Publishing graphs to present a true and fair view

Graphs are designed to help readers understand what’s going on at a glance. They serve a variety of purposes in reports, statistics and presentations. In a report they illustrate what’s being talked about. In statistics they underscore the details, and in presentations they’re used as a simple and coherent way of getting complex information across. The problem is that you often come across graphs that are inappropriate or even wrong.

The test is quick and easy: Enter the term “2016 annual report” (or “Geschäftsbericht 2016”) in your search engine, download one of the many PDFs that are listed, look through it for graphics, and read the accompanying paragraph of text. The findings are sobering. The publicly accessible annual report of a large cooperative in Switzerland includes the following chart:

At first glance everything seems in order. Net proceeds from sales of goods and services and gross profit are increasing, and are presented graphically. Dark blue is used to indicate the year under review. There’s a brief text introducing the graphs and explaining how the result came about.

Only a closer look through the lens of the International Business Communication Standards (IBCS) reveals that the graphics need correcting. They fail to present the facts accurately in various respects.

  • The figures shown above the bars in the right-hand chart indicate a 19.51% increase in gross profit since 2012. The bars themselves, however, show an increase of around 137%. You can prove this optical misrepresentation by measuring the bars: while CHF 99.4 million in 2012 are represented with 2.4 cm, CHF 118.8 million in 2016 take up a whole 5.7 cm.
  • The scales for the graphs for net proceeds and gross profits aren’t identical.
  • On neither graph does the y-axis begin at zero.

Correcting the charts in accordance with IBCS, a completely different picture emerges.

In these examples the representation errors have been corrected. The following year can likewise be represented in accordance with IBCS (a white bar with a black frame). A dividing line gives a clear visual indication that the future development has to be differentiated from current or previous developments. The correct relationships are clearly visible.

Essentially IBCS requires that the true and fair view principle also be applied to business graphics. This means that colours, symbols and other graphical elements must have a meaning. The representation must be formally correct so that the reader does not draw any wrong conclusions.

IBCS defines a visual language and enables appropriate visual and verbal communication. It also ensures that the same facts are presented uniformly all over the world. For example, the prior year is always grey, the current year black, and forecasts hatched or shaded.

We’d be glad to show you how to design business graphics correctly for meaningful communication.

Contact Us

Michael Gniffke
Director
Leader Business Software Integration, PwC Switzerland
+41 58 792 47 74
michael.gniffke@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

Disclose 27, Focus piece 5: Audit 4.0, Part 1, Finance functions and processes

Disclose – PwC’s online magazine

«It takes people, digital technologies and trust to achieve top performance.»

Reading our latest issue of Disclose (disclose.pwc.ch/27/) you’re sure to get an adrenaline rush as we investigate a topic with particularly close connections to sport: high-performing organisations.

Focus piece 5 gives you an insight into the topic Audit 4.0, Part 1, Finance functions and processes:

Most of the repetitive tasks carried out by the Finance function can be standardised and automated across systems using robotic process automation (RPA). This development has long been predicted. But it has only become reality now that data and such a wide variety of digital tools are available. This way digitisation is fundamentally transforming the Finance function, from number cruncher to sparring partner.

Read the full report here.

Contacts

Paul de Jong
Partner, Head of Systems & Process Assurance, PwC Switzerland
Tel.: +41 58 792 76 58
paul.l.de.jong@ch.pwc.com

Dr Christian B. Westermann
Partner, Data & Analytics Leader, PwC Switzerland
Tel.: +41 58 792 27 97
christian.westermann@ch.pwc.com

QI and CRS Updates

IRS opens QI portal for the Responsible Officer Certification and published new FAQs

On 4 April 2018, the Internal Revenue Service (“IRS”) has opened the QI portal and published new FAQs regarding the upcoming QI Responsible Officer certification. A new section titled “Periodic Certification” has been added to the existing FAQs.

Please refer to the following link for access to the updated FAQs.

Additionally, the IRS has updated the QI User Guide and made it available on its website (see “Publication 5262”). You can find the updated QI User Guide here.

OECD news regarding CRS

On 5 April 2018, the Organisation for Economic Co-operation and Development (“OECD”) published an updated list of all activated CRS agreements on its website.

Please refer to the following link for access to the updated list.

There are now more than 2700 bilateral agreements in place.

Additionally, the OECD published an updated version of the CRS Implementation Handbook, which can be accessed under the following link.

The Implementation Handbook is a guidance for governments to refer to in terms of their implementation of CRS rules into their local legislation and guidance, as well as a practical overview of CRS for the financial sector and the wider public.

We will continue to keep you updated as we follow and analyze these updates over the next few days. In the meantime, we are happy to answer any of your QI- and CRS-related questions.

Contact

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

 

21st CEO Survey: Key findings from the Asset and Wealth Management industry

Optimistic CEOS and buoyant growth, yet disruption looms

There’s great confidence in the asset and wealth management (AWM) industry, but also acknowledgement that times are changing. While CEOs are optimistic about growth, they’re aware that they face challenges, although perhaps not the full extent of them. Those are the inescapable conclusions of PwC’s 21st CEO Survey in which 126 of the sector’s CEOs were interviewed.

While AWM CEOs are optimistic about revenue growth in 2018, they also report seeing a myriad of challenges. This contrast begs the question: Will the extent of potential disruption outpace the time needed to prepare for and react to it?

Accelerating technological change, more demanding customers, embedding the blizzard of new regulation – these powerful forces will transform, and perhaps terminate, some of the sector’s traditional ways of operating. The survey’s findings echo the recent report, “Asset & Wealth Management Revolution: Embracing Exponential Change,” which estimates that by 2025 global assets under management will have almost doubled – rising from US$84.9 trillion in 2016 to US$145.4 trillion.

Yet certain AWM CEOs seem to underestimate the widespread industry reinvention under way, with major changes to fees, products, distribution, regulation, technology, and people skills, and how a failure to properly navigate these changes may cut into assets under management and eventual profits. Perhaps this is due to the disparate nature of the sector. It ranges from global giants to active and alternative investment boutiques. Many AWM participants in PwC’s 21st CEO Survey lead relatively small shops, reflecting the entrepreneurial nature of the industry.

Read the full study

Contact

Jean-Sébastien Lassonde
PwC | Partner, Swiss Leader Asset & Wealth Management
Office: +41 58 792 81 46 | Mobile: 41 79 598 57 38
Email: jean.sebastien.lassonde@ch.pwc.com

Initial coin offerings (ICOs) in Liechtenstein

At a glance
• An initial coin offering (ICO) or a token sale is when a company sells a predefined number of digital tokens to the public in a limited period of time.
• The ICO market has grown very rapidly in recent months and has been a new avenue for blockchain-based start-ups and projects to get the funding needed to launch their projects.
• In September 2017, the Financial Market Authority Liechtenstein (FMA) published a fact sheet on ICOs which stated that depending on their specifications, tokens may constitute financial instruments subject to financial market law.

Download PDF

 

In detail
1. What are ICOs?
Initial coin offering (“ICO”, also referred to as token generation event, token launch or token offering) is a term describing a limited period in which a company sells a predefined number of digital tokens (crypto coins) to the public, typically in exchange for major crypto-currencies (as of today, mostly Bitcoin and Ether). On the side of the token issuer, the collected funds are typically used to finance a project (e.g. the building of a software/ blockchain-based platform). In exchange for the financing, the investor receives a token which may be connected with the right to receive a dividend, a voting right, a licence, a property right or a right to participate in the future performance of the issuer. Usually, tokens are tradable on cryptocurrency exchanges.

2. Token characteristics 
Tokens (coins) can have different functions, which triggers the way in which we treat them from a legal and regulatory perspective. Four main forms exist to date (including many hybrid combinations).

  • Security token
    Tokens with a security character (e.g. debt, equity or derivatives) with an income generating component and potential rights vis-à-vis the issuer (e.g. governance, participation, ownership).
  • Digital currency
    Tokens with an attributed value. They can be used to buy and sell goods and services and can be used to store value (although they can be very volatile).
  • Asset-backed token
    Tokens that provide underlying exposure to real world assets (e.g. gold, diamond, securities, cash, real estate, etc.)
  • Utility token
    Tokens with a utility character provide access to a blockchain-based platform, product or service. They are not primarily designed as a means of an investment.

3. What are the characteristics of an ICO?
In general, an ICO has the following structure:

  • Publication of a white paper describing a project or product as well as the funding via ICO. The white paper also describes the intended use of the tokens to be issued. Software and the technical specifications are published on open source platforms like GitHub.
  • A smart contract is set up, usually based on the Ethereum blockchain. The smart contract is needed to generate and distribute the tokens later on.
  • During a fixed time period, cryptocurrency payments (usually Ether or Bitcoin) are accepted by way of the smart contract.
  • Using the public key for those payments (similar to a digital account number), the smart contract generates the new tokens and makes them available to investors.
  • The tokens may be stored by third parties (wallet providers) and/or made tradable with the help of cryptocurrency trading platforms.
  • Once the funded project is complete, the investor can sell the tokens or exchange them for services.

4. What are the key challenges of an ICO?
Regulators worldwide are starting to look into ICOs, but only few have actually taken action (e.g. China, USA, Singapore). It is expected that the US SEC/EU ESMA and other major regulators will soon regulate the ICO space, particularly from a capital markets, tax and KYC/AML perspective. A further challenge is that many ICOs still lack proper cybersecurity, which can represent a major threat for investors. As most ICOs raise money in the form of cryptocurrencies, high volume transactions provide an attractive target for criminals. Besides ICOs, several cryptocurrency wallets (where tokens/coins get stored) have been hacked recently.

5. How does Liechtenstein treat ICOs from a legal/regulatory
perspective?
In September 2017, the Financial Market Authority Liechtenstein (FMA) published a fact sheet on ICOs which stated that depending on their specifications, tokens may constitute financial instruments subject to financial market law. This may include tokens that have characteristics of equity securities or other investments. In principle, activities relating to financial instruments are subject to licensing by the FMA on the basis of special legislation and may require publication of a prospectus. In all cases, the specific design and de facto function of the tokens are decisive. Any AML/KYC obligations also depend on the specific design. Connecting factors for FMA jurisdiction exist, for instance, if a company’s registered office or branch is in Liechtenstein and/or if relevant activities are pursued on the Liechtenstein market.

6. How is an ICO taxed in Liechtenstein?
Liechtenstein offers a favourable tax system with modest tax rates for issuers of tokens (typically using a foundation structure or a special purpose vehicle), for ICO entrepreneurs and for investors. Careful structuring of the ICO is necessary to manage potential issuance stamp tax consequences (in case of issuance of equity tokens) as well as VAT and corporate income tax consequences (in case of issuance of utility tokens). Since there is no gift tax in Liechtenstein, employing a charitable foundation structure is an option worth considering in detail. Taxation of ICO entrepreneurs and investors domiciled in Liechtenstein depends on the categorisation of a specific token. Capital gains on digital currency tokens should generally be exempt from income tax (due to taxation of notional income from wealth instead of effective investment income).

Contacts

Guenther Dobrauz
Partner, Leader of PwC Legal Switzerland
Office: +41 58 792 14 97
Email: guenther.dobrauz@pwc.com

Martin Meyer
Director, Leader of Financial and Private Wealth Services PwC
Liechtenstein
Office: +41 58 792 42 96
Email: martin.meyer@ch.pwc.com

Mark Schrackmann
Assistant Manager, PwC Legal Switzerland
Office: +41 58 792 25 60
Email: mark.schrackmann@ch.pwc.com

Orkan Sahin
Assistant Manager, PwC Legal Switzerland
Office: +41 58 792 19 94
Email: orkan.sahin@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