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

FINMA revises circular on video and online identification

On 18 March 2016, the Swiss Financial Supervisory Authority FINMA brought into force the circular 2016/7 “Video and online identification”. Since then, financial intermediaries have been able to identify new clients digitally, in addition to face-to-face meetings or the opening of a client relationship by correspondence.

In its media release of 13 February 2018, FINMA announced that due diligence obligations in the area of digital client on-boarding are being adapted to technological developments. The draft of the partially revised circular includes the following innovations in particular with regard to the digital identification of new clients:

Video identification

  • In order to ensure secure identification and make the use of counterfeit ID cards more difficult, financial intermediaries should now check at least three randomly selected optical security features of the ID documents (e. g. holograms, laser-tilt images, security thread, micro text, etc.);
  • The formal characteristics (e. g. layout, orthography, font, etc.) are to be compared with references from an identity card database;
  • The verification of the contracting party in the identity process using a one-time password (TAN) will no longer be required;
  • The identification process should now be allowed to continue even if there are indications of increased risks. However, the business relationship shall only be established after additional clarification and approval of a superior person/ management.

Online identification

  • Financial intermediaries should be encouraged to obtain a photograph from all relevant pages of the identification documents. Similar to video identification, the comparison with an ID card database should also be required for the online identification;
  • As an additional safety element, a liveness detection is required;
  • A money transfer from a bank in Switzerland shall no longer be a mandatory requirement. Under certain conditions, money transfers from banks in Liechtenstein or a member state of the Financial Action Task Force on Money Laundering (FATF) should also be sufficient.

FINMA holds a hearing until 28 March 2018. As soon as the revised circular will enter into force, financial intermediaries are required to adapt their video and online identification process within 6 months.

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

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

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

Family business – Passing the torch and detecting intellectual property opportunities

Family Business - Receiving the torch and detecting IP opportunities
Capture your family business’ intellectual property to generate new opportunities.

As a broader term, intellectual property (‘IP’) comprises trademarks (brand protection), patents (invention protection) copyright (original work protection, e.g. literary and artistic work), designs (product appearance protection), confidential information and know-how. Regardless of their activities, family businesses always have one or more of the above IP rights. In particular, a family business’ brand is its most valuable asset. A brand is built up over the long term and conveys the core values of the family, becoming an integral part of the business, its success and its reputation. There are many examples of well-known family businesses with strong links between the families’ goodwill and their business’ brand. The families’ core purposes, identities, statements and principle business goals become the building blocks of theirbrand values.

Family business and brand heritage

In the context of the transfer of a family business to the next generation, intellectual property is a central matter. PwC’s IP Department has the expertise to assist the next generation in addressing challenges and strategic questions such as:

  • understanding the value of your family business’ IP and preserving the legacy
  • defining your family business brand identity and ensuring consumers’ perception of the family’s brand
  • defining IP ownership in the family by verifying ownership documentation
  • understanding each legal category of your business’ IP and analysing what can be done to maximise value with regards to each category
  • establishing ‘best practices’ on how to use the IP to create value for the family business
  • recognising new business opportunities and different applications of the IP by remaining open to and thriving on innovation
  • looking at the changing environment as a challenge rather than a threat

Interested?

Are you in the phase of passing the torch? Are you interested in discovering what opportunities IP can offer?

Take the first step on your transmission journey with PwC and contact Natscha Tsalas for more information.

Natascha Tsalas, IP Legal Services Geneva
+41 58 792 98 32 / natascha.tsalas@ch.pwc.com

Download the flyer

UPDATE: FinSA and FinIA: Commission for economy and taxes concluded its debation

The Commission for economy and taxes (WAK-S) concluded the debation relating to the Financial Services Act (FinSA) and the Financial Institutions Act (FinIA). This information has been released in the press today.

Thereby the WAK-S endorsed almost all proposals made by the National Council (Nationalrat). In particular, WAK-S has unanimously approved the possibility for the early entry into force of the Fintech provisions, and has also largely agreed with the National Council on the material provisions relating to Fintech. Thus, there is a good chance that the Banking Act will create a new license category for enterprises that accept public deposits of up to 100 million francs without investing or paying interest. For the new category of companies, simplified approval and operating requirements in the areas of accounting, auditing and deposit securities are to be applied.

However, the following outlines the most significant amendments and changes made to the resolution of the National Council:

  • As opposed to the proposal made by the National Council, WAK-S resolved that the threshold for the obligation to publish a prospectus for public offers of securities shall be increase from 2.5 million francs to 8 million francs.
  • Regarding the „door-to-door selling” (Haustürgeschäft) which is stated in the Swiss Code of obligations, the WAK-S endorsed by the majority to the proposal made by the National Council that the door-to-door selling of banking and financial services shall be exempted. However, the exception shall only be applicable to offers which have been made to existent clients of the financial institution or the bank.
  • The grand-fathering clause which is stipulated in the FinIA shall not be cancelled according to the WAK-S, as opposed to the proposal made by the National Council.
  • Regarding the financial market supervisory act, as opposed to the proposal made by the National Council, the WAK-S resolved that also persons and entities holding a qualified or substantial participation in a supervised institute shall provide the supervisory organization with all information and documents necessary for the performance of its duties.

The Council of States will now take over and could already be debating the topics in its spring 2018 session. Subsequently, the Commission for economy and taxes (WAK-N) as well as the National Council will deliberate, so that the bill has to pass the final hurdle before becoming enacted.

The document regarding comparison of the resolutions of the WAK-S is now available under the following Link.

Contact Us

Dr. Guenther 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

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

Claudia Thalmann
Assistant Manager
Legal FS Regulatory & Compliance Services
+41 58 792 16 69
claudia.thalmann@ch.pwc.com

MIFID II requirements for direct electronic access (DEA)

Direct electronic access (“DEA”) enables a person to access a trading venue directly, using the trading code of an investment firm to do so, or directly placing an order with the Automated Order Routing (“AOR”) of the investment firm. This gives the client full control of the exact fraction of a second in which the order is placed and the lifetime of the order, as well as discretion as to which broker or trading venue the order is placed with.

Such discretion clashes with the objectives of MiFID II, which aims at increasing market transparency and oversight functions. Therefore, the regulation mandates the investment firm providing DEA to monitor the client closely.

Download full article

Contact Us

Dr. iur. Guenther Dobrauz
MBA | 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

Yari A. Iannelli
Assistant Manager | PwC Legal Services Switzerland
Office: +41 58 792 28 54 | Mobile: +41 79 742 39 04
Email: yari.iannelli@ch.pwc.com

Dr. iur. 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

MiFID II is live- What now?

Despite the launch of MiFID II early this year, there is still ongoing work to be completed and firms are expected to receive new information from the European Commission and the European Securities and Markets Authority (ESMA), even after the implementation deadline of 3 January 2018. Among other things, opinions for 700 pre-trade transparency waivers and for 110 commodity position limits have yet to be finalised by the regulators.

Therefore, firms should stay flexible to immediately implement new information by regulators and adapt and refine their compliance strategies to current regulatory updates regarding MiFID II.

The following key dates highlighted in a timeline shall give firms and their compliance specialists an overview over the current year and beyond.

View timeline

Contact Us

Dr. iur. 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, FS Regulatory & Compliance Services
Office: +41 58 792 10 87 | Mobile: +41 79 775 95 53
Email: michael.taschner@ch.pwc.com

Orkan Sahin
Assistant Manager | PwC Legal, FS Regulatory & Compliance Services
Office: +41 58 792 19 94 | Mobile: +41 79 238 65 69
Email: orkan.sahin@ch.pwc.com

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

Flexibility and freedom of choice with Flexible Legal Resources

Sound support for legal and compliance issues is essential to your business. But for many companies, traditional models based solely on working with an internal team of specialists or a traditional law firm are not practical. Because these are often too cumbersome or too expensive. Or you can never be sure whether a lawyer is acting in your interest or merely in the interest of his company.

Flexibility and freedom of choice with PwC’s Flexible Legal Resources

PwC’s Flexible Legal Resources bridge this gap, by providing an extensive but rigorously selected pool of contingent legal and compliance experts. Do you have to cover a temporary shortfall in resources? Do you need support with longer-term assignments? Or do you require specific outside expertise (for instance to comply with new regulations)? Select exactly the right people for you, with the skills and attitude to get your job done.

The solution is entirely flexible: you determine whether your specialists work from home or on your premises, individually or in teams, on a fixed-contract or indefinite basis. And most importantly of all, your chosen experts work to your instructions and answer directly to you, not to the partners in an external firm.

The benefits for our clients

  • Scale on demand: Our pool of specialists, ranging from paralegals and compliance experts to lawyers with or without bar qualifications, gives you the flexibility to bridge your changing legal needs. Whether it’s covering an abnormal, temporary spike in workload, or providing specialists to complement the skills of your in-house team.
  • Value, speed and efficiency: Our rigorous selection process means that you can be sure of obtaining highly qualified experts with in-house experience and the business know-how to make a significant contribution to value. Clients can rely on us for high-quality, easily accessible and cost-effective legal and regulatory expertise.
  • Full control: The breadth and depth of our bench is unrivalled. It comprises people with a wide range of different cultural backgrounds, language skills, industry experience and legal qualifications – in all areas of expertise. Unlike with a traditional law firm, you remain firmly in the driver’s seat when it comes to selecting – and instructing – the specialists best suited to your needs and company culture.

Contact our experts for more information on how FLR can benefit your company’s success.

The benefits for our specialists

  • Flexibility on your terms (“Self-Determination” and “Work-Life-Balance”): With Flexible Legal Resources, you’ll be able to maintain the autonomy to work flexibly. We show you the projects we have available so that you can choose the work best suited to you.
  • Outstanding opportunity: Flexible Legal Resources gives you the opportunity to work on fascinating, high-profile projects, without compromising on financial rewards.
  • Expand your network: You’ll be part of an extensive network of other contractors, and will have the chance to attend a range of events where you can establish new relationships and expand your network.

Sign up today through our onboarding platform.

Our experts

Marc Morant
Head PwC’s Flexible Legal Resources
+41 58 792 18 53
marc.o.morant@ch.pwc.com

Sebastian Heinrich
Head Client Management
+41 58 792 14 31
sebastian.heinrich@ch.pwc.com

Richard Ossen
Head Lawyer Management
+41 58 792 14 92
richard.ossen@ch.pwc.com

Steve Hafner
Lawyer Management
+41 58 792 18 38
steve.hafner@ch.pwc.com

Want to find out more about our core services at PwC Legal Switzerland? Follow PwC Legal on LinkedIn, Twitter and Facebook.

The new FINMA circular 18/3 on Outsourcing

Changes and implications

Background
FINMA has revised its circular 08/7 on Outsourcing for Banks and replaced it with the new version FINMA circular 18/3 Outsourcing for Banks and Insurance companies. Obviously, one of the main changes is the new applicability of the circular for insurance companies.

A draft version has been published by end of 2016. During the hearing period many banks, insurance companies and other stakeholders handed in their opinion and provided feedback to FINMA. FINMA has acknowledged relevance of many of these feedbacks and implemented some changes to the discussed topics. Main discussion points were the definition of materiality, conditions for outsourcing abroad, conditions for group-internal sourcings, specific requirements for system-relevant banks, outsourcing of compliance and risk functions, and transition time for existing outsourcing agreements.

Enactment date of the new circular is 1.4.2018. For existing outsourcings there is a transition period of five years, however, for new outsourcings the new circular will be immediately relevant.

Overview
The new circular does no longer consist of nine principles, but newly consists of eight main requirements. Some of these requirements match with old principles, others are new whilst some of the old principles have been omitted. The mapping table below provides a comprehensive overview of the principles:

Main changes to old version
There are multiple changes compared to the old version 08/7. Below, we summarise these changes:

  • The new circular is applicable for banks AND insurance companies.
  • The definition of materiality is more principle-based, there are no longer any examples within the circular.
  • The differentiation for group-internal outsourcing agreements is still included but is more principle-based in the new version. Financial institutions need to decide based on risks, whether certain requirements can be omitted or eased.
  • The principles regarding data protection and client orientation have been omitted. FINMA points out that relevant regulation is already given by data protection law and Appendix 3 of FINMA circular 08/21 (Handling of electronic Client Identifying Data [CID]). – Therefore, Data Protection law and requirements from Banking Secrecy remain relevant.
  • Financial institutions need to keep an inventory about all outsourced functions and services. The inventory needs to include sub-outsourcings, CID relevance and the responsible person for governance of the agreement at the financial institution.
  • The new circular provides guidance on whether it is allowed to outsource risk and compliance functions and tasks.

Main questions and how PwC can help
Obviously, there are material changes with the new version of the circular on outsourcing. There are important strategic decisions on which we may help you and your organisation.

Besides helping you to set up new outsourcing agreements and making your existing outsourcing agreements compliant, there are strategic decisions to be taken, like:

  • Can we source services from abroad and under what conditions? What requirements from Data Protection Law and other FINMA circulars need to be kept in mind?
  • Can we use cloud services for sourcing?
  • Are we allowed to have CID abroad or in the cloud and under what conditions?
  • What do we need to do in order to have our group-internal sourcing agreements be compliant?
  • Under what conditions are we able to outsource risk and compliance functions?
  • How can we protect our company from cyber risks and data stealing in a sourcing environment?
  • How can we accurately govern our suppliers?

Please contact our experts. We can advise you on your strategic decisions in the area of outsourcing and help you to make use of latest technology. Furthermore, we help you to set up audit-proven solutions for your sourcing agreements.

Contacts

Jens Probst
PwC | Assurance Director
Office: +41 58 792 2959 | Mobile: +41 79 372 5788
Email: jens.probst@ch.pwc.com

Michèle Hess
PwC | Assurance Partner
Office: +41 58 792 4667 | Mobile: +41 79 878 0085
Email: michele.hess@ch.pwc.com

Yan Borboën
PwC | Assurance Partner
Office: +41 58 792 8459 | Mobile: +41 79 580 7353
Email: yan.borboen@ch.pwc.com

Free “Corporate Access” provided by brokers is an inducement under MiFID 2

Until recently, compliance departments of investment managers were busy to figure out how they will pay for research. With that being settled now, the topic of “Corporate Access” is moving up on the agenda.

The most critical question in that respect is if “free” corporate access provided by brokers is considered an inducement under MiFID 2.

We think the answer to that is quite straightforward. Read the full article to find out more.

Download here

Contacts

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

Michael Taschner
Senior Manager, PwC Legal,
FS Regulatory & Compliance Services
Office: +41 58 792 10 87
Mobile: +41 79 775 95 53
michael.taschner@ch.pwc.com

Orkan Sahin
Assistant Manager, PwC Legal,
FS Regulatory & Compliance Services
Office: +41 58 792 19 94
Mobile: +41 79 238 65 69
orkan.sahin@ch.pwc.com

Equivalence decision about Swiss share trading venues

On December 21, 2017 the European-Commission adopted its decision about trading venues in Switzerland.

According to this decision, trading venues in Switzerland (i.e. SIX Swiss Exchange and BX Swiss) are recognized as equivalent to trading venues in the EU.

Article 23 of the new EU Markets in Financial Instruments Regulation (MiFIR), which will apply in the EU as of 3 January 2018, obliges European investment firms to trade shares on a trading venue in the EU or on an equivalent third-country venue. Therefore, such a ruling was necessary to enable investment firms domiciled in the EU to continue to trade shares on one of the Swiss exchanges.

It must be noted that this equivalence decision applies only to trading venues and not to the rest of the requirements under MiFID II/MiFIR. Furthermore, this equivalence decision about trading venues has been limited to one year, until 31 December 2018.

The Importance of this decision for Switzerland

For the SIX Swiss Exchange, roughly 50% of their CHF 850bn yearly trading volume stems from EU domiciled investment firms, therefore the equivalence decision is essential to the health of the Swiss financial market.

While equivalence has been granted until the end of 2018, legal certainty regarding the future of the Swiss trading industry is being undermined.

Equivalence decision and outlook

Equivalence of a third-country framework is generally granted by the European-Commission if three principles are met:

  1. the requirements are legally binding;
  2. they are subject to effective supervision by local authorities; and
  3. the results achieved are the same as EU rules.

An equivalence decision according to Article 46 et seqq. MiFIR granting Swiss investment firms the access to the European market is outstanding. It is not expected that such an equivalence decision will be taken in the near future, due to the fact that EU regulators are at the moment heavily involved with the realization of Brexit and are therefore not prioritizing this topic.

Contact Us

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

Martin Liebi
Director
Legal FS Regulatory & Compliance Services
+41 58 792 28 86
martin.liebi@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

Alexandra G. Balmer
Senior
Legal FS Regulatory & Compliance Services
+41 58 792 14 24
alexandra.balmer@ch.pwc.com