Avaloq Sourcing Switzerland & Liechtenstein

Newsletter - Issue II 2018

Compliance

Financial Services Act (FinSA)

 

Affected banks: 
all Swiss licensed banks
Mandatory effective date:
expected 01.01.2020
Solution status: considered
Solution implementation date: end of 2019


Overview

As already mentioned in the last newsletter, FinSA is the regulation that sets out cross-sector rules for offering financial services and distributing financial instruments. In terms of content, the rules mirror the EU directives (MiFID, Prospectus Directive, PRIPs project), with adjustments made to reflect specific Swiss circumstances.

The act was accepted with 138 votes to 57 (National Council) and 41 votes to 0 (Council of States). It is expected to come into force with the implementing ordinance on 1 January 2020. As usual, the ordinance indicates the details of the application of the law and the start of the acceptance procedure is planned for the end of October (official information from the State Secretariat for International Financial Matters SIF). Interestingly, the same authorities specified that “As far as the ’rules of conduct’ are concerned, respecting the MiFID II rules normally means that the FinSA requirements are satisfied”. In other words, the banks that have already implemented MiFID II investor protection could in theory renounce to implement the corresponding requirements in the FinSA; the drawback, however, is that they cannot profit from the simplifications adopted by the FinSA in respect to MiFID II in that case. Regarding the conduct rules under the FinSA, quite a useful graphical overview was presented in the 2017 FINMA Annual Report:


 

You can see the differences compared with MiFID II particularly in the absence of obligations regarding checks for execution-only services, and in the reduced number of checks required for the financial service category “transaction-based investment advisory services” that is not known in MiFID II.

 


Our approach
As mentioned, the ordinance that constitutes the basis of our work is scheduled to be published at the end of October. At that date we can start working on the project and the respective communication will be set up as usual.


Key dates

  End of October 2018   Draft ordinance will be made public
  Jan - Feb 2019   Webinar presenting the project to the client community
  2H 2019   Delivery of the solution in production
  01 Jan 2020   Expected entry into force of the FinSA
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Compliance

Central Securities Depositories Regulation (CSDR) – Phase II

 

Affected banks: depending on the requirement, mainly EU banks
Mandatory effective date: 12.07.2019 (phase II) and 14.09.2020 (phase III)
Solution status: considered
Solution implementation date: Q2/Q3 2019 (phase II)


Overview
The CSDR is one of the key regulations adopted to combat the effects of the financial crisis. It aims to increase the safety and efficiency of securities settlement and settlement infrastructures across the EU and to harmonize the rules applied by central securities depositories (CSDs). The CSDR applies to all CSDs in the EU or EFTA: Switzerland and Liechtenstein must therefore comply. In addition, Article 37 of the CSDR is deemed to be equivalent to Article 62 of the FMIA (FinfraG).
The main impacts of the CSDR affect CSDs in various areas, such as corporate governance, risk management, compliance, capital requirements, admission procedures and the recording of additional information (e.g. LEI, country of incorporation of participant, governing law of securities, etc.) In any case, certain duties already have an impact on CSD participants, i.e. banks, directly or indirectly, as they are obliged to comply following the modification of CSD procedures and SLAs. While some requirements will only affect the business relationships between CSDs and their participants (such as collateralization of credit exposures or collateral eligibility and valuation) or between CSD participants and their customers (i.e. the transparent and clear offering of individual segregation versus omnibus segregation), other requirements will directly call for the enhancement of systems and process.


Our approach
The implementation of CSDR requirements is treated as a client community project and divided into three phases:

Phase I: daily securities reconciliation
In view of the increasing reconciliation volumes to be managed daily, an enhanced back office service has been offered based on a strengthened Avaloq solution driven by MT535 and MT536.
The implementation is ongoing, and the involved clients will be onboarded starting from Q4 2018.

Phase II: reporting by EU settlement internalizers
This reporting solution, applicable to EU banks including their EU/non-EU branches, is currently being assessed and will be presented in a dedicated webinar, which we expect to hold in Q4 2018.

Phase III: settlement discipline regime
The last and most impactful phase of this project will be carried out in 2019. According to the last regulatory technical standards (RTS) publication, the requirement assessment is currently to be approached.


Key dates

Q4 2018  Phase I: going - live
01.01.2020  Phase II: webinar
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Compliance

Shareholder Rights Directive (SRD)

 

Affected banks: all EU banks (Swiss banks assumed out of scope)
Mandatory effective date:
to be defined (legal adoption by EU member states by mid-2019)
Solution status: considered
Solution implementation date:
considered


Overview
The SRD I came into force in 2007 [2007/36/EC] and has been replaced by the new SRD II [2017/828], which was published on 17.05.2017. EU member states have two years to implement the SRD II in their national legislations.
The SRD only addresses the exercise of certain shareholder rights (SRD II Article 1) for voting shares of companies which meet the following requirements:

  • their registered office is located in a member state, and (not or)
  • the shares of which are admitted for trading on a regulated market situated in or operating within a member state.

Regulatory duties

  1. SRD I – Chapter Ia – Articles 3a to 3d: identification of shareholders – transmission of information for shareholders and facilitation of the exercise of shareholders' rights.
  2. SRD I – Chapter Ib – Articles 3g to 3i: transparency and shareholder engagement of institutional investors and asset managers in their investments.
  3. SRD I – Chapter Ib – Article 3j: improve the reliability, transparency and quality of proxy advisors' recommendations.
  4. SRD I – Chapter Ib – Articles 9a and 9b: influence of the annual general meeting on the remuneration policy for managing directors (aka “Say on pay”).
  5. SRD I – Chapter Ib – Article 9c: improvement of transparency and influence of shareholders in relation to related party transactions.

SRD validity in third countries

  • SRD I – Chapter Ia – Article 3e: chapter Ia (mainly referring to the identification of shareholders) also applies to intermediaries which have neither their registered office nor their head office in the European Union when they provide services referred to the companies in scope.
  • SRD II – Article 12: if third-country intermediaries were not subject to this directive and did not have the same obligations relating to the transmission of information as European Union intermediaries, the flow of information would risk being interrupted. Third-country intermediaries which provide services with respect to shares of companies in scope should therefore be subject to the SRD’s duties.
  • SRD II – Article 13: SRD is without prejudice to national law regulating:
    - the holding and ownership of securities and
    - arrangements maintaining the integrity of securities
    and does not affect the beneficial owners or other persons who are not shareholders under applicable national law.
  • SRD II – Article 54: the provisions of any sector-specific (European Union) legislative act should prevail over this directive.

 

Avaloq Sourcing view
Based on the publication date, the SRD is expected to come into force by June 2019, when it should be implemented by EU member states in their local law.
Some requirements have already been implemented specifically in Switzerland with the enactment of the “Minder Initiative” (OaeC), which aims to:
 solve the problem of an insufficient link between pay and performance of directors;
 introduce an obligation concerning transparency and shareholder engagement, but limited to certain pension funds.

In relation to the facilitation of transmission of information (including voting) across the financial intermediary chain, in particular through shareholder identification, we do not expect any imminent potential implication for Swiss financial intermediaries.
1. The directive does not dictate the means for achieving its result. As a consequence, EU member states have time to define their implementing measures until mid-2019. No technical specification (such as RTS/ITS) is available yet concerning the identification of shareholders, and it is so far still unknown how the communication flow between financial intermediaries and EU member state/issuer will work.
2. Although the SRD expressly states its applicability in third countries, it cannot prejudice and prevail over the local or sector-specific regulations. This means the SRD does not affect Swiss financial intermediaries until a Swiss equivalent regulation will be implemented by the Confederation. Moreover, in absence of a comparable Swiss regulation, an exemption from the provision of the Swiss Banking Act Article 47 cannot be permitted. A Swiss intermediary (even if it establishes a branch in the European Union) shall not be subject to the obligations contained in SRD I Chapter Ia, in case this would lead to a violation of Swiss banking secrecy.
3. We would also argue that if the SRD became applicable to Swiss financial intermediaries, implying the provisioning of shareholder information to EU issuer, the same right should be granted to Swiss issuers in the relation to EU financial intermediaries.
In any case, it is so far unlikely that the current Swiss system for registered shares would comply with the SRD. Owners of registered shares of Swiss listed companies are under no obligation to notify the share register and disclose their identity to the issuer. Although dividends and other financial rights are granted for these shares, they cannot be voted at shareholder meetings until the shareholders register themselves directly in the issuer share register. Even if the shareholder’s bank knows the identity of its client, it is not allowed to disclose such information to the issuer without the consent of the shareholder.
4. An amendment to Swiss corporate law aimed to improve the situation concerning registered shares by introducing a so-called nominee model in which the custodian bank would be registered as holder of a record instead of the real shareholder (Dispoaktien). While this model has certain benefits, it does not require the disclosure of the identity of the shareholder. Here, Swiss corporate law deviates significantly from EU legislation.


Our approach
The SRD is on our radar, especially for expected implications for our EU clients, but it has not been yet committed by ASSL due to the time frame and especially due to the missing technical and operative specification. Moreover, the regulation has so far not been considered applicable for Swiss banks. We continue to monitor the evolution of this regulation to be able to address potential implications for the client community.


Key dates

  Q2 2019 EU member states legal adoption by mid-2019 and RTS/ITS publication
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Payments

SEPA Instant Credit Transfersepa

Affected banks: 
all banks belonging to SEPA countries
Mandatory effective date:
expected for November 2019
Solution status: considered
Solution implementation date: Not defined


Overview

SEPA Instant Credit Transfer (ICT) is an instant payment solution that enables credit transfers within the SEPA area in less than 10 seconds. This process improvement has been introduced by the Euro Retail Payment Board (ERPB) to exploit the high potential coming from the digitalization enhancement.
The European Payment Council has defined standards and interbank rules in order to allow the correct payment processing through this scheme: crediting of funds to the account of the payee within 10 seconds; services available 24 hours a day, 365 days a year; and an amount limit of EUR 15,000.
The SEPA ICT scheme brings several improvements compared to the classical scheme, such as:
• Online processing of each transaction;
• Real-time reconciliation;
• Immediate availability of funds.
Advantages for the banks include the simplification of back-office activities due to single transaction processing, the synergy with the enhancements introduced by Payment Services Directive II (PSD II) services and the improvement of client retention and acquisition.


Our approach
We considered SEPA ICT for clients in the SEPA area.
The new rulebook version will be released in November 2018, and once the specifications have been published, the requirements analysis will be performed if there is any interest among our clients.
The entry into force is expected one year after publication of the last version of the rulebook.


Key dates

  September 2018   Publication of the new rulebook version
  September 2019   Expected entry into force of SEPA Instant Credit Transfer
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Payments

Payment Services Directive II (PSD II)

Affected banks: all banks located in the EEA
Mandatory effective date: 14.03.2019 (testing) and 14.09.2019 (going-live)
Solution status: committed
Solution implementation date: Q3 2019


Overview
As already mentioned in the last newsletter, PSD II is a game-changing directive coming into force in 2019. It will allow third-party providers to initiate payments on behalf of payment service users (i.e. banks’ clients) or collect information (such as balances and transactions) about their payment accounts.
Considering that the number of credit transfers within the European Union has skyrocketed from approx. 27 million transactions in 2013 (total value of approx. EUR 235 billion) to approx. 32 million in 2017 (total value of approx. EUR 272 billion), it is easy to understand the potential impact of the payment initiation services. )
The so-called Payment Initiation Service Providers (PISPs) will in future be able to initiate, on behalf of the users, part of these payments instead of using traditional card networks, such as Visa or Mastercard.
In addition, for the first time, Account Information Service Providers (AISPs) will be allowed to request, and consolidate, data that were typically held exclusively by the banks, such as payment account details, closed and expected balances, and booked and pending transactions.
Third-party providers will be allowed to perform functional tests starting from mid-March next year, and banks will need to provide test environments without sensitive data on which the tests can be performed.
Below is a graphical overview of the services: 2)

 

Given the impact of the new directive, many aspects need to be considered in order to provide an end-to-end solution, including, but not limited to: technical documentation to be prepared and shared with third-party providers (in order to test the solution), onboarding processes to allow third-party providers to register in the Avaloq Banking Suite, authentication of payment service users and third-party providers and authorisation of the transactions, implementation of new protocol supporting delegation (such as Oauth2), reporting and monitoring duties, infrastructure setup.

 

Our approach
Avaloq group is working towards a group-wide flexible and reliable solution capable of supporting multiple market standards (such as Berlin Group and STET).

 


Key dates

 October 2018  Webinar about PSD II
 14 March 2019  Starting period of the 6-month testing phase planned by the Commission Supplementing Regulation (2018/389)
 14 September 2019  Official going-live planned by the Commission Supplementing Regulation (2018/389)
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Payments

Harmonization of Swiss payments

 

Affected banks: all Swiss licensed banks
Mandatory effective date:
01.06.2020 (QR-Code)
Solution status: considered
Solution implementation date:
during 2019


Overview
The Swiss Payment Council (SPC) has assigned to the Payments Committee Switzerland (PaCos) the task to elaborate Swiss payment standards for implementation on the basis of ISO 20022.
Based on the latest news in this matter, the updates in this newsletter focus on QR billing. The adoption of this new scheme will imply the replacement of all current payment slips by the new QR bills. The QR code will contain, in digital form, all the information necessary for payment processing.
There will be a transitional period during which the current payment slips can be used in parallel with the QR bills. The original date for the introduction of the QR bills has been postponed from mid-2019 to mid-2020 and, by then, all market participants will be required to have the technical capacity to use QR bills for payment processing.
The table below shows the timeline for the different streams involved in the harmonization of Swiss payments.


Key dates

  H1 2019   Webinar about the replacement of payment slips by QR Bills
  June 2020   Starting of the transition period
  Q2 2020   ASSL solution for management of QR bills in production
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Client support

eSteuerauszug – Swiss eTax statement (barcode extension)

 

Affected banks: all Swiss banks
Mandatory effective date:
not applicable
Solution status: considered
Solution implementation date:
to be defined


Overview
The eSteuerauszug is an already ongoing initiative which is being implemented by the Swiss Tax Conference (SSK) in collaboration with the cantons and financial institutions as part of the digital processing of tax returns.
The aim of the eSteuerauszug is to map the contents of tax statements in a common Swiss format, enabling:
- taxpayers to voluntarily provide electronic data to the cantonal tax authorities, making this task easier thanks to the reduction of manual steps in the transfer of data to complete the tax return;
- cantonal tax authorities to benefit from a semi-automated assessment process without media disruption, reducing the manual activities in the processing of tax returns and improving data quality;
- financial institutions to gain advantages in offering this additional option, and to potentially increase flexibility in the preparation of tax statements.
Financial institutions would be required to provide the taxpayer with the current printed tax statement version, adding a new barcode section to be represented based on the readable data.
As a result, the electronic format can be directly imported by the taxpayer into the tax declaration software provided by the cantons and forwarded to the respective cantonal tax authorities.
Together with the barcode section, the current printed tax statement version still needs to be submitted in paper form as part of the tax return, to be scanned during the assessment by the tax authorities.
The financial institutions do not directly provide any data to the tax authorities; this task lies with the taxpayers, who can choose whether they want to provide the electronic format or continue to submit the paper form.
Three cantons are already able to support this new standard (Zurich, Geneva, Wallis); all other cantons are supposed to follow in the next few years, even if a formal time frame has not been defined yet.
Credit Suisse is already successfully offering the eSteuerauszug, and a project by UBS is in progress, aiming to be ready by the next tax season.


Our approach
Avaloq is evaluating and designing a potential solution. A general survey could be required in 2019 to identify the interest of the client community. A webinar is expected to be held at the end of the first half of 2019, with the aim to put the solution in place by the Swiss tax season 2020.


Key dates

  Q1 2019   General survey to identify the interest of the client community
  Q2 2019   Solution presented to the client community and binding feedback
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