Do you know the current state of the debate?
FIDLEG - everything clear?
Zug, Jun 2019
The Swiss Financial Service Act (FIDLEG) presents banks with new challanges. The implications are far-reaching. Are you aware of the current state of the debate? Pascal Inauen, our complieance manager and FIDLEG specialist, explains. He highlights what is unclear in the current version of FIDLEG/FIDLEV and points out difficulties and stumbling blocks based on his experience in various projects and analyses.
Is the current version of the legal requirements concrete and stable enough to start implementation?
The federal law FIDLEG itself has been finalised and it will not change at all. However, the Federal Council's implementation ordinance (FIDLEV) is still in flux. The Federal Council is currently dealing with numerous responses from the consultation process. We expect the next version of FIDLEV in autumn 2019, and the responses to the consultation process could lead to significant changes in some areas.
However, the legal requirements are generally clear and the implementation of the central parts should be tackled. Accordingly, we have already begun with the analysis and specification with various banks.
In your opinion, which areas are still unclear?
As an official Avaloq partner for FIDLEG we concentrate primarily on implementing the IT-related aspects of FIDLEG. There are still some unclear points here. One of the main uncertainties is the issue of ex ante cost transparency. This involves prior disclosure of one-off and ongoing costs associated with a financial service. MiFID II - FIDLEG's European template - lists the associated requirements in great detail. In FIDLEG, however, this topic is just described briefly in Articles 8 and 9: Pursuant to Art. 8 (2) a. FIDLEG banks are required to disclose "personally recommended financial services and the associated risks and costs". Art. 9 (1) FIDLEG defines the time of disclosure as "before conclusion of the contract or provision of the service". These legal provisions could well be understood as requiring prior disclosure of costs at transactional level - as under MiFID II.
Certain discussions in the Federal Council concerning Art. 8 of the draft FIDLEV, on the other hand, indicate that it may be sufficient to disclose generic cost information (fee tariffs, fee tables). Some banks interpret FIDLEV in such a way that these generic entries are sufficient and only have to be submitted to the customer once in connection with the opening of an account.
However, we are not so sure about this design variant. If we look at the discussions of the Federal Council on Art. 14 of the draft FIDLEV concerning the time of a requirement to provide information, it is stated explicitly that it refers to transactions. One could also take the view that the legislator wishes to establish transactional ex-ante cost transparency to strengthen equivalence with MiFID II. The SBA has also rightly pointed out this ambiguity in its consultation submission. We therefore believe this is a realistic scenario.
What would be the implications of this transactional ex-ante cost transparency as under MiFID II?
The level of detail of the cost elements to be provided to the customer is extremely high and technically demanding. This is demonstrated by our experience with implementation of ex-ante cost transparency at various banks in accordance with MiFID II. Above all, the running costs to be prepared in advance, such as recurring custody charges, represent a challenge on the technical level. If transactional ex-ante cost transparency similar to MiFID II is required under FIDLEG, banks will have to expand their technical arrangements accordingly.
How should banks address this ambiguity?
We expect the publication of the next version of FIDLEV to provide explanations and clarification of this issue. Probably in autumn of 2019. FIDLEG is expected to come into force on 1.1.2020. However, a transitional period up to the end of 2020 applies to informational obligations including ex-ante cost transparency. Since implementation of transactional ex-ante cost transparency is relatively complex on the technical level, we recommend that our customers wait and see with this issue and concentrate their resources on implementation of the other FIDLEG-related issues that are already clear. After all, there is quite enough to do with these other matters! Nevertheless, the possibility of such transactional ex-ante cost transparency must be kept in mind when making IT architectural decisions.
In addition to the above-mentioned ex-ante cost transparency, are there currently any other inconsistencies or uncertainties?
The treatment of "basic information sheet (BIS) in execution-only transactions", for example, also still seems unclear to me. Art. 8 (4) FIDLEG states that in the case of exclusive execution or transmission of client orders, no basic information sheet BIB needs to be provided unless a BIS "is available" for the financial instrument. What exactly does the term "available" mean? Or when can a bank take the view that no BIB is "available"? There is also a need for clarification here.
What other stumbling blocks did you encounter with your customers in FIDLEG projects?
A stumbling block in the implementation of FIDLEG could certainly be the prior dispatch of information documents. Here, banks should start at an early stage with digitisation, i.e. the development of electronic dispatch options. Without this digitisation of the dispatches, delays will occur in the execution of orders, as the information documents must be "delivered" in accordance with FIDLEG before an order is placed.
Furthermore, there is a general danger that attempts might be made to clarify all details too early. Due to the complexity of the FIDLEG subject matter and the many different stakeholders involved, it is important to look at the bigger picture and address the details later.
In order to avoid focusing on details too early, at Confinale we have defined a clear standard procedure for analysis and specification based primarily on a simple and comprehensible catalogue of use cases. Detailed questions are only discussed briefly and then recorded, so that they can be analysed extensively in due course. This abstract approach, which is based on use cases, has proven very successful in practice. Detailed questions are only analysed afterwards, but in a structured way. We strongly recommend this method to all banks.
Further information on our services in connection with the implementation of FIDLEG can be found in our factsheet. Final legislative texts: FIDLEG, FINIG.
Head Business Development & Training