

With the revised outsourcing circular, FINMA uses a principle-based and technology-neutral approach. Accordingly, banks, securities dealers and insurers can implement the requirements for outsourcing in such a way that their specific business models and risks are taken into account.

FINMA in particular requires financial institutions to take the higher risks resulting from the outsourcing of activities outside of Switzerland into account. In this regard, financial institutions must guarantee company restructuring and resolution in Switzerland.

Issues raised by market participants

FINMA took on the following key suggestions from banks, securities dealers, insurance companies and directly affected companies during the consultation process and implemented them as follows in the revised outsourcing circular:

  • It defined the materiality of outsourcing projects in a more principle-oriented way and, thus, strengthened the institutions’ independent self-assessment;
  • clarified the rules governing the outsourcing of risk management and compliance functions;
  • allowed for principle-oriented treatment of intra-group outsourcing;
  • deliberately refrained from regulating special implementing provisions for systemically important banks; and
  • extended the transition period for adjustments to existing outsourcing arrangements for banks from two to five years. In the case of insurers, the revised outsourcing circular will apply from the date of entry into force to all new licensed businesses as well as in the event of business plan changes.

Contact Us 

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

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

Jean-Claude Spillmann
Senior Manager
Legal FS Regulatory & Compliance Services
+41 58 792 43 94
jean-claude.spillmann@ch.pwc.com

Stephanie Kok
Manager
Legal FS Regulatory & Compliance Services
+41 58 792 48 94
stephanie.kok@ch.pwc.com

Michaela Brunnhofer
Manager
Legal FS Regulatory & Compliance Services
+41 58 792 47 94
michaela.brunnhofer@ch.pwc.com

Executive Compensation & Corporate Governance Insights – Part 2

The first part of ExCo Insights 2017 summarised the key highlights for the largest 100 Swiss listed companies regarding the level of compensation of CEOs and other executives, as well as chairmen and other board members. Then, it studied the much-discussed differences between financial-services (FS) and nonfinancial- services (non-FS) companies – and unearthed some arguably surprising patterns. Specifically, the overall rise in executive compensation since 2009 has mostly been driven by non-FS companies rather than FS companies.

PwC’s ExCo Insights 2017, part 2 now focuses on pay-for-performance in Switzerland. For an overall assessment of this challenging topic, one has to consider multiple perspectives.
We hope that this analysis provides useful background and benchmark information as companies, boards, managers, and policymakers reflect on the adequacy of incentive systems in Swiss companies. Based on the results presented in this part 2, ExCo Insights 2017, part 3 will discuss new methods of pay design and will offer an analysis of the demands of shareholders in the upcoming annual general meeting season.

Read the ExCo Insights 2017 – Part 2

We look forward to engaging in dialogue with you.

Dr. Robert Kuipers
Partner People & Organisation PwC
+41 58 792 45 30
robert.kuipers@ch.pwc.com

Remo Schmid
Partner People & Organisation, PwC
+41 58 792 46 08
remo.schmid@ch.pwc.com

Regulatory developments

Non-financial reporting – International Integrated Reporting Framework

Background
The International Integrated Reporting Council (IIRC) launched the first version of the Integrated Reporting (IR) Framework in December 2013. The IICR unites representatives from all major international standards setting bodies and regulators with company representatives, investors and other key representatives to develop an internationally recognised framework. The IR Framework identifies investors and capital providers as the primary addressees for an integrated report.

Key elements
The Framework is intended to show how companies create long-term value by incorporating information on the environment, strategy, governance, performance and outlook. Investors should be informed about how a company’s strategy can create value in the long term as well as where a company actually stands regarding the achievement of its goals as defined in the strategy.
The Framework focuses on different types of capital, which are created and used by an entity. Based on the respective business model, the different types of capital (e.g. financial, produced, intellectual, human, social and natural capital) are used to create value (also a type of capital). These types of capital are said to have ‘connectivity’. Such connectivity can be illustrated particularly well in the case of pharmaceutical companies in the field of intellectual capital, the investments it makes in potential products and the sales that are subsequently generated.

It can also be demonstrated in other areas, such as human capital, for example: investing in the development of employees’ competencies has an influence on resource management and, ultimately, on the financial performance of a company. Non-financial objectives can also lead to the achievement of financial objectives.

Importance and implementation in practice
Within the Framework of the IIRC Pilot Program Business Network, more than 100 companies from 25 countries have implemented the principles of the Framework. However, apart from companies listed in South Africa (where IR is mandatory), almost no companies apply the entire Framework at present, although most of them intend to continue to work towards it.
The same dynamic is visible in Switzerland. To date, no single company has applied the Framework as such. However, more and more Swiss companies are moving towards adopting the Framework, as the implementation of individual elements from the IR concept is becoming evident. Most of the companies are developing the concept by integrating elements of the Framework in their annual reports. Some companies publish a short report (‘review report’), in addition to their annual report, using the Framework as a base. Detailed information on sustainability is generally published in a separate and distinct ‘sustainability report’.

Non-financial reporting – SIX Directive on Sustainability Reports

Key elements
In July 2017, SIX issued new regulations regarding sustainability reporting by amending the Directive on Information relating to Corporate Governance (DCG). Issuers have the opportunity to inform SIX that they issue a sustainability report in accordance with an internationally recognised standard (art. 9 DCG in conjunction with art. 9 para. 2.03 DRRO). SIX will make public the names of those companies that decide to publish sustainability information (‘opting in’) on their websites.

If an issuer decides to opt in, the sustainability report has be produced in accordance with an internationally recognised standard as published by the SIX:

  • Global Reporting Initiative (GRI)
  • Sustainability Accounting Standards Board Standard (SASB Standard)
    United Nations Global Compact (UNGC)
  • European Public Real Estate Association Best Practices Recommendations on Sustainability Reporting (EPRA Sustainability BPR)

The sustainability report must be published on the issuer’s website within eight months of the balance sheet date for the annual financial statements. It must subsequently remain available in electronic form on the issuer’s website for five years from the date of publication.

Companies remain free to issue and publish a sustainability report in line with an internationally recognised standard without reporting this to SIX. It is also permissible to include certain sustainability topics in their annual report.

Background
More and more stock exchanges (about one-third worldwide) provide guidelines for disclosing information on the environment, social and governance (ESG) matters. The UN Sustainable Stock Exchanges Initiative (SSE) recommends exchanges provide companies with principles-based guidelines, whilst the World Federation of Exchanges (WEF) proposes that stock exchanges provide companies with specific ESG indicators. This has already been done by a number of stock exchanges, in particular in emerging economies such as Brazil, South Africa, Singapore and Taiwan. ESG indicators are provided, which are to be reported either on a voluntary or binding basis and which can often be derogated in justified cases (‘report or explain’).

In contrast to this, SIX requires only those companies that opt in on a voluntary basis to adopt an internationally recognised standard.

Non-financial reporting – EU Directive on the disclosure of non-financial and diversity information

EU Directive on the disclosure of non-financial and diversity information
The purpose of the EU Directive as regards the disclosure of non-financial and diversity information is that companies of public interest with more than 500 employees (in particular, listed companies) provide information on environmental, social and workers’ rights topics, respect for human rights and the fight against corruption as well as its strategy, results, risks and business model. If the undertaking does not pursue a strategy on one or more of those topics, this has to be explained (‘report or explain’).

In addition, listed and certain other capital-market-oriented companies must describe their diversity policy with regard to management and control bodies in the corporate governance report. This disclosure should also include information on age, gender, educational background and the objectives of this policy and its implementation and results.

Member States were obliged to transpose the directive into national law by 6 December 2016. The directive applies to financial years beginning after 1 January 2017.

This EU Directive is also relevant to Swiss companies whose subsidiaries are active in the EU and which are regarded as companies with a public interest (such as banks and insurance companies).

Contacts

Stephan Hirschi
PwC ADV Consulting | Adv Consulting TIS
+41 58 792 2789
stephan.hirschi@ch.pwc.com

Raphael Rutishauser
ADV Consulting | Adv Consulting TIS
+41 58 792 52 15
raphael.rutishauser@ch.pwc.com

 

EU – Register of beneficial owners

Under the 4th anti-money laundering directive of the European Union, all European countries are obliged to introduce legislation that will create a register of the ultimate beneficial owners (UBOs) of structures. Who qualifies as a UBO? What information will be collected? Who will have access to the data?

The 4th Anti-Money Laundering directive entered into force on 26 June 2017. Each member state should by now have transposed the directive into their national law. What follows is a discussion of the provisions of the directive itself at EU level.

To read more about the discussion, please click below.

Read Full Attachment

Contact Us

Marcel Widrig
Partner | Leader Private Wealth Services Switzerland
+41 58 792 44 50
marcel.widrig@ch.pwc.com

Albrecht Herholdt
Senior Manager | Tax & Legal Services: International Private Wealth & Entrepreneurs
+41 79 278 72 38
albrecht.herholdt@ch.pwc.com

Rescuing struggling projects

When managing the project recovery process it’s crucial to avoid taking action for action’s sake, treating the situation as a fire drill, or only addressing the superficial symptoms rather than the real underlying issues. You have to take a structured approach, starting with stabilising the project on the basis of the visible symptoms, and going on to do an in-depth root cause analysis as the basis for defining a recovery plan. This will help the project move beyond mere survival to achieve a sustainable solution in the long term.

Move beyond mere survival to find a sustainable path to recovery

Businesses today are facing challenges like never before which is driving an increased demand for transformation projects, each one more complex than the last. Over half of projects fail completely or exceed their budget significantly. It is no longer about if a project struggles, but when. Is your project is in trouble? What will it take to rescue it for the long-term? Read more …

Contact

Marc Lahmann
Director and Leader Transformation Assurance
+41 58 792 27 99
marc.lahmann@ch.pwc.com

Manuel Probst
Assurance Senior Manager
+41 58 792 27 62
manuel.probst@ch.pwc.com