On December 21st, 2023, a significant milestone was reached in the relationship between Switzerland and the United Kingdom as both nations eagerly signed the Berne Financial Services Agreement. This ground-breaking accord is a testament to the collaborative efforts to establish mutual recognition in financial services, marking a crucial development in their post-Brexit bilateral ties.
Background: Swiss-UK Relationship Post-Brexit
Before the UK's departure from the European Union (EU), Switzerland and the UK enjoyed a relationship shaped by bilateral agreements between Switzerland and the EU. However, with Brexit in effect after the transition period concluded on December 31, 2020, new agreements had to be forged. While various agreements were established on trade, citizens' rights, and other areas, a comprehensive financial services agreement was notably absent.
The road to the Berne Financial Services Agreement began with a Joint Statement on deepening cooperation in financial services signed on June 30, 2020. Despite the anticipation, it took an additional 3.5 years for the formal agreement to materialize.
The Berne Financial Services Agreement: Purpose and Key Characteristics
Heralded as a "ground-breaking" accord by the UK Government, the agreement introduces a novel model of mutual regulatory recognition, setting a new global standard for regulatory and supervisory cooperation. The Swiss Government emphasizes its purpose as facilitating cross-border business activities while maintaining financial market stability, integrity, and client protection.
The key features of the agreement include an in-depth assessment of each country's financial legislation, mutual recognition of equivalence, and enhanced supervisory and regulatory cooperation. The scope encompasses banking services, asset management, insurance services, and financial market infrastructures.
Scope of Application
Banking Services: Swiss financial institutions gain the ability to offer services to high net worth and professional UK clients, while UK providers can conduct cross-border activities in Switzerland more seamlessly.
Asset Management: The agreement confirms existing national regimes for collective investment schemes, delegation of investment decisions, and portfolio risk management.
Insurance Services: Coverage is extended to larger professional policyholders/corporate clients, with exceptions for certain types of insurance. UK intermediaries benefit from relief from localization requirements under the revised Insurance Oversight Act.
Financial Market Infrastructures: Mutual recognition extends to trading venues, central counterparties (CPs), and over-the-counter (OTC) derivatives, facilitating compliance with certain obligations for cross-border transactions.
Additional Features
The agreement incorporates dispute settlement provisions, the establishment of a joint committee, and commitments to cooperate in sustainable finance. Both countries retain the flexibility to amend financial services legislation with established consultation mechanisms.
Next Steps
With the agreement signed, the next crucial steps involve parliamentary approval in both countries. In Switzerland, the Federal Council is expected to submit the agreement to Parliament in the first half of 2024. Industry organizations, including the Swiss Bankers Association, Asset Management Association Switzerland, SIX Swiss Exchange, The City UK, UK Finance, and the City of London Corporation, have expressed enthusiastic support.
Separate from the Berne Financial Services Agreement, negotiations for an enhanced Free Trade Agreement between Switzerland and the UK are currently underway, showcasing a multifaceted approach to bolstering economic ties between the two nations. The signing of the Berne Financial Services Agreement marks not only a significant achievement but also the beginning of a new era of collaboration and shared economic prosperity.
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