Switzerland and the United Kingdom signed an agreement to create more efficient and globally competitive conditions for cross-border trade in financial services with the new “Berne Financial Services Agreement” (BFSA).
The agreement is the first time two countries have concluded an international treaty on the equivalence of their respective legal and regulatory frameworks in selected financial areas.
It will enable or simplify access to the other party’s market and is supplemented by an enhanced regulatory and supervisory cooperation, which will ensure stability, integrity and the protection of clients.
The journey toward this landmark treaty has been a meticulous exercise between the two countries, but one coloured by openness and willingness to explore new ideas.
Mutual recognition
The agreement covers the recognition of equivalence in the areas of banking, investment services, insurance, asset management and financial market infrastructures for sophisticated clients.
In the case of financial services, especially wealth management, Swiss providers will be enabled to engage in cross-border activities.
In future, private clients from the UK with assets exceeding GBP 2 million can be provided with cross-border services directly.
On insurance, the agreement covers selected lines of the non-life insurance business for large corporate clients, where UK insurance companies can now engage in cross-border activities.
The agreement specifically excludes accident, health and most kinds of liability insurance, as well as monopoly insurance of all kinds for professional policyholders.
Swiss companies can already provide cross-border insurance services for large corporate clients under current UK law, which is expressly confirmed by the agreement.
Whilst not all concepts used in the BFSA are inherently new, the way they have been drawn together and applied in an international treaty is unprecedented and demonstrates the ability of both economies to innovate.
When it comes to cross-border trade in an area as highly regulated as financial services, this has been a historically difficult feat.
Model for cooperation between like-minded countries
Signing the BFSA marks the beginning of an exciting new chapter in Swiss-UK relations.
This agreement not only expresses the shared commitment to fostering open and resilient financial markets but also demonstrates the two countries’ readiness to lead and innovate in the global arena.
The BFSA can serve as an illustration for cooperation between like-minded countries committed to open markets.
The agreement requires approval by the parliaments of both countries before it can enter into force. It includes mechanisms to enable its coverage to expand over time.
We have balanced shared goals of ambition and effective risk management to deliver an agreement which provides the basis for the recognition of regulatory and supervisory frameworks and greater cooperation in financial services, and which covers the vast majority of wholesale financial services, i.e. services to professional or sophisticated counterparties, supported by a comprehensive governance framework.
Based on a thorough assessment of each other’s regulatory and supervisory frameworks, the agreement provides for mutual recognition where they achieve comparable outcomes.
In some cases, where the wholesale UK and Swiss markets are already open, the agreement affirms existing access.
In others, it is not only confirming existing access, but is also delivering genuinely new opportunities for cross border business by using the principle of ‘deference’.
This means firms in sectors such as insurance and investment services will largely be able to supply cross-border services whilst relying on the familiar rules and supervision of their home jurisdiction.
Manage financial stability and market integrity
Switzerland and the United Kingdom have taken the strengths of established processes for international recognition of equivalence by supplementing these with stability-enhancing commitments in the governance framework and appropriate safeguard mechanism, meaning the new access businesses will enjoy under this agreement will be placed on a more stable footing, allowing them to plan for the long term.
One of the most challenging aspects of this agreement was delivering this ambitious cross-border package while preserving the respective sovereign ability to manage domestic financial stability and market integrity risks with no compromise.
Under the Berne Financial Services Agreement, the two countries have developed a layered approach to risk management that overcomes this challenge.
At the heart of this is a process for enhanced supervisory cooperation that makes sure there is suitable access to information on both sides to effectively manage risks to the markets.
All these efforts have established a new standard for conducting cross-border financial business.
The agreement includes mechanisms to enable its coverage to expand over time.
More on finance.swiss: Switzerland and the UK sign agreement on mutual recognition in financial services | finance.swiss
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