If a Swiss financial institution (e.g. a bank, securities dealer, insurer, institution subject to regulatory supervision pursuant to the Collective Investment Schemes Act) also operates outside Switzerland, it is subject to extra legal and regulatory risks. These risks are due to the company's products and services being governed, in addition to Swiss law, by the law of the foreign country in question. This means a court outside Switzerland may hold jurisdiction, which would make the regulations of that country's financial authorities incumbent on the Swiss company.
A financial institution can have a foreign presence in the following three ways:
A Swiss financial institution with a permanent presence abroad (point 1 above) is subject to the law of the host country just the same as if it was headquartered there. Many countries apply strict regulations to Swiss financial institutions, which do not have a permanent presence abroad, but are involved in cross-border business (point 2 above). There are also international consumer protection agreements regulating the applicable jurisdiction (Lugano Convention) and applicable law (Convention on the law applicable to contractual obligations, in the European Union, Rome I). These special provisions for consumers (e.g. private clients) also apply to Swiss financial institutions which can, in certain circumstances, be subject to a claim brought by a client outside Switzerland in a court of the client's place of residence subject to the law applicable in that country. This may even apply in spite of a contractual agreement or general terms and conditions stating that Swiss law and Swiss jurisdiction had been agreed on (point 3 above).
Finally any infringement of foreign law also affects the institution's Swiss headquarters. The Swiss Financial Market Supervisory Authority FINMA regards any violation of foreign legal provisions as a breach of the fit and proper and/or the organizational requirements. Therefore, FINMA incorporates adherence to foreign standards in its supervisory audit.
Due to the greater potential risk for cross-border financial services, FINMA expects any financial institution under its supervision to provide a detailed analysis of its corporate strategy - incorporating foreign target markets - and its operational business plan. The nature of the company's business must also be reviewed to check its compatibility with the standards of the cross-border target markets and, if necessary, adjusted accordingly.
The institution's corporate governance is also included in the analysis. Complex, opaque group structures, extensive marketing and distribution channels and a global market presence increase legal and compliance risks. On the other hand, an effective and efficient in-house control apparatus and an appropriate compliance organisation reduce risk.
Our team can assist you and your organisation with the following: