AFBS Group Legal&Compliance


MINUTES

0. Guests

0.1. Automatic Exchange of Information: Implementation and Audit: DOC

Pascal Michel, Swiss Federal Tax Administration, and Matthieu Boillat, State Secretariat for International Finance, present the state of play of the exchange of information and the upcoming audit process. Important points:

  • The majority of the 2.8 Mio reports received by the SFTA come from Germany and France. They are made available to the respective cantons which are competent for the analysis.
  • The SFTA filters outbound information according to the state of implementation in the receiving countries; it withholds information on residents of those jurisdictions which do not meet the standards; this information will be made available once compliance is assured.
  • The Global Forum has become aware of the importance to assure data protection to preserve credibility of the system and is focusing its assessment on such points also.
  • There are procedures for the mutual evaluation of quality of information provided; data from Switzerland is of good quality in general. Sharing big volumes of information, it must expect to attract wide attention and flaws to be detected easily.
  • Swiss reports do not contain the tax identification number TIN by default; this point has been addressed.
  • It is too early to report about follow-up request for information; the SFTA received only few yet.

0.2. Money Laundering Reporting Office MROS: DOC

Raffaele Erba, MROS, Division Head Analysis 2, reports on money laundering reporting and the changes in the MROS’s processes to analyse data. Important points:

  • Beyond information received from the financial intermediaries FI the MROS also collects information from foreign offices.
  • The transfer to foreign offices concerns exclusively information on the cases to be reported, this cannot be used as evidence in court proceedings unless explicitly authorised by the reporting office that has provided the information.
  • Based upon a strategic review of the MROS and amendments in legislation, which led to an increase of reports, the MROS hires additional staff and introduces the international standard reporting system goAML.
  • If the FI performs a report under Art 305 Penal Code, it can terminate the relation without obligation of informing the MROS.
  • Luxembourg faced a strong increase in reports with the establishment of the PayPal payment system.
  • Reports can be filed also in English; in particular supporting documentation can be filed in foreign languages unless they are too exotic.
  • Reporting in paper should be avoided as it creates big workload for the MROS.
    Implementation of the automatic reporting system is expensive for small banks, especially since they cannot scale the investments having merely few reports.
    The MROS is open to maintain the possibility of paper filings and learn lessons for the future development.

1. Minutes

The Group approves the Minutes of its meeting of 30 January 2019 published on 12 February 2019.

2. SBA Legal Commission and Working Groups

2.1. SBA Legal Commission

  • The SBA is assessing appropriateness of maintaining the self-regulatory framework in the realm of the CDB. A decreasing number of cases following a change of reporting practice questions the mechanism's legitimacy. In addition fines are low and the international peer reviews repeatedly criticise Switzerland for not having a mechanism coordinated by a government agency.
  • The AFBS Group agrees that an comparison with other foreign financial centres might provide valued input.
  • The Commission approves the draft revision of the SBA Guidelines on Asset Management. However, it questions whether such guidelines should be maintained since the Financial Services Act covers the same regulatory aspects. To assure clear segregation with respect to the FinSA, the guidelines should no longer be approved as minimum standard of self-regulation by the FINMA.
  • The SIX Group has changed requirements for transaction reporting, requesting the Legal Entity Identifier to accompany the report, contrary to previous agreement with the SBA. The regulation will enter into force at the end of January 2020, trades which do not comply will be rejected.
  • The Money Laundering Reporting Office MROS intends to hire additional staff to cope with the increasing number of suspicious activity reports. It also intends to create a joint organism with the FINMA and other entities to share information on anti-money laundering. It is, however, unclear whether the industry is ready to share extensively information.
  • There continues to be controversy in Parliament on the data protection law. It surprises as Switzerland's international standing would benefit from a strong legislation. Also international compatibility of the Swiss framework is crucial for internationally active firms. However, small enterprises are fear the big administrative burden the law may impose.
  • Parliament mandated the Federal Council with drafting a trust law. No working group has been set up yet, the SBA will follow up attentively. It is unclear whether the project is viable as it would require a compatible setup between roman and common law concepts. Nevertheless the trust is the only asset holding structure that resisted the controversies about transparency and information disclosure.
  • Discussions continue with the UK in view of defining a post-Brexit market access regime.
  • Luxembourg offers the possibility to third country asset managers to launch an investment fund without need of supervisory approval provided they are subject to equivalent supervision and the fund is restricted to professional and institutional investors. Banks should coordinate efforts to avoid the equivalence assessment being performed several times.
  • Other EU countries such as Belgium and the Netherlands offer market access for the provision of cross-border services to institutional and professional clients. The EU regulation explicitly admits for such exemptions provided they do not offer access to private investors.

2.2. SBA Tax Commission

  • The Federal Council suggests to expand the scope of the withholding tax system to indirect investments yielding interest income, also accumulating investment funds. It is unclear whether and how foreign-domiciled funds will apply the requirement.
  • The banking sector in the EU is opposed to the OECD initiative on taxation of the digital economy to be applied to the provision of financial services. It considers this initiative targeting a different category of the economy.
  • Instead of caling for an abolition of the stamp duty tax regime the SBA suggests to modernise it by introudcing a Financial Transaction Tax, similar to the schemes discussed in the EU. This would offer an "EU-compatible" solution and assure the government that revenue flows do not expire.

2.3. Esisuisse

  • The draft revision of the law on depositor protection is expected to be submitted to Parliament in Summer 2020.

3. Client contacts under MiFID and FinSA

Banks face challenges regarding compatibility of the two regimes. Especially in the realm of client categorisation a gap analysis between the two regimes would be welcome. It is difficult to categorise EU-domiciled private clients as "professional" according to the Swiss regime since the EU regulation applies additional criteria which may be binding in a case of litigation.

Banks tend to review rules in order to clarify foreign RM activities in Switzerland. They see the open market access regime introduced by the FinSA with mixed feelings.

The Group agrees to look into the regulation in more detail once the Ordinances have been published.

NB : The Ordinances have been published on 6.11.2019: DE FR IT

4. Strategic positioning of the EAM business with FinSA / FinIA

The SBA decided to mandate a working group with the assessment of the relationship between the EAM and the custodian bank. It aims at clarifying basic principles of the relationship such as

  • responsibility for the client categorisation
  • competence for the communication with the client
  • code of conduct governing the client relation

5. Exchange of Information

5.1. Automatic Exchange of Information

The point has been discussed during the presentation of the SFTA representatives.

5.2. Exchange of Information from Third Country Branch to EU Parent

The intra-group transfer of data is increasingly common. There need to be client consent and specific clauses in the General Terms and Conditions to make sure the bank can quickly respond to parent company requests. The bank can attempt to avoid full disclosure and restrict information to specific cases or specific data elements. However, no distinction can be made between high- and low-risk customers; the headquarter wishes to treat all clients in the same manner. The emergence of matrix organisations leads to an increasingly extensive data sharing within banks.

When sharing data with the parent company the bank should make sure the FINMA is informed exhaustively and does not learn to have less information than its foreign counterpart.

6. Big Data and Data Ethics

The point will be discussed in the next meeting.

7. Miscellaneous

n/a

8. Next Meeting

The next meeting takes place on 22 January 2020 in Zürich.



AGENDA

0. Guests

9.45: Pascal Michel, ESTV, and Matthieu Boillat, SIF, will give an overview of the functioning of the exchange of information – and on the upcoming audit process.

11.30: Raffaele Erba, MROS, Division Head Analysis 2, on ML reporting and the changes in the MROS' processes to analyse data and to take steps.

13.00: Farewell Drinks for Martin Maurer

1. Minutes

The Minutes of the AFBS Group meeting of 30 January 2019 were published on 12 February 2019.

2. SBA Legal Commission and Working Groups

2.1. SBA Legal Commission and Working Groups

  • René Schwab will inform on the meeting of the SBA Legal Commission held on 29 August 2019. The Minutes of that meeting are published as Annex A1 . A next meeting will be held on 14 November 2019 – the agenda will be published as soon as available.
  • René Schwab will inform in particular on the discussion in the Legal Commission, whether self-regulation is still a valid alternative to a FINMA Circular, and on the new SIX standard for securities reporting.

2.2. esisuisse

Maria-Antonella Bino will inform on developments in esisuisse.

3. Client contacts under MiFID and FinSA

For most banks, the implementation of FinSA is not a problem as such, but many specific issues remain unclear. The most pertinent ones are:

  • Client segmentation: FinSA, CISA, and MiFID do not have identical definition of the different client groups. Opt-out /-up is seen as problematic, as the definition of a professional client is not seen as sufficiently precise.
  • Banks differ in their practice to hand out the base information sheet and the prospect to “execution only” clients.
  • Registration of client advisors from other group entities.

4. Strategic positioning of the EAM business with FinSA / FinIA

  • With the entering in force of FinSA/FinIA, EAMs will be upgraded, as they become fully-licensed financial
  • services providers. The question has been posed whether the SBA should have a more strategic role to play in supporting banks to facilitate their business interactions with EAMs (and if yes, how) and whether such a collaboration should also deal with business aspects (including contacts with other stakeholders from the EAM sector) in order to create synergies for the benefit of the SBA Members.

5. Exchange of Information

2.1. AEoI

As we have invited Mr Michel, SFTA, we propose to have beforehand a short discussion on points to be addressed in the discussion, in particular if there are problems with the transmission of data to the SFTA or with “error correction”, but also issues related to the audit.

2.2.  Exchange of Information from Third Country Branch to EU Parent

EU Regulation 2019/758 of 31.1.2019 requires EU-based financial institutions to assure that branches or subsidiaries in third countries are authorised to transfer client information to the parent company for the purposes of risk mitigation, anti-money laundering and countering the financing of terrorism, monitoring of suspicious transactions, and centralised record-keeping. If the third country's legislation does not allow such transfer of information, the home country supervisor needs to be informed and enhanced monitoring implemented.

EU Regulation: LINK

The participants are invited to discuss.

6. Big Data and Data Ethics

A working group on data governance discusses the issue of data ethics. Banks have an enormous amount of data and those banks, which want to make use of all these data will implement cloud-solutions. It is unclear if using such data i.e. for marketing purpose, for forecasts, targeting of service development etc. needs the formal approval of clients, compliance with transparency and disclosure rules, etc.

The SBA wants to issue Guidelines on such ethics.

7. Miscellaneous

8. Next Meeting

Date and location of the next meeting are to be determined.