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Berne Financial Services Agreement between the United Kingdom and Switzerland – New opportunities for Swiss managers of collective assets and portfolio managers

The Berne Financial Services Agreement between the United Kingdom (UK) and Switzerland, signed in December 2023, will offer Swiss managers of collective assets and portfolio managers a gateway to the UK market through mutual recognition of regulatory frameworks. In particular, the agreement – after having passed the parliamentary processes in the UK and Switzerland – will allow Swiss managers of collective assets and portfolio managers to provide asset management and investment advisory services to high net worth clients in the UK with assets in excess of GBP 2,000,000, provided that the Swiss managers of collective assets or portfolio managers register themselves into a register maintained by the Financial Conduct Authority (FCA).

Juerg Bloch
Partner, Niederer Kraft Frey

Simon Bühler
Partner, Niederer Kraft Frey

A. Overview & basic questions

1. What is the Berne Financial Services Agreement about?

The Berne Financial Services Agreement (link), signed by Switzerland and UK in December 2023, provides for a mutual recognition of each other's regulatory and supervisory frameworks and aims at removing obstacles to the cross-border provision of financial services.

In order to benefit from the new rules, it is required that a "Covered Financial Services Supplier" supplies a "Covered Service" to a "Covered Client", all as specified in five so-called "Sectoral Annexes" of the Berne Financial Services Agreement:

# of Sectoral Annex	Subject of Sectoral Annex
1	Asset Management
2	Banking
3	Financial Market Infrastructures
4	Insurance
5	Investment Services

2. Do Swiss managers of collective assets and portfolio managers qualify as Covered Financial Services Suppliers?

Swiss managers of collective assets or portfolio managers that are authorized and supervised in accordance with the Federal Act on Financial Institutions (FinIA) may qualify as Covered Financial Services Provider from Switzerland into the UK as follows:

#	Sectoral Annex	May Swiss managers of collective assets and portfolio managers qualify as Covered Financial Services Supplier?
1	Asset Management	See 1.1 and 1.2
1.1	Marketing of Covered Financial Instruments (Annex 1, Part 1, Section IV.A.)	Yes: (i) authorized and supervised under the FinIA (inter alia), (ii) authorized to supply the Covered Service in Switzerland, (iii) notification to the FCA, and (iv) entitled to market the financial instruments under the domestic law on national private placement of the UK
1.2	Portfolio management delegation (Annex 1, Part 2, Section IV.A.)	Yes: (i) incorporated in Switzerland, (ii) authorized and supervised under the FinIA (inter alia), and (iii) authorized to supply the relevant Covered Service in or from Switzerland under the FinIA (inter alia)
2	Banking	See 2.1 and 2.2
2.1	Deposit-taking (Annex 1, Section IV.A.a.)	No
2.2	Lending (Annex 1, Section IV.A.b.)	Yes: incorporated in Switzerland (e.g. as company limited by shares or limited liability company)
3	Financial Market Infrastructures, Central Counterparties	See 3.1-3.3
3.1	Central Counterparties (Annex 3A, Section IV.)	No
3.2	Over-the-Counter Derivatives (Annex 3B, Section IV.)	Yes: a counterparty to a derivatives transaction established in Switzerland, (i) which was not conducted via a trading venue, and (ii) which does not have to be cleared by a central counterparty
3.3	Trading Venues (Annex 3C, Section IV.)	No
4	Insurance	No
5	Investment Services (Annex 5, Section IV.)	Yes: (i) authorized and supervised as a manager of collective assets or as a portfolio manager under the FinIA (inter alia), (ii) incorporated in Switzerland, (iii) authorized to supply the Covered Service in Switzerland, (iv) supplies the relevant Covered Service in Switzerland, (v) notification to the FCA, (vi) not authorized under Part 4A of FSMA to supply the Covered Service, (vii) placed on the register maintained by the FCA (in respect of the provision of the notified Covered Services to the UK), and (viii) notifies FCA (with a copy to FINMA) of any relevant changes to its register entry

3. When will the Berne Financial Services Agreement enter into force?

After the signing of the Berne Financial Services Agreement in December 2023, in both Switzerland and UK a parliamentary process is required. In Switzerland, it is expected that the Federal Government will submit a dispatch to Parliament in the first half of 2024. Thus, the date of entry into force is still uncertain.

Furthermore, it is to be noted that the rules of the Financial Services Agreement need to be implemented into national legislation. Article 4 of the Berne Financial Services Agreement specifies that "[n]othing in the Agreement shall be construed as conferring rights or imposing obligations on natural and legal persons nor as permitting the Agreement to be directly invoked in the domestic legal systems of the Parties, including on grounds that the other Party has acted in breach of the Agreement".

B. In particular: offering of investment services under Annex 5

1. Overview

As shown above in Section A.2., Swiss managers of collective assets and portfolio managers may qualify as Covered Financial Services Supplier in the Sectoral Annexes (i) asset management (Annex 1), (ii) banking (in relation to lending; Annex 2), (iii) financial market infrastructures (in relation to over-the counter derivatives; Annex 3B), and (iv) investment services (Annex 5).

It is expected that the offering of cross-border asset management and investment advisory services by Swiss managers of collective assets and portfolio managers under Annex 5 (Investment Services) will be of particular interest. The requirements for providing such services from Switzerland into the UK under the Berne Financial Services Agreement are outlined below.

2. Covered Financial Services Providers (Annex 5)

See Section A.2. We want to highlight that the Swiss managers of collective assets or portfolio managers must (i) offer the relevant services provided to UK clients already in Switzerland and, (ii) register with the FCA.

3. Covered Services (Annex 5)

The Covered Services are described in Annex 5, Section III of the Berne Financial Services Agreement:

Investment services and activities, including
- reception and transmission of orders in relation to Covered Financial Instruments;
- execution of orders on behalf of clients;
- dealing on own account;
- portfolio management; and
- investment advice.
Services ancillary to the main investment services business of the supplier, which may also be supplied on a standalone basis, including
- safekeeping and administration of Covered Financial Instruments for the account of clients;
- granting credits or loans to an investor to allow the investor to carry out a transaction in one or more Covered Financial Instruments where the firm granting the credit or loan is involved in the transaction; and
- investment research and financial analysis or other forms of general recommendation relating to transactions in Covered Financial Instruments.

4. Covered Clients (Annex 5)

The Covered Clients in relation to Investment Services are defined in Annex 5, Section V of the Berne Financial Services Agreement and can be summarized as follows:

High Net Worth Covered Clients
1. high net worth clients: (i) a natural person with net assets (specified in Annex 5, Section VII.) in excess of GBP 2,000,000, (ii) capable of making his or her own investment decisions and understanding the risks involved, and (iii) having provided an opting-out in writing;
2. Private investment structure with professional treasury operations that fulfills several requirements; and
3. Private investment structure, with no qualified expert with appropriate professional skills in financial matters that fulfills several requirements (in this case, the natural person needs to meet criteria similar to the above in 1.a.).
Per se professional clients as defined under UK law
1. entities which are required to be authorized or regulated to operate in the financial markets;
2. large undertakings;
3. national and regional governments, international and supranational institutions; and
4. other institutional investors whose main activity is to invest in financial instruments.
Eligible counterparties as defined under UK law (e.g. investment firms, pension funds).

Biographies

Juerg Bloch is a partner at Niederer Kraft Frey. His practice focuses on advising companies in the areas of internal and regulatory investigations, white-collar crime, crisis management, corporate governance, compliance and administrative and judicial assistance proceedings.

Simon Bühler is a partner at Niederer Kraft Frey. He advises companies on the en-tire spectrum of national and cross-border regulatory, compliance and white-collar crime matters. Simon's practice includes internal and regulatory investigations, often in a cross-border context.

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