The recently published draft amendment to the Financial Market Infrastructure Act (D-FinMIA) contains a number of changes and, it is fair to say, some surprises at the level of financial market infrastructures and their users. 

When the Financial Market Infrastructure Act (FinMIA) was passed in 2014 it was already determined that the Federal Department of Finance (FDF) would evaluate the effects of the FinMIA 5 years after it came into force. While the corresponding FDF Evaluation Report published in fall 2022 indicated that some changes will be proposed to increase the competitiveness of the Swiss financial center by considering technological developments and international standards, the recently published draft amendments are fairly comprehensive. The consultation period runs until 11 October 2024.

 By Andrea Rüttimann (Reference: CapLaw-2024-63)

1) Overview on suggested Amendments

The suggested amendments impact financial markets infrastructures and their users on various levels, amongst others: 

(i) transfer of the rules on transaction reporting obligations from stock exchanges self-regulation to FinMIA with the consequence of a uniform reporting format; in the future, participants will have to submit transaction reports directly to the Swiss Financial Market Supervisory Authority (FINMA);

(ii) amendments and clarifications regarding derivatives trading, e.g. elimination of the reporting duty for small non-financial counterparties and annual determination of counterparty classification; 

(iii) amendments for the operation of financial market infrastructures, in particular with regard to their financial and operational stability and settlement plans;

(iv) adjustments for payment systems operators with the requirement to obtain a FINMA license only above certain thresholds;

(v) general recognition of foreign trading venues with Swiss participants to the extent that they operate in an adequately regulated market;

(vi) consolidated market surveillance by FINMA over different trading venues;

(vii) slight adjustments in the area of insider trading and market manipulation, e.g. reduction of penalty and cancellation of categories of offenders (no more primary, secondary and tertiary insiders).

The key implications from the perspective of issuers, their managers and investors are outlined in this article.

2) Issuer Obligations transferred to FinMIA

The D-FinMIA provides for the issuer obligations of ad hoc publicity and publication of management transactions to be transferred from self-regulation of the stock exchanges to the FinMIA and thus placed under the supervision of the Swiss Financial Market Supervisory Authority FINMA (FINMA). 

For other areas such as the supervision on financial reporting and corporate governance aspects, regulation and supervision remain with the stock exchanges. While the wording of art. 27 FinMIA (principle of self-regulation) remains unchanged, self-regulation seems now somewhat fragmented with the removal of ad hoc publicity and management transactions. 

As a result:

– issuers of equities or debt securities – and their managers (see below) – will have a supervisory relationship with FINMA. This is a paradigm shift, as to date issuers only have a point of contact with FINMA in limited areas (mainly insider trading and market manipulation, rarely in disclosure of large shareholdings), unless they are subject to FINMA supervision due to their area of activity;

– the supervisory instruments listed in the Financial Market Supervision Act (FINMASA) will apply to all issuers of equities or debt securities; and thus, issuers and their managers may be subject to enforcement proceedings, and respective sanctions like confiscation of profits (while the professional ban is explicitly not mentioned in art. 145 para. 1 D-FinMIA);

– issuers and their managers will be obliged to provide FINMA with all information and documents required (art. 146 para. 2 D-FinMIA in accordance with art. 29 FINMASA);

– violations of the obligations under the D-FinMIA may additionally lead to administrative criminal proceedings before the FDF pursuant to the Federal Act on Administrative Criminal Law (VStR). 

While the Explanatory Report repeats that the content of issuers obligations will largely be in line with current self-regulatory rules of the stock exchanges, there is certainly need for clarification in the implementing ordinances (mainly FinMIO) and practice. 

The organizational structure of the transfer, i.e. how the responsibilities are shifted between FINMA and the stock exchange supervisory authorities is not yet clear from the draft bill. 

3) Ad hoc publicity

a) Price-sensitive fact becomes insider information

The new wording no longer refers to price-sensitive facts, but to insider information that has become known in the issuer’s sphere of activity (art. 37b para. 1 D-FinMIA).

To date, there are minimal differences in the quality of a price-sensitive fact under ad-hoc-publicity and that of insider information under insider trading law pursuant to art. 2 lit. j FinMIA. This is particularly the case in connection with the question whether a fact has occurred within the issuer’s sphere of activity. The Explanatory Report states that, according to the current SIX regulations, ad hoc publicity also applies if the price-sensitive fact has a direct internal impact on the issuer’s course of business. Examples of this are decisions by a competition or supervisory authority or a court, the cancellation of a significant contract by an important contractual partner or its bankruptcy or need for restructuring (Explanatory Report, p. 31). In this context, however, it is crucial that the issuer is aware of the event at all. Otherwise, the obligation under art. 37b D-FinMIA cannot be fulfilled, a circumstance that is not apparent from the suggested wording in the draft bill.

Having said that, in general, the Federal Council intends to largely adopt current case law and practice on ad hoc publicity of the stock exchanges in order to increase legal certainty (Explanatory Report, p. 31). Also, the requirements for a deferred disclosure will be regulated in the ordinance. As the question of whether confidential information is likely to have a significant impact on the share price must always be assessed ex ante, issuers will continue to have their own discretion in this assessment.

To sum it up, it seems – and this has to read with caution because we have not yet seen the implementing provisions – from how the obligation to disclose insider information has to be fulfilled there is not so much change compared to the current rules.

b) New criminal offence (art. 149a D-FinMIA)

Along with the transfer of the regulatory framework to the FinMIA, a new criminal offence will be introduced in art. 149a D-FinMIA. As a result:

– FINMA can conduct, inter alia, enforcement proceedings in the event of a breach (art. 145 D-FinMIA);

– against the background of the new supervisory instruments, the draft bill proposes that the amount of the fines be significantly reduced compared to the previous regulation (under the current Listing Rules of SIX Swiss Exchange up to CHF 10 mio) to a maximum of CHF 500,000 for intentional offences and CHF 100,000 for negligent offences; to be fair and complete, it has to be mentioned that the actual amount of the fine is usually not the biggest part of the costs for the issuer, but rather these are (i) potential reputational damages, (ii) internal resources that are bound by the proceedings and (iii) potential costs for legal representation in the legal proceedings. 

prosecution and fines may be waived in minor cases of negligence (art. 149a para. 2 D-FinMIA). While the latter is welcomed, it is currently difficult to assess the scope of the simplification for “minor cases of negligence” in the view of the FDF. 

4) Insider lists

To date, there is a best practice for maintaining insider lists i.e., lists that record the time at which insider information was created and provide information on who became aware of it and when. The Explanatory Report (Erläuterungsbericht) states that in practice insider lists are often incorrect or incomplete in the case of non-supervised issuers (Explanatory Report, p. 19). Against this background, pursuant to art. 37b D-FinMIA: 

– issuers are required to maintain insider lists essentially based on FINMA’s previous watch list requirements for supervised institutions (see margin nos. 56 and 57 of the FINMA Circular 2013/8);

– according to the wording of art. 37b, the obligation to maintain insider lists also applies to bond issuers and applies directly to agents of the issuers;

– insider lists must be kept in such a form that they can be made available to FINMA immediately upon request and stored for as long as 15(!) years (while only 5 years under EU law). In contrast to the regulations in the EU, however, there are no specific formal requirements for the format of the list.

5) Management Transactions

a) New concept regarding supervised persons

Art. 37c D-FinMIA is aimed directly at the persons who are subject to reporting obligation. To date, the stock exchange supervisory authorities could only take action against issuers; there was no direct legal relationship between the stock exchanges and the persons subject to reporting obligation, let alone their related parties. As a result of the new rule: 

– managers and related parties with reporting duties are directly subject to the D-FinMIA for the reporting of management transactions, the supervision by FINMA and therefore also directly subject to criminal liability (art. 149a D-FinMIA). The concept would thus be comparable to that of insider trading and market manipulation (erga omnes applicability); 

– in addition, and this comes somewhat as a surprise, pursuant to the current wording, the obligation also applies to companies with listed bonds or derivatives (see for the legal definition of listed securities, art. 2 lit. b FinMIA). Under the current rules of SIX Swiss Exchange, management transactions are only reported by issuers of listed shares. The question of whether this might be a legislative oversight should be raised, since the Explanatory Report does not comment further on this notable extension to bond and derivatives issuers.

b) Names and function are published

As a further amendment and harmonization with EU law, management transactions will be published with the name and function of the person reporting. It should be assumed that the name and function of the manager will need to be published in the case of related party transactions (and not the name of the related party).

Even though known in other jurisdictions, this is a new development for members of board of directors and executive committee of Swiss listed companies. 

c) Black-out periods

Art. 37c para. 5 further states that the FMIO should stipulate statutory black-out periods for management transactions, as is customary under EU law.

d) New criminal offence

Analogous to the sanction concept for ad hoc publicity (see section C.II above), a criminal law provision will be introduced for the obligation to report and publish management transactions and in case of trading during statutory black-out periods. It is worth noting that trading during black-out periods is penalized under art. 149a D-FinMIA regardless of whether they are actual, material insider trading.

6) Disclosure of significant shareholdings and Takeover law

In an international comparison, Swiss disclosure law pursuant to art. 120 et seqq. FinMIA leads to a high number of disclosure notifications. As a result, and in combination with the fact that certain reporting requirements are subject to legal uncertainty, there are many minor negligent violations, all of which are punishable under administrative criminal law (see also assessment of the FDF, Explanatory Report, p. 18). Against this background: 

– The reporting threshold of three per cent of voting rights is deleted. This raises the lowest reportable threshold to five per cent of voting rights (equivalent to other jurisdictions). As far as shareholders do not register in the shareholders register, listed companies are thus kept longer in the dark about their shareholder base and shareholder activists may enter with a bigger bang. 

– Existing legal uncertainties, in particular in connection with the reporting obligation for collective investment schemes (art. 18 FinMIO-FINMA) shall be clarified in the implementing provisions FinMIO-FINMA.

– There is a slight elimination of criminal liability (art. 151 D-FinMIA): Violations of art. 10 – 19 or 24 of the Financial Market Infrastructure Ordinance-FINMA (FinMIO-FINMA) remain punishable. But violations of art. 22 and 23 FinMIO-FINMA are no longer punishable for the most part. Therefore, violations of subsequent reporting obligations due to changed information are no longer punishable, although still reportable. The amendment is undoubtedly welcomed by all parties involved, even though the FDF Evaluation Report 2022 seemed to suggest a greater elimination of criminal liability.

– In comparison with the criminal liability of issuer obligations described above, the criminal liability under art. 151 does not provide for a de minimis exemption for minor offences.

– In terms of procedure, the legal obligation to submit disclosure notifications via electronic platform (such as the OLSDigital platform of SIX, which went live in March 2024) has not (yet) been introduced. As long as there is no legal basis for such an obligation, reports can still be submitted in pdf form.

7) Conclusion

The proposed changes fortify state oversight and introduce expanded competences by FINMA and administrative criminal authorities like the FDF. In particular, the introduction of criminal liability for certain issuers obligations constitutes a novelty in the sense that managers of listed companies and their related parties are now subject to direct supervision of FINMA and criminal law proceedings and sanctions. 

The new rules also have an impact on the organization and relationship between the supervisory authorities of the stock exchanges and FINMA. By now, the organizational implementation among the involved authorities is largely unclear and will likely result in additional costs. 

Furthermore, the implementation of the D-FinMIA will still have to pass the political process. In the consultation and following parliamentary discussion increased state regulation and the expansion of FINMA’s competences may likely not be welcomed by all political parties. 

Entry into force is currently planned the earliest for 2027.

Andrea Rüttimann (andrea.ruettimann@nkf.ch)