A silent masterstroke: The Berne Financial Services Agreement (1/2)
After more than 2 years of negotiating, just a few days before Christmas, on 21 December 2023, Karin Keller-Sutter, the head of the Swiss Federal Department of Finance, and Jeremy Hunt, the UK Chancellor of the Exchequer, signed the Agreement between the Swiss Confederation and the United Kingdom of Great Britain and Northern Ireland on Mutual Recognition in Financial Services, also called the Berne Financial Services Agreement. According to both parties, the Agreement is unique in the world in the area of financial services in terms of scope – encompassing a broad range of financial services sectors – and also in terms of approach: a two-way, and not a one-way, equivalence recognition. It sends a strong signal for open and resilient financial markets, according to the Parties. The Agreement was borne out of a desire of both countries to establish a framework for mutual recognition of each other’s regulatory and supervisory frameworks applicable to certain financial services, while taking account of their respective constitutional, legal and regulatory systems. Parties want to achieve this (1) through the removal of obstacles to the provision of financial services and the reduction of regulatory frictions for cross-border activity, based on and safeguarded by mutual recognition as well as (2) close regulatory and supervisory cooperation.
For the first time, two countries have mutually recognised the equivalence of their respective legal and supervisory frameworks in a broad range of selected areas of the financial sector on the basis of an in-depth review: “Each Party considers that the domestic regulatory and supervisory frameworks of the other Party achieve equivalent outcomes with regard to financial stability, market integrity and the protection of investors and consumers within the scope of the Agreement and its Sectoral Annexes.“ The mutual equivalence recognition should enable or facilitate access to each other’s markets: “Covered Financial Services Suppliers are permitted to provide Covered Services to Covered Clients from the territory of one Party into the territory of the other Party, as set out and specified in the Sectoral Annexes”.
The Agreement is complemented by enhanced regulatory and supervisory cooperation. Principles such as “Each Supervisory Authority shall endeavour to share, without prior request, any further information likely to be of assistance to the other Supervisory Authorities to carry out their supervisory activities under the scope of the Agreement.” are a fresh breeze. Both countries will also endeavour to contribute jointly to activities in international and regional fora.
What’s in it for the financial services providers and consumers? Besides the effect of the mutual recognition, in selective financial services sectors, the Agreement will for sure create a predictable regulatory environment, including in the event of a withdrawal of recognition.
Further, the Agreement continues to recognize the right of each party to regulate and, preserving its regulatory autonomy, to introduce new measures concerning the supply of financial services within its territory in order to meet national policy objectives. Parties also believe in the need for cooperation relating to regulatory developments in the field of sustainable finance for an effective and progressive response to the urgent threat of climate change and loss of biodiversity.
The areas covered are banking, investment services, asset management, financial market infrastructures (central counterparties, OTC derivatives, trading venues) and insurance. Future expansion to other sectors is possible.
In the insurance sector, the Agreement covers selected lines of the non-life insurance business for large corporate clients: UK insurers will be allowed to engage in cross-border activities, while the UK is confirming its current framework enabling Swiss insurers to provide cross-border insurance services to large corporate clients. Based on the agreement, certain insurance intermediaries of the UK will be relieved from the localisation requirement under the revised Insurance Oversight Act entering into force on 1 January 2024.
The provision of life, accident, health and most kinds of liability insurance, as well as monopoly insurance of all kinds for professional policyholders into Switzerland are not covered.
The Agreement shall be without prejudice to the Agreement between the Swiss Confederation and the United Kingdom of Great Britain and Northern Ireland on Direct Insurance other than Life Insurance, done in Davos on 25 January 2019.
For investment and banking services, in particular wealth management, the Agreement enables Swiss financial service providers to supply certain cross-border activities into the UK and confirms the current framework for UK firms to supply such activities into Switzerland. Based on the agreement, Swiss firms may provide UK clients, including individuals, with assets in excess of GBP 2 million with cross-border investment services directly from Switzerland.
In the area of asset management, the Agreement confirms the existing access for the advertising and offering of collective investment schemes as well as the delegation of portfolio management and risk management.
In terms of next steps, the Agreement needs to be ratified by both countries in accordance with their domestic procedures and enters into force on the 1st day of the 2nd month following receipt thereof.
