Berne Financial Services Agreement

Introduction

On 21 December 2023 the UK and Switzerland signed the Berne Financial Services Agreement. The aim of this agreement is to enhance the cross-border market access of certain wholesale financial services between the UK and Switzerland and to remove regulatory frictions. Switzerland is the UK’s third-largest non-EU trading partner, after the US and China (financial and insurance services were worth £3.28bn in 2022).

The agreement provides for mutual recognition of each other’s rules on financial services in "covered sectors", which are insurance, asset management, financial market infrastructures, investment services, and corporate banking. It is aimed at enabling more cross-border trade between the two countries for corporate and high net worth (HNW) clients.

Key benefits for UK firms will be that they will be able to provide services directly to Swiss HNW individuals and professional clients. They will not need to be locally registered in order to do so.

It is not yet in force, as it requires ratification by the UK and Swiss parliaments. An update on this was provided at a UK-Switzerland Financial Dialogue held in October 2024, as set out in more detail below.

We set out below a summary of the application to the investment services and asset management sectors.

What does the agreement do?

The agreement sets out a framework which addresses regulatory barriers to cross-border business. It provides for an outcomes-based system of mutual recognition, rather than relying on line-by-line equivalence assessments. It is designed to be flexible to allow for regulatory changes and further cooperation in areas such as sustainable finance. The agreement provides for new market access, recognition-based commitments, and / or stability enhancing commitments, depending on the sector. Sector-specific rules are set out in annexes, which also specify whether the basis for the supply of these services is deference, domestic law or other arrangements.

Investment Services: The commitments are designed to stabilise the access routes currently available to service institutional and professional clients, including HNW individuals. Under the agreement, UK-based client advisers will not need to be registered by Swiss regulatory bodies or comply with their requirements, but will be able to provide services directly to their institutional, professional and HNW individual clients while in Switzerland on a “fly in” basis. It is important to note that there is no right to establishment in Switzerland. Swiss firms have also been granted enhanced access to the UK market.

Asset management: The agreement ensures that UK firms’ ability to market funds to Swiss professionals and HNW individuals will remain stable. Nearly half of the UK’s £10.3tn assets under management is managed on behalf of overseas clients, so it is key for the UK that UK firms continue to be able to market these funds to overseas investors, including in Switzerland. The agreement introduces commitments to maintain the openness of the portfolio management delegation channels between the UK and Switzerland.

Sustainable finance: In addition to a commitment in the agreement to cooperation relating to regulatory developments in sustainable finance, there is also a commitment to entering into future negotiations, with the goal of introducing the mutual recognition of rules and standards for mandatory climate-related corporate disclosures.

Supervisory cooperation and safeguards

The agreement contains provisions relating to supervisory cooperation and notification requirements. It also provides for the establishment of a Joint Committee, which will take decisions relating to the Agreement and oversee and monitor its operation.

The agreement sets out certain protections to mitigate potential risks, as follows:

• The provision of financial services to corporate or HNW clients in the UK is only permitted where the UK authorities have determined that the Swiss regulatory regimes achieve comparable protections to our own. If the UK has deferred under a particular covered sector, it has the right to withdraw its recognition in accordance with a specified procedure.
• The agreement provides for enhanced supervisory cooperation and powers for regulatory intervention if risks emerge. If the UK has deferred, the Swiss authorities will be required to act on any risks created by Switzerland-based firms operating in the UK. There is also a backstop which will permit the UK to act if there is still an ongoing risk.
• The agreement includes safeguards that ensure that if there are unforeseen circumstances, the two parties can implement any measures necessary to maintain financial stability and market integrity.

Next steps

The agreement must be ratified by the UK and Swiss Parliaments before it can come into force.

The Treasury has said that it may use its powers under the Financial Services and Markets Act 2023 (FSMA 2023) to make the necessary changes to domestic legislation to ensure that the agreement can be fully implemented. This may include granting additional powers to the UK financial services regulators.

TheCityUK, who had developed position papers which set out the basis of this agreement, are now planning to work with the UK and Swiss governments on the negotiation of a UK-Swiss Free Trade Agreement. This will include other professional services and will cover areas including digital services and the mutual recognition of professional qualifications.

Update: October 2024

On 15 October 2024, officials from HM Treasury and the State Secretariat for International Finance, as well as representatives from the Bank of England, Financial Conduct Authority, Swiss National Bank, and the Swiss Financial Market Supervisory Authority, met at the first UK-Switzerland Financial Dialogue to discuss a number of topics relating to UK and Swiss cooperation in financial services, including the Berne Financial Services Agreement.

The key points discussed have been summarised in a joint statement published following the meeting. As well as an update on implementation of the agreement, topics discussed were (i) the economic outlook in the UK and Switzerland; (ii) developments in sustainable finance; (iii) artificial intelligence and technological innovation; and (iv) capital markets regulation.

In relation to the agreement, the UK and Swiss finance ministries provided an update on the progress of their domestic implementation of the agreement. Both countries confirmed their intention to implement the agreement as soon as possible, and by the end of 2025 at the latest. In addition, officials noted that negotiations of a Memorandum of Understanding which will sit alongside the agreement are progressing and are hoped to conclude shortly. The intention of the MoU is to support the UK and Swiss financial services industries with unlocking maximum benefit from the agreement.

The statement demonstrates an ongoing commitment on behalf of both the UK and Switzerland to realising the full potential of the agreement, and reaffirms UK and Swiss cooperation in financial services. Representatives agreed to reconvene in the second half of 2025.

With thanks to Tom Warburton for his assistance with preparing this update.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, March 2024