For the first time, two international financial centres have mutually recognised the equivalence of their respective legal and supervisory frameworks in a binding international treaty.

Introducing the Berne Financial Services Agreement: a historic agreement between Switzerland and the United Kingdom that introduces a new chapter of cross-border financial collaboration. In this article, we look into the key points of this historic treaty, exploring its implications for market stability, investor protection, and the expansion of financial services between these two important countries.

1. Equivalence: The legal and supervisory frameworks for financial services have been mutually recognized as equivalent, supported by enhanced cooperation. Equivalence was established through assessments based on jointly agreed criteria on financial stability, financial market integrity and client and investor protection.
2. Access for Swiss Banks: The Berne Financial Services Agreement enables Swiss banks to serve high net worth individuals and professional clients in the UK, either through cross-border operations or temporary local activities, while retaining the option to adhere to Swiss law. Various financial entities, including banks and asset managers, benefit from simplified access, accompanied by safeguards such as disclosure obligations. Similarly, UK financial service providers enjoy substantial access to Swiss markets, with provisions allowing UK client advisers to serve high net worth private clients in Switzerland without full registration.
3. Insurance Sector Access: The Agreement clarifies regulations for Swiss insurance companies seeking to provide cross-border services in the UK, with similar provisions reciprocated for UK insurers in Switzerland. While UK insurers gain access to specific lines of non-life insurance in Switzerland, certain types like accident and health insurance remain excluded. Additionally, the agreement facilitates relief for UK insurance intermediaries from localization requirements under the revised Insurance Oversight Act.
4. Asset Management: The agreement confirms the existing international framework for asset management, including the advertisement and offering of collective investment services.
5. Financial Market Infrastructures: Rules are established for trading venues, central counterparties, and over-the-counter derivatives, mutually recognizing legal and supervisory frameworks.
6. Positive Effects: The agreement enhances Swiss companies' access to the UK market, particularly in wealth management. It provides greater product choices in selected insurance lines and ensures financial stability, integrity, and investor protection.
7. Disputes: The Berne Financial Services Agreement prioritizes financial stability, integrity, and investor protection, ensuring that both Switzerland and the UK can respond effectively to unforeseen risks. The agreement incorporates dispute settlement provisions and establishes a joint committee to oversee its management, providing a robust framework for addressing potential challenges and maintaining the agreement's integrity.
8. Regulatory and Supervisory Cooperation: Close cooperation between supervisory authorities is emphasized to ensure financial stability and investor protection, including additional arrangements for new market access.
9. Sustainable Finance: Both countries will cooperate on sustainable finance, exploring mutual recognition of corresponding rules and standards in the future.
10. Approval and Implementation: The agreement requires approval from both countries' parliaments and will not contain directly applicable rights and obligations for private parties.

Overall, the Berne Financial Services Agreement aims to facilitate cross-border financial activities while maintaining stability, integrity, and investor protection in both Switzerland and the UK.

Source: Schweizerische Eidgenossenschaft, December 2023

(Image via FDFA)

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