SWITZERLAND: An Introduction
Switzerland Country Overview 2021
Despite its relatively small size, Switzerland is home to several large and well-established international companies spanning a diverse range of industries. These include major banks such as UBS and Credit Suisse, large insurance and reinsurance corporations such as Zurich Insurance and Swiss Re, and food and beverage, healthcare and biotech companies such as Nestlé, Novartis and Roche. Switzerland is also home to mechanical and electrical engineering companies specializing in high-technology, knowledge-based production such as the Swatch Group, Oerlikon and ABB. While Switzerland has large global companies, most businesses are small or medium-sized, and many of them specialize in niche machinery and high technology. Switzerland is one of the world’s most competitive economies, thanks to its large and well-established corporate base, modern infrastructure and highly skilled workforce. Its political stability, comparatively flexible labour market regulations, transparent legal system, efficient capital markets and low corporate tax rates also play a part.
Mergers & Acquisitions
In 2019, there was already a reversal of the long-term uptrend in M&A activity, both in Switzerland and globally. COVID-19 then accelerated the decline in the M&A market. In an environment where it is less predictable how companies will perform in the future in many sectors, several transactions were reconsidered or postponed for the time being. Due to the COVID-19-related poor economic outlook and the strong Swiss franc, takeover ambitions in Switzerland stalled. However, Swiss small and medium-sized enterprises are still arguably the most important target companies for investors, and it is only a matter of time before interest picks up again.
Despite several IPOs in the pipeline that were expected to launch during the first half of 2020, the outbreak of COVID-19 and the related volatility in the capital markets has temporarily put the Swiss IPO market on hold. As recently as last September 2020, another IPO was announced in Switzerland, but was postponed shortly afterwards with reference to market conditions. However, as we understand from market participants, these issuers remain hopeful to launch once market conditions improve.
Pre-eminent Key Political and Legal Topics Discussed in 2020
Reform of the Stock Corporation Law
After more than a decade, the Swiss Parliament adopted a comprehensive reform of the stock corporation law. The legislation includes, among other things, the implementation of the initiative ‘against rip-offs’ at the legislative rather than the ordinance level, new provisions for more flexible foundation of stock corporations and capital regulations, as well as the introduction of gender guidelines and stricter transparency rules for companies active in the extraction of raw materials. The latter two amendments do not require implementing provisions. The Swiss Federal Council has therefore already brought the corresponding amendments to the Swiss Code of Obligations into force on 1 January 2021. The other amendments to stock corporation law require implementing provisions and are expected to come into force in 2022.
Reform of the Federal Act on Data Protection
Due to rapid technological developments, the Federal Act on Data Protection (FADP) was no longer entirely up to date. Against this background, and after more than two years of parliamentary negotiations, the Swiss Parliament passed the reformed FADP in September 2020. The aim of the total overhaul of the FADP was to adapt the outdated Swiss data protection law (dating from 1992) to today's social and technological standards and to bring it closer to the more recent and modern regulations in the European data protection environment (especially the EU GDPR). The new FADP is not expected to come into force before 2022. Since it generally does not provide for a transitional period (with a few exceptions), companies must have taken the necessary measures by the time the revised law comes into force.
New Financial Market Legal Architecture
The Swiss financial markets’ legal architecture continued its significant transformation, with the entering into force of the Swiss Federal Financial Services Act and the Swiss Federal Financial Institutions Act on 1 January 2020. One of the aims of the new rules is regulatory harmonization with the relevant EU rules (in particular MiFID II, MiFIR, the Prospectus Regulation and the PRIIPs Regulation) to attain third-country equivalency thereunder, with adjustments made to reflect the specific circumstances of the Swiss financial markets.
The new Federal Financial Services Act (FinSA) and its implementing ordinance, the Federal Financial Services Ordinance (FinSO), entered into force on 1 January 2020, subject to phase-in with respect to certain obligations thereunder.
The FinSA sets out cross-sector rules (except for insurance products with investment character, which will be subject to newly introduced rules of the Insurance Supervision Act) for the provision of financial services. It introduces a comprehensive and harmonized prospectus regime that aims to achieve harmonization with the relevant EU rules while reflecting specific Swiss circumstances.
In connection with the offering and listing of securities in the Swiss market, the FinSA includes the requirement to approve all offering and listing prospectuses by a new regulatory body (the ‘review body’) that is licensed and supervised by the Swiss Financial Market Supervisory Authority (FINMA), subject to certain exemptions. As of 1 June 2020, FINMA has granted authorization for two review bodies. According to the new regime, the review body must approve a prospectus prior to a public offering or an admission of securities to trading on a Swiss trading platform. The publication of approved prospectuses became mandatory as of 1 December 2020. However, for certain debt securities (e.g. bonds) a prospectus can be approved after its publication provided certain requirements are met, reflecting longstanding Swiss market practice. By preserving the advantage of the current approval process for listing prospectuses in the Swiss debt capital markets, Switzerland continues to ensure attractive time-to-market conditions for issuers of debt instruments.
On 1 January 2020, the Federal Financial Institutions Act (FinIA) and its implementing ordinances, the Federal Financial Institutions Ordinance (FinIO) and the Supervisory Organization Ordinance (SOO), entered into force.
The FinIA essentially harmonizes the authorization rules for financial service providers and will, for the first time in Switzerland, subject independent portfolio managers and trustees to licensing requirements and continuous prudential supervision. The FinIO details the conditions for authorization and duties of financial institutions and their supervision. The SOO governs the authorization conditions and activities of the newly introduced supervisory organizations (SOs) that will be responsible for the ongoing supervision of portfolio managers, trustees and trade assayers in accordance with the Precious Metals Control Act.
During 2020, FINMA authorized five SOs, which are now available to supervise portfolio managers and trustees. Portfolio managers and trustees must apply for FINMA authorization by the end of 2022 and prove that they are affiliated with a SO. Until the decision on the authorization, they may continue their activities provided they are also affiliated with a self-regulatory organization (SRO). Portfolio managers and trustees who commence their activities for the first time in 2020 must report to FINMA immediately. They must have joined a SO and submitted an application for authorization by 6 July 2021 at the latest.