FINMA issues Circular 2025/2 "Rules of Conduct under FinSA/FinSO" to enter into force on 1 January 2025

I. Introduction

On 31 October 2024, the Swiss Financial Market Supervisory Authority FINMA issued the new FINMA Circular 2025/2 "Rules of Conduct under FinSA/FinSO". The Circular provides guidance on the implementation of selected aspects of the rules of conduct and organisational requirements applicable to financial services providers under the Financial Services Act and the Financial Services Ordinance (FinSA/FinSO). It will enter into force on 1 January 2025, partially subject to a 6-month transitional period until 30 June 2025.

II. Scope of Application

The Circular is (only) addressed at financial services providers supervised by FINMA (i.e., in particular, banks, managers of collective assets, fund management companies and securities firms) or a supervisory organisation for the supervision of portfolio managers (Aufsichtsorganisation). However, in practice, it can be expected to also serve as guidance for a broader group of financial services providers that are not subject to FINMA supervision (e.g. domestic investment advisory firms or foreign financial institutions providing financial services to Swiss clients on a cross-border basis).

III. Guidance

The Circular covers a very limited selection of topics and questions that have arisen in FINMA's practice regarding the FinSA/FinSO:

• Corporate Finance Exemption: Following criticism in the consultation procedure regarding the draft of the Circular, FINMA limited its explanations relating to the scope of application of the FinSA/FinSO in a corporate finance and M&A context. The final Circular only discusses the scope of application with regard to the placement of financial instruments, noting that sell-side activities are exempted but buy-side services are considered to be in-scope of FinSA/FinSO by FINMA.
• Information Duty: Pinpointed guidance on specific topics such as the clear identification of transaction- vs. portfolio based investment advice, risk disclosures in relation to contracts for differences, and risk concentrations.
• Appropriateness and Suitability: Guidance regarding the process of creating a client risk profile as a basis for the review of appropriateness and suitability, as applicable.
• Use of Financial Instruments of Clients / Securities Lending: Specification of the aspects that the disclosure to clients must cover in case of use of their financial instruments.
• Conflicts of Interest: Guidance on transparency regarding the use of "own" and third-party financial instruments in the context of the financial services rendered, as well as the treatment of potential conflicts of interest. Persons involved in financial services relating to "own" financial instruments must not be specifically incentivised to favour such instruments over those of third parties.
• Compensation from Third Parties / Retrocessions: Guidance relating to the disclosure of third-party benefits and appropriate highlighting in standardised agreements, broadly along the practice developed by the civil courts.