UK and Switzerland Sign Berne Financial Services Agreement: A Blueprint for Other Financial Centres?

With exceptions, Switzerland and the UK enjoy a relatively liberal regime for cross-border financial services, particularly for those with institutional and professional clients. The Berne Agreement on mutual recognition in the area of financial services is intended to further liberalise certain activities in specific sectors for certain clients. Unlike the EU, Switzerland and the UK do not require harmonisation or full equivalence of financial market laws.

Instead, the Berne Agreement is based on the principle of mutual recognition. According to this principle, it is sufficient for the domestic rules of one contracting party to achieve equivalent results to those of the other contracting party. There is no need for further harmonisation of the legal systems. With this pragmatic approach, Switzerland and the UK are pursuing an innovative process that is unrivalled worldwide. With this agreement, the two countries are demonstrating that the cross-border exchange of financial services can be liberalised outside of a single market without the need for a great deal of bureaucracy.

The exact benefits of the agreement must be examined individually for each sector and each financial service provider. The agreement is particularly favourable for Swiss banks and other Swiss financial institutions such as fund management companies and asset managers. The agreement allows them to provide financial services to wealthy private clients and professional clients in the UK without the need for a licence from a UK supervisory authority. In return, Switzerland exempts UK client advisers from the obligation to register in Switzerland to provide services to wealthy Swiss private clients under certain conditions.

The agreement may be less favourable for Swiss insurance companies. Like insurance companies in other countries, the UK market is already largely open to them. The opening up of the Swiss market, which is heavily protected against foreign competitors, to UK insurers and insurance intermediaries, is one-sided, but remains limited to individual insurance lines and large policyholders. In the future, these large policyholders will have a wider choice of products available in the areas covered by the agreement, which should have a revitalising effect on the Swiss insurance market. In other areas, such as asset management, the agreement essentially confirms the status quo. It also contains detailed rules on trading venues, central counterparties and OTC derivatives.

Unlike the failed framework agreement and the current negotiations with the EU, the Bern Agreement does not provide for a “dynamic” adoption of legislation by Switzerland. Rather, Switzerland and the UK continue to have the right to change their regulation at any time and independently of the other party. If a party intends to make changes that may affect the agreement, it must inform the other party in good time and consult it, if necessary.

In addition, the agreement and its implementation must be reviewed after five years, at the latest. The agreement also sets out a detailed dispute settlement procedure in which Switzerland and the UK are on an equal footing. Finally, it should be emphasised that the treaty already contains a mechanism whereby its scope can be extended by mutual agreement.

According to the UK and Switzerland, the first extension is likely to be into the areas of sustainable finance and digital financial services. If this proves to be the case, the Bern Financial Services Agreement will also be “dynamic”, albeit in a completely different sense than is currently being explored with the EU.

What happens next? The agreement must be ratified by the parliaments of both countries and is therefore not expected to enter into force until 2025. In Switzerland, the Federal Council's dispatch will be published. In the UK, the agreement has already been discussed in the International Agreements Committee of the House of Lords, where it was received favourably and discussed as a possible template for comparable agreements with other countries.

To summarise, the agreement represents a pragmatic step towards strengthening the competitiveness of Switzerland and the UK. In terms of content, one could have wished for even more liberalisation in one point or another. However, the prerequisite for further development is already laid down in the agreement itself. It remains to be seen whether it will also serve as a blueprint for similar agreements with other financial centres such as Japan, Singapore, Australia or even the EU and US.