Effective January 1, 2025, the Swiss Financial Market Supervisory Authority’s (FINMA) new Circular 2025/2 on conduct obligations under FinSA/FinSO will enter into force. There is an urgent need for action, as there is only a transitional period until 30 June 2025 for the implementation of individual requirements and most of the requirements must be met by 1 January 2025 without a transitional period.

With this circular, FINMA outlines its supervisory practices regarding key interpretative issues under the Financial Services Act (FinSA). The changes introduced by the Circular are particularly relevant for individuals and entities acting as financial service providers within the scope of FinSA. These can be, for example, banks, financial institutions (asset managers, trustees, investment firms, fund management companies etc.), investment advisors and brokers of financial instruments.

Due to the circular coming into force on 1 January 2025, there is a need for action, as there are not transitional periods until 30 June 2025 for all requirements.

The main provisions of FINMA Circular 2025/2 can be summarized as follows (with references to the respective paragraphs of the circular):

• Terms, paragraph 3: The exemption for the placement of financial instruments under Article 3(3)(b) FinSO applies to services provided to companies and their shareholders, provided they are raising capital through the financial markets. However, the offering of such instruments to investors or the sale to customers falls within the scope of FinSA.

• Information on the type of financial service, paragraph 4: Financial service providers must clearly define and document the type of financial service offered. Specifically, for investment advice, it must be documented whether the advice pertains to individual transactions or an entire portfolio.

• Information on the risks associated with financial instruments, paragraphs 5 et seq.: When dealing with contracts for difference (CFDs), financial service providers are required to inform clients about margin requirements, the potential for unlimited losses, leverage effects, the mechanics of margining, counterparty and market risks (including slippage).

• Information on contracts for difference, paragraph 8: Providers must also inform clients on a quarterly basis about the percentage of private clients who, over the past 12 months, experienced losses, suffered a total loss of margins upon closing positions, or incurred negative balances requiring repayment after closing positions.

• Duty to provide information on cluster risks, paragraphs 9 et seq.: Financial service providers are obligated to provide information on risk concentrations (cluster risks), which may exist, for example, if 10% or more of a customer's total portfolio is made up of a single security, or if 20% or more of the total portfolio is invested in individual issuers and in products with a high leverage effect. In exceptional cases, however, such concentrations are permissible, e.g., if there is sufficient risk diversification at product level of collective investment schemes (e.g. in the case of broadly diversified funds).

• Clarification of the appropriateness and suitability assessments, paragraphs 13–14: The circular clarifies supervisory expectations regarding the suitability and appropriateness assessments (Articles 11–12 FinSA, Articles 16–17 FinSO), including specific requirements for gathering client information.

• Requirements for securities lending, paragraphs 15 et seq.: Additional documentation requirements and obligations apply to securities lending transactions.

• Use of own financial instruments, paragraph 23: If a provider exclusively offers its own financial instruments, clients must be informed of the associated risks.

• Conflicts of interest, paragraphs 24 et seq.: When third-party financial instruments are used, providers must implement measures to mitigate potential conflicts of interest. These include establishing a selection process for financial instruments based on objective, industry-standard criteria. Unavoidable conflicts must be disclosed to clients.

• Compensation of third parties, paragraph 26 et seq.: Information on retrocessions must be emphasized visually. It must be physically available or easy to find electronically (paragraph 26). If the exact amount of compensation cannot be determined prior to the provision of the financial service or the conclusion of the contract, the financial service provider shall inform the client of the ranges of compensation for different classes of financial instruments and, in the case of asset management and portfolio-related investment advice, additionally on the basis of the portfolio value and the investment strategy (paragraphs 27-29). On request, financial service providers generally disclose the actual amounts received free of charge (paragraph 30).

The above list is not exhaustive. Exceptions may also apply. Whether action is necessary must be assessed on a case-by-case basis, taking into account the respective customer portfolios.

Most of these obligations listed above must be implemented by 1 January 2025. However, a transitional period until 30 June 2025 applies to the obligations outlined in paragraphs 8, 9–12, and 24–26. In particular, it should be noted that there is no explicit transitional provision for the requirements on the disclosure of compensation by third parties for the requirements in paragraphs 27-30 (see above), whereas the new regulation largely corresponds to current practice.

Financial service providers are advised to review their internal documentation, client information documents, contractual documents and annexes, as well as directives to see if there is a need for action. Advoro's regulatory team will be happy to assist you.