Switzerland landscape

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The alpine country has chosen a clever approach that simultaneously accommodates both domestic and foreign regulations. James King reports.

On September 26, the Asset Management Association of Switzerland (AMAS), the representative group of the country’s asset management industry, published new environmental, social and governance (ESG) self-regulation establishing an ESG framework for collective investment schemes that either ‘produce’ or ‘manage’ sustainable investment products. Under the auspices of AMAS, asset management firms are now subject to binding obligations on a range of reporting, organisational and disclosure activities.

The new self-regulation marks a significant step forward for the Swiss financial market and comes off the back of other regulatory developments that have burnished the country’s ESG credentials in recent times. Notably, AMAS’s self-regulation is deemed to be voluntary, or private, under Swiss financial market law. This means that it is free from state involvement and sits beyond the approval of the Swiss Financial Market Authority (Finma).

In a similar vein, the Swiss Bankers’ Association (SBA), the country’s leading financial sector association, enacted voluntary ESG self-regulation in June. 

This approach draws on a long history of self-regulation in the country, whereby industry association members are bound by aspects of private law to meet new regulatory requirements. “In the Swiss regulatory context, it’s not that surprising because private self-regulation is common,”  says Eric Favre, counsel with Swiss law firm MLL Legal.  

“Yet, if Finma had officially vetted both the SBA and AMAS ESG frameworks, they would be more powerful from a regulatory perspective, as they would be within the supervisory tasks of Finma.”

What has changed?

New requirements introduced under the AMAS self-regulation include sustainability knowledge thresholds for leading executives and managers of asset management institutions, as well as other staff members that are obliged to deal with sustainability-associated tasks.

More importantly, new rules around the origination and design of an investment policy have been introduced, along with requirements on the use of sustainability metrics and data. Among other changes, this means that asset managers must now record sustainability metrics that are pertinent to the overall investment strategy and in a manner that can be substantiated. 

Significantly, the self-regulations also make reference to regulatory arrangements in foreign jurisdictions. In particular, Article 9 of the regulation notes that firms who meet “comparable” regulatory arrangements outside of Switzerland will also be deemed compliant with AMAS’s self-regulation. Here, specific reference is made to rules developed in the EU, effectively pointing to regulatory “equivalence” between the Swiss and EU asset management markets.

A smart strategy

A similar approach was used in the SBA’s ESG self-regulation enacted in June, meaning Swiss banks are not subjected to two different regulatory standards when working on a cross-border basis with the EU. 

This allows for domestic flexibility, so firms can tailor their approach to local conditions, while giving larger, international groups the chance to meet these standards while remaining compliant in Switzerland. “It’s really clever for the purpose of solving that problem of equivalence. So a large bank with outbound business outside of Switzerland towards the EU should normally not have to cope with two different sets of regulations,” says Mr Favre. 

It’s really clever for the purpose of solving that problem of equivalence

Eric Favre

These developments come as Switzerland accelerates its push to become a leading ESG-focused financial centre. In comparison to other jurisdictions – the EU chief among them – the country has been relatively slow to marshal a coordinated response to an evolving financial market sustainability landscape. This, in part, reflects the legal and regulatory culture that exists in Switzerland that favours a lighter-touch, principles-based approach over a more direct or prescriptive style. 

“It has always been the case that Switzerland has adopted a more laissez-faire approach to financial regulation, principles-based federal laws and strong self-regulation from the industry. This is a strength because it has clearly been working,” says Mr Favre. 

Swiss private and public sector actors are nevertheless moving quickly to advance the country’s ESG agenda. In October, the country’s annual “Building Bridges” summit was held in Geneva. With the ambition to “align finance with sustainability”, the event included some of Switzerland’s leading market voices, including representatives from Lombard Odier, Pictet Asset Management and Credit Suisse, as well as a string of senior government officials. 

“[The summit] really depicted an accurate image of the efforts that everyone is trying to make in this industry to promote better investments,” says Mr Favre.


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