Client Information Disclosure Required by FINMA
On June 15, 2018, the Swiss Parliament approved the Financial Services Act (hereinafter referred to as the "FINSA”) and the Financial Institutions Act (hereinafter referred to as the "FINIA"), which came into force on 01.01.2020. The FINSA harmonizes the authorization rules for certain financial services providers. The FINIA contains rules of conduct that financial service providers must observe with respect to their clients. Both laws have provided for a transitional period (the so-called "transitional provisions") for implementation by those subject to them.
With the introduction of the FINIA, independent asset managers of individual clients are now subject to the supervision of the Swiss supervisory authority FINMA. Zest SA (hereinafter referred to as "Company" or "Financial Services Provider"), as a collective asset manager, was already subject to FINMA before the entry into force of the FINIA. As of 01.01.2021, the transitional period envisaged by FINIA for companies that were already authorized by FINMA has ended and, therefore, the Company is now subject to the provisions of FINIA and meets the authorization requirements therein.
The FINIA focuses in particular on the rules of conduct that financial service providers must observe when providing investment services. These rules supplement the civil law provisions applicable to the contractual relationship between the financial service provider and its clients.
The new legislation thus aims to regulate the financial market, improve investor protection, and offer greater transparency on financial products.
The introduction of the Financial Services Act means that the Company will have to adapt its contractual arrangements for the services provided and/or financial products offered to its clients. The Company hereby informs its clients of the effects of the FINSA on client relationships.
The Federal Financial Services Act (FINSA)
The FINSA applies in Switzerland to all providers of financial services in a professional capacity, including banks, as well as to issuers and providers of financial instruments.
1. What is covered by the FINSA and in what cases are you affected?
The main purpose of the FINSA is to strengthen investor protection in connection with the provision of financial services and the offer of financial instruments. In particular, the FINSA contains rules of conduct such as information and documentation obligations as well as organizational measures. A transitional period of two years from 01.01.2020 is generally envisaged for the application of the rules of conduct set out in the FINSA.
2. Investor protection
The extent of investor protection depends on client’s segmentation and on the type of financial service provided by our company and used by you. The FINSA distinguishes between the following types of financial services:
Purchase or sale of financial instruments;
Acceptance and transmission of orders involving financial instruments;
Management of financial instruments (asset management);
Formulation of personalized recommendations concerning transactions with financial instruments
Granting credits for executing transactions with financial instruments.
Concerning client segments, the FINSA distinguishes between private clients, professional clients, and institutional clients. If the company does not inform you otherwise, you are classified as a private client. This means that you are entitled to the maximum investor protection for the financial service you have requested. If you wish to be included in another client segment, which is possible under certain conditions, you must make an express written request to the Company.
Combined effects of the classification of clients according to FINSA and the CISA
The Collective Investment Schemes Act (hereinafter referred to as "CISA") was also amended by the introduction of FINSA. For example, the CISA now contains only product-specific provisions on collective investment schemes, whereas the rules of conduct to be observed in respect of clients are now regulated by the FINSA. The adjustment also affected the rules for clients’ classification as qualified or non-qualified investors under the CISA, which refers to the definitions for client classification contained in the FINSA.
Professional clients and institutional clients are considered qualified investors;
Private clients are not considered qualified investors and, therefore, do not have access to collective investment schemes (investment funds) reserved for qualified investors, nor may they invest in collective investment schemes (investment funds) that are not authorized in Switzerland. It should be noted, however, that if a client has agreed in writing on a long-term investment advisory or asset management relationship with the Company, he is considered a qualified investor within the meaning of the CISA. This leads to a wider range of opportunities, but also higher risks. Classification as a qualified investor makes it possible to purchase financial instruments with an increased risk: for example, within the framework of an investment advisory or asset management relationship, the qualified investor may also purchase foreign collective investment schemes or structured products with a higher risk.
If a client wishes to renounce the status of "qualified investor", he must declare this in writing.
Change of Classification
The FINSA provides for the ability to change classification upon written request to be submitted to the financial services provider (provided the stated conditions are met).
Switch to a category that offers less protection (opting-out):
A wealthy private client or a private investment facility established for such clients and not having a professional treasury may request to be considered a professional client. This request is permissible in the following cases:
- the person or structure;
- has assets of at least CHF 500,0001 and
- possesses the necessary knowledge to understand the risks of investments as a result of personal training and professional experience or comparable experience in the financial sector, or
- the person or structure has assets of at least CHF 2 million2 .
Switch to a category that offers more protection (opting-in):
- A professional client may request to be considered a private client.
- An institutional client may request to be considered a professional client.
3. Behavioral obligatios
Before concluding the contract or before using a financial service, the Company provides the Client with various information. This information is intended to let the Client take more acknowledged and responsible decisions on the use of a particular financial service. In the case of investment advice or asset management activities, the Company checks whether those services are suitable or appropriate for that given Client. The Company documents the provision of the service and, at the Client’s request, makes the relevant documentation available. In addition, the Company shall make available in advance to private clients, within the scope of a personal recommendation of financial instruments, a basic information sheet, insofar as this is to be prepared for the recommended financial instrument. The obligations of conduct of the company as the main element of investor protection, therefore, depend on the client’s segmentation. In the case of private clients, all obligations of conduct must be complied with.
Verification of suitability and appropriateness
The financial service provider offering asset management services must carry out a suitability check, based in particular, on the client's financial situation, investment objectives, and his knowledge and experience about the service received. This also applies when the service consists of investment advice that takes account of the client's entire portfolio.
If the services offered by the financial services provider consist solely of the execution or transmission of mandates (execution-only), FINSA does not require any verification of appropriateness or suitability. However, the provider must inform its client of the lack of verification of the appropriateness or adequacy of the transaction.
4. Provisions on information and documentation
The duty to provide information concerns, on one hand, concrete data relating to the Company and, on the other hand, information on the financial services provided. The company is obliged to document the financial services agreed with the client and the information gathered about the latter. In the case of investment advice, it shall also document the client's needs and the reasons for each recommendation.
Professional clients may expressly waive the information, documentation, and reporting obligations. In the case of professional clients, the company may assume, within the framework of the review of suitability and appropriateness, that they have the necessary knowledge and experience to bear the investment risks associated with the financial service.
The rules of conduct according to the FINSA do not apply to institutional clients. This means that there are no information, documentation, or reporting obligations for institutional clients, nor are there any obligations regarding transparency and due diligence or the carrying out of a suitability or adequacy check.
Information on costs
Costs and fees may arise in connection with the provision of financial services, both from the Company and from third parties. The Company will also inform the Client of the type and amount of compensation it receives from third parties in connection with the financial service provided. For this purpose, when the asset management or advisory contract is concluded, the document "Information for clients of LFG+Zest SA" is handed over as an integral part of it.
Information on risks
Transactions with financial instruments are associated with opportunities and risks. It is therefore particularly important that the Client understands the risks involved before using a given financial service. For this reason, the brochure "Risks in Financial Instrument Trading" is available. In this brochure, you will find important information on the risks that are typical in trading in financial instruments.
In the execution of client mandates, the Company shall ensure that the best possible result is achieved under different perspectives, among which the commissions applied, the timing, and the accuracy of the orders’ execution. However, if a trading transaction resulting from an investor's explicit instruction is incompatible with the Best Execution principles and/or if no trade has ever been made before with the banking counterparty chosen, the Company is entitled to not adhere to Best Execution principles.
5. Conflicts of interest
The Company, in the provision of financial services, endeavors to align as much as possible its clients’ interests with the Company’s and its employees’ ones. However, it may be impossible, in practice, to avoid a priori any potential conflict of interest. Therefore, the company has taken the needed steps to manage at best any conflict of interest, potential and actual, in name of acting transparently and correctly, following the relevant legal provisions.