By Thomas Werlen / Matthias Portmann / Jonas Hertner (Reference: CapLaw-2017-05)

This article is an update of CapLaw-2016-4 in which the Dispatch on the draft Financial Services Act (FinSA) was discussed with a focus on Title 5 aimed to facilitate the enforcement of the rights of clients vis-à-vis Financial Services Providers (FSP). On 4 November 2015, the Swiss Federal Council adopted the Dispatch on the draft FinSA, sending it to parliament for consideration. With regard to the enforcement of rights, the draft proposed three elements: (1) a stricter disclosure obligation of FSP to provide documentation to clients, (2) an obligation of FSP to become affiliated with a certified ombuds body, and (3) new rules governing the allocation of costs in financial market litigation. In comparison with the original bill proposed by the Federal Council, the proposed provisions on the enforcement of rights in the draft FinSA were significantly curtailed after an overwhelmingly negative response from the financial services industry in the consultation proceeding. On 14 December 2016 the draft FinSA was discussed in the Council of States. The Council of States largely followed the draft as proposed by the Federal Council. Most recently, on 25 January 2017, the National Council’s Economic Affairs and Taxation Committee has entered into the debate on the draft FinSA. The Committee will discuss the draft in detail at its meeting on 20/21 February 2017. This will be followed by a debate in the National Council which will likely take place in Spring 2017. The proposed changes by the Council of States related to the enforcement of clients’ rights are discussed below.

a) Providers’ Obligation to Produce Documents and Clients’ Right to Information only upon Client’s Request

Article 17 draft FinSA requires FSP to keep documentation on a specific set of facts and events; article 18 contains a duty to disclose and produce this information to the client. Both provisions essentially remain unchanged with only a minor amendment of article 18 to the effect that the obligation to produce information only applies upon client’s request. Further, articles 75 and 76 draft FinSA which allow the client directly to request documentation and information, shall remain unchanged as well. A minority in the Council of States proposed to introduce a provision limiting the obligation to keep records to a period of 10 years. The proposal was rejected with the argument that when a relationship between the FSP and the client exceeds the 10-year period, the development of the relationship can only be understood and reconstructed if records are kept for the whole duration of the relationship.

b) Confidentiality of the Ombuds Proceeding

Essentially, the proposed rules governing the ombuds system (articles 77-89) remain unchanged. The only amendment decided by the Council of States has the effect of introducing a confidentially provision governing the entirety of the ombuds proceeding.

c) Advance on Court Costs and Allocation of Litigation Costs to be discussed in a broader context

The cost exposure in the litigation of financial disputes is one of the key obstacles for clients of FSP to enforce their rights after incurring damages. With its draft FinSA, the Federal Council proposed to amend the Civil Procedure Code (CPC) to the effect that clients are exempt from paying advanced of court costs and security for party costs, and that under certain circumstances a client who lost in a proceeding against an FSP would not be required to pay the FSP’s costs of the proceeding. The Council of States decided against these proposed changes (intended to be introduced as a new article 114a CPC). As a consequence of this decision, the clause of purpose in article 1 para. 2 draft FinSA has been amended and now does not include the phrase that FinSA seeks to facilitate the enforcement of civil claims of clients. A majority of the Council of States did not see any reason to implement a separate civil procedure provision that would apply exclusively to the financial industry. Rather, the Council of States decided that the proposal shall be evaluated and discussed in a broader context and within the revision of the CPC.

d) Notes and Outlook

As was to be expected, the Council of States did not reverse the decision of the Federal Council to significantly curtail the original proposals to strengthen the rights of clients of financial service providers. Rather, it decided to strike the idea that the bill was to facilitate the enforcement of rights from the clause of purpose. It did so with the argument that any procedural amendment that would ultimately benefit clients seeking to litigate claims against providers would need to be considered in the context of a revision of the CPC. Such revision – the central piece of which would be the introduction of means of collective redress –, however, is not immediate, and the Federal Council does not appear very eager to put a revision to parliament.

Yet, from a consumer perspective it was not all bleak after the debate in the Council of States. The Council decided to follow the Federal Council’s proposal, against the majority of the Council of States’ committee that pre-discussed the draft, to introduce a reversal of the burden of proof with respect to prospectus liability. As a consequence, an FSP shall carry the burden of proof for a false, misleading or unlawful prospectus or basis information document (article 72 draft FinSA) an amendment which would introduce a more strict liability as compared to the current provisions in articles 752 and 1152 Code of Obligations.

As mentioned above, the National Council’s Economic Affairs and Taxation Committee has entered into the debate and will discuss the draft at its meeting on 20/21 February 2017. It remains interesting to pursue whether Council of States proposals will endure or not.

Thomas Werlen (thomaswerlen@quinnemanuel.swiss)
Matthias Portmann (matthiasportmann@quinnemanuel.com)
Jonas Hertner (jonashertner@quinnemanuel.com)