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UK Government Signs Agreement with Switzerland on Mutual Recognition for Wholesale Financial Services | Shearman & Sterling LLP


The U.K. Government has signed the Berne Financial Services Agreement with Switzerland, confirming mutual recognition of aspects of the financial services regulatory and supervisory regimes in each jurisdiction. The Agreement permits specified financial services providers in one jurisdiction to supply specified services to wholesale or sophisticated clients in the other jurisdiction in various sectors (including asset management, banking, investment services activities and insurance) on the basis of deference, domestic law or other arrangements:

  • Deference entails Country A (e.g., Switzerland) deferring to standards in the overseas country (e.g., the U.K.), meaning financial services firms supervised and regulated in the U.K. could provide specified services in Switzerland in accordance with the U.K. regime without having to comply with Swiss rules.
  • Domestic law arrangements mean that service providers in Country A (e.g., the U.K.) could provide a specified financial service in the overseas country (e.g., Switzerland) in accordance with Swiss domestic law.
  • Other arrangements apply in some cases, for example, to non-centrally cleared over-the-counter derivatives transactions conducted between a U.K. and a Swiss financial services supplier. In this case, the U.K. and Switzerland will deem risk mitigation obligations to be complied with by a financial services supplier in their own country, if the supplier has complied with relevant obligations under the domestic law of the other country (subject to certain exceptions from a U.K. perspective).

These mutual recognition measures should significantly reduce the regulatory burden for U.K. firms providing financial services to Switzerland (and vice versa).

For each covered financial service, the Agreement stipulates the basis of access, the financial service suppliers covered, the conditions applicable (if any) and the supervisory cooperation arrangements required in addition to the general provisions. Relevant financial services include: deposit-taking and lending; clearing services; services supplied by trading venues and multilateral trading facilities; effecting and carrying out contracts of insurance or reinsurance, as well as various auxiliary services; investment services including dealing activities, investment advice, underwriting and custody (among others); and asset management activities, including the marketing of collective investment schemes (into Switzerland) or alternative investment funds (into the U.K.) and portfolio and risk management activities in respect of specified funds. Specified financial services providers are typically those authorized under the rules of their home jurisdiction to conduct the activity in question.

Additional supervisory arrangements are specified in certain circumstances, such as the retention by the Bank of England of the power to require a Swiss clearing house to obtain BoE recognition and, in the event it is deemed to be systemically important, to comply with relevant organizational, conduct of business, prudential and supervision and enforcement requirements.

By a side letter regarding financial market infrastructure, the U.K. and Switzerland have agreed to explore options for closer cooperation in other areas including benchmarks, credit rating agencies, trade repositories, recognition of reporting and clearing obligations for over-the-counter derivatives and the application of OTC derivatives intragroup exemptions for domestic firms. A separate side letter regarding auxiliary insurance services confirms a mutual understanding that the Agreement extends to the supply of certain auxiliary insurance services to Switzerland.

HM Treasury is empowered under the Financial Services and Markets Act 2023 to amend domestic legislation to ensure the Agreement can be implemented. The U.K. Government will implement and ratify the Agreement in line with U.K. domestic parliamentary process.

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