The Swiss Federal Government proposes to implement a new documentation concept for public offerings of securities. Modelled after the EU Prospectus Directive, in the near future prospectuses for Swiss public offerings shall be set up to meet information requirements comparative with international standards and shall be approved ex ante. An important exemption from the ex ante approval requirement is foreseen for issuances of fixed income products.
By René Bösch (Reference: CapLaw-2015-3)
While the Swiss capital markets have been rather active during the last few years, with the Swiss Franc bond market in particular (the latest evidence having been provided by AT&T CHF 1,05 bn bond issue and Google’s CHF 1,25 bn bond issue), the legislative framework for primary market activities in Switzerland was and still is lagging behind internationally comparative standards. Last year, the Swiss Federal Government announced its plan to change this and to adopt a new architecture of financial market laws. In addition to a new regulation on financial market infrastructure (modelled after the corresponding provisions in EMIR and Dodd-Frank) and the regulation of financial services, in particular at the point of sale (modelled after MiFID II and MiFIR), the legislative proposals also contain proposals for a new documentation concept for the public offering of securities in Switzerland.
Until today, Swiss laws provide only for civil law-based responsibility to draw up an issuance prospectus in case of a public offering in Switzerland, including extensions of international offerings to the public in Switzerland. However, the requirements for the contents for Swiss issuance prospectuses are rather marginal and do not live up to comparative international standards such as in the EU Prospectus Directive or the United States disclosure requirements. To change this, the Government’s proposal for the new documentation concept in the preliminary draft of the Financial Services Act (FinSA) provides for prospectus requirements and ex ante prospectus approval requirements substantially modelled after the EU’s Prospectus Directive. The contents of prospectuses shall in the future be prescribed in Swiss regulations that intend to establish a level playing field with internationally comparative standards, focussing on establishing substantive equivalence with the standard set out in the EU Prospectus Directive.
The concept of an ex ante prospectus approval requirement is a novelty in Switzerland, both in respect of the authoritative approval of a prospectus in itself as well as in terms of listing. One of the particularities of the Swiss fixed income and structured products markets was that issuers could swiftly access markets and could seek listing following the launch of a transaction. The listing requirements of the SIX Swiss Exchange Ltd. (SIX) allow for a provisional admission to trading before formal listing approval, but only for fixed income and structured products. For equity securities, listing needed to be obtained prior to the first trading day.
In order to safeguard the competitive advantage of a very swift time to market for debt securities in particular, the Swiss Government was willing to consider an exemption from the ex ante prospectus approval requirement for debt securities. The proposed new law prescribes that debt securities issues can be launched in the market without a pre-approved prospectus, provided that the information generally required for a prospectus is available to the market in some form or fashion.
The new FinSA will provide for the creation of a new regulatory body competent to approve prospectuses, the so-called “approval authority” or “reviewing body”. Because up until today, Switzerland did not have such a body for issuance prospectuses, and because the SIX has already been entrusted with the review and acceptance of listing prospectuses for all equity, fixed income and structured products issuances in the Swiss markets with a listing at SIX, it is expected that SIX will be given the mandate to act as approval authority as well.
Furthermore, similar to the Key Information Document (KID) under the PRIPPs regulation, FinSA provides for the requirement to establish a basic information sheet in respect of public offerings to private customers. While the Government’s legislative proposals exempted only equity offerings from this duty to establish a basic information sheet, it is still debatable whether the same exception should also apply to straight bonds. Also, it needs to be discussed whether the current plan that each prospectus must have a summary of the essential terms of a transaction shall continue to apply to if at the same time a basic information sheet shall be established. In any event, the basic information sheet will replace the simplified prospectus that is currently required under the Swiss Collective Investment Schemes Act in respect of offerings of structured products to the public.
The proposals of the Government for the new documentation concept for public offerings of securities in Switzerland has been widely applauded by the industry. Moreover, all major constituencies, being the most important underwriters, issuers, the Swiss Bankers Association, the SIX, etc. have joined forces with the Government to collectively work out the details of the new documentation concept in order to assure its swift and smooth introduction into the Swiss financial market laws without creating disruptions in the Swiss markets. It is expected that the Government will send its legislative proposals to the Parliament in the Summer 2015 and that the Parliament will start debating these proposals either late this year or early next year. Entry into force of the new FinSA can thus be expected to occur in 2017 or 2018.
René Bösch (rene.boesch@homburger.ch)