Under the Financial Services Act (FinSA), Switzerland has enacted comprehensive rules governing prospectus requirements for public offerings of securities. This article aims to provide a brief overview of the prospectus requirement, focusing on two specific exemptions: Article 37 (1) (g) FinSA for offerings to current or former directors, officers, or employees, and the exemption from the requirement to prepare a key information document for employee options on equity securities.

By Benjamin Leisinger (Reference: CapLaw-2023-56)

1) Prospectus Requirement under the FinSA

The FinSA generally requires the preparation, approval by a Swiss review body, and publication of a prospectus for public offerings of securities in Switzerland. Such a prospectus follows the requirements of the FinSA and the annexes of the Financial Services Ordinance (FinSO) and provides detailed information about the issuer, the securities being offered, and the associated risks. The prospectus serves as a key document for investors, aiding informed decision-making and ensuring transparency.

2) Exemption for Offerings to Board Members, Management, or Employees

In many (if not most) cases, the allotment of shares or employee options with respect to shares of the employer or a company connected to the employer does not even qualify as an offering, let alone a public offering, within the meaning of the FinSA. The members of the board of directors (directors) or management (officers) or the employees simply receive an allocation of the shares as part of their compensation. However, if the relevant persons have a choice to participate in a share plan and can be seen as “investing” part of their compensation in securities of the employer, the analysis is less clear. If the company is large, the potential qualification as a public offering could become relevant, too. However, to avoid legal uncertainty in such situations, the FinSA provides for an explicit statutory exemption. This exemption even goes beyond the offering of ordinary shares and covers all securities (shares, participation securities, phantom stock, share options, structured products, bonds, etc.) allocated or offered to the relevant persons by the employer or by a “connected” company (verbundene Unternehmen / entreprises liées / impresa collegata) – a term that is intentionally broader than “affiliate” and also includes third parties, e.g., a non-consolidated special purpose vehicle, that issues such instruments.

Article 37 (1) (g) FinSA provides an exemption from the prospectus requirement for (even public) offerings of securities in Switzerland to current or former members of the board of directors or management, as well as employees. This exemption acknowledges the close relationship between the issuer and these individuals, who are presumed to have, or have the possibility to get access to, sufficient information to make informed investment decisions. Requiring a prospectus for offerings to such individuals did not seem justified.

However, it is also important to note that this exemption has limits: Including agents (other than such that serve or served as members of the board of directors), consultants or other service providers or other similar persons in an offer is not covered by the statutory exemption and an analysis whether there is a public offer – or another exemption from the prospectus requirement – is required.

A further aspect that appears less clear when looking at the plain wording of the exemption is whether former (as opposed to existing) employees are also covered. The legislative history – and the purpose underlying the exemption – however show that also former employees receiving shares under or in connection with a share compensation program are meant to be covered by the exemption: The FinSA in relevant parts was inspired by the former Prospectus Regulation in the European Union. Its wording was rather clear that securities offered, allotted or to be allotted to existing or former directors or employees by their employer were exempted from the prospectus requirement. The only debate in the Swiss legislative process was whether any additional information (about the number and type of securities as well as the reasons for and details on the offer) would still be required in order to rely on the exemption; a requirement that was deleted in the final legislation. The message of the Swiss Federal Council also generically referred to “allocations in connection with employee compensation schemes” and did not distinguish between former and existing employees. It also makes sense from a teleological perspective to distinguish between (existing or former) employees and the “general public” when it comes to the question of whether additional information about the issuer is required or not – existing and former employees have existing (special) knowledge or better access thereto and are less in need of further information. Doctrine also supports this interpretation.

3) Exemption for Employee Options on Equity Securities

Additionally, FinSA provides an exemption from the duty to prepare a key information document (Basisinformationsblatt) for employee options on equity securities of the employer or a company associated with the employer (article 59 (1) FinSA and article 86 (1) (c) FinSO). This exemption also recognizes the unique nature of employee options, which are typically granted as part of a company’s incentive program, and the similarity to shares for which a Swiss key information document does not have to be prepared in the first place.

Employee options involve granting employees the right to purchase equity securities of the employer or a related company at a predetermined price within a specified period. Given the close relationship between the employee and the employer, Swiss regulation offers this exemption to streamline the process and minimize administrative burdens for both parties.

4) Conclusion

The FinSA in Switzerland establishes a robust framework for the prospectus requirement in public offerings of securities. While ensuring transparency and investor protection, FinSA also provides clear statutory exemptions for specific scenarios.

The exemption pursuant to article 37 (1) (g) FinSA recognizes the relationship between issuers and current or former board members, management, or employees, allowing them to benefit from a simplified process. The exemption from preparing a key information document for employee options on equity securities also acknowledges the unique nature of these offerings within an employer-employee context.

It is crucial for issuers to understand and comply with these exemptions. As with any legal matter, it is advisable, and standard course of action, to consult a qualified Swiss lawyer to ensure compliance with the specific requirements outlined in FinSA and its associated regulations.

Benjamin Leisinger (benjamin.leisinger@homburger.ch)