The guidelines clarify the consideration of ESG criteria in the context of the FinSA conduct rules. A holistic approach along the entire advisory process is crucial in order to give clients a credible account of sustainable investments and prevent "greenwashing".
The new guidelines of the Swiss Bankers Association (SBA) close an important (regulatory) gap for Switzerland compared to the EU. The fact that the requirements are much more pragmatic compared to the EU regulations (in particular MiFID II), it should be seen as an opportunity to inform clients authentically about sustainable investments and to position Switzerland as a modern financial center.
Content of the guidelines
The guidelines build on the conduct rules of the FinSA and supplements these with regard to ESG aspects as follows:
- Duty to provide information: inform clients on ESG risks and ESG characteristics of the products offered;
- Assessment of clients' ESG preferences as part of the appropriateness and suitability test and their consideration in investment advice and asset management (matching of client preferences with appropriate products)
- Documentation of ESG preferences and rendering of account upon client request
- Training and professional development: client advisors in particular should be trained in the area of ESG investment solutions.
Compliance with requirements should be reviewed by internal audit at least every three years.
Compliance with the guidelines is mandatory for members of the Swiss Bankers Association (SBA). Non-members may voluntarily join the guidelines but must inform the SBA accordingly.
The guidelines will enter into force on 1 January 2023 and provide for the following transition periods:
- The requirements must be implemented for new client relationships as of 1 January 2024
- The same applies to the requirement regarding training and professional development
- Existing client relationships must be amended by 1 January 2025.
Institutions that comply with the relevant MiFID II requirements are automatically also in compliance with the requirements of the guidelines.
Practical challenges and success factors
During implementation, it is important to keep in mind the objectives of the guidelines, i.e. safeguarding investor protection, contributing to the sustainability goals of the federal government, and the high ambitions of the financial center, while at the same time creating a compelling customer experience along the entire service process.
To achieve this, the following core aspects need to be considered:
- Mapping of client preferences to product characteristics: the institution should apply a consistent classification system to map clients' ESG preferences to product or investment strategy features and implement it throughout the institution's value chain. This can be an issue especially for third-party products due to lack of data.
- Training of client advisors on ESG-related topics: training content should be based on the institution's ESG classification system and the associated product criteria and client preferences, and participation should be monitored. To ensure effective monitoring, appropriate know-how should also be built up in the second line of defense (compliance and risk management) in addition to the client advisors.
- Suitability and ESG preferences: client advisors should engage with clients in a structured way to assess their ESG preferences. These may be values or standards to be reflected in the investment strategy, specific impacts to be achieved or implications for risks and returns. It is also important to ensure that ESG preferences do not conflict with the client's expressed knowledge and experience, financial circumstances and investment objectives.
- Disclosures to clients: periodic reporting should provide information on how the client's investment objectives (including ESG preferences) have been achieved and should therefore reflect the institution’s ESG classification system.