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Developments in Swiss debt capital markets – 2015 by Lukas Wyss, Maurus Winzap and Thomas Müller, Walder Wyss Ltd.
Recently, the Swiss debt capital markets have been greatly influenced by the Swiss National Bank’s (SNB) decision to discontinue the minimum exchange rate of CHF1.20 per €1. On the regulatory side, the contemplated overhaul of the Swiss regulatory framework (which includes a revision of the prospectus requirements) will affect markets quite significantly as well. Finally, there are ongoing discussions around revising the Swiss withholding tax regime by abandoning the withholding at source concept and introducing a regime that foresees deductions by paying agents. Even though the respective legislative process has been postponed, it can be expected that a revision will be further advanced in the near future.
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General overview and recent developments in the Swiss debt capital market Low interest rates in the Swiss franc market On January 15, 2015, the Swiss National Bank (SNB) publicly announced that it discontinued the minimum exchange rate of CHF1.20 per €1. Simultaneously, the SNB
Lukas Wyss
Maurus Winzap
Lukas Wyss
lowered interest rates on larger sight deposit account balances to –0.75% in an attempt to avoid “inappropriate tightening of monetary conditions”. Since January 15, 2015,
Thomas Müller
tel: +41 58 658 56 01 email:
[email protected]
interest rates in the Swiss franc market have been at Maurus Winzap
historically low levels. In mid May 2015, the three-month
tel: +41 58 658 56 05
CHF LIBOR was as low as –0.80%. The Swiss Confederation is now able to auction up to 10-year government bonds
email:
[email protected]
with a negative yield. Even the Swiss Pfandbrief has been
Thomas Müller
issued at negative yields. Whilst it is possibly just a
tel: +41 58 658 55 60
question of time, the primary market is still reluctant to accept negative yields on new corporate issuances.
email:
[email protected]
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Market activity
parliament. As any other act approved by the Swiss
Unsurprisingly, the market has been largely driven by the
parliament, it is now subject to the optional public
low interest environment created by SNB’s decision. One
referendum. Assuming that no referendum will be
could think that low interest would boost issuance
requested by October 8, 2015, the FinMIA is expected to
activities. However, issuers currently have to deal with
enter into force soon thereafter. Drafts of the FinSA and the
various challenges:
FinIA have been presented by the Swiss Federal Council for consultation in 2014 and, on the basis of feedback received
•
generally, issuers tried to further benefit from low interests and marketed further transactions;
•
in the consultation process, the drafts will be adopted and presented to the Swiss parliament likely in October 2015.
however, given that interest rates (in particular in the Swiss franc market) have been at low levels already for
The FinSA and the FinIA shall strengthen client protection, promote competitiveness of the Swiss financial centre and,
quite a while, many issuers successfully closed by creating a level playing field, competitive distortions transactions during the last year already and had no
between providers shall be minimised.
imminent need for liquidity in 2015; •
as most Swiss banks now charge negative interest on (larger) sight deposits, issuers have a tendency to
More specifically, the FinSA will govern the relationship between financial intermediaries and their clients with respect to all financial products. Financial service providers
keep liquidity at low levels and to launch transactions will have to seek and take into account necessary only when there is an immanent need to finance; also, information on the financial situation, knowledge and
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corporate issuers aim to refinance current transactions as late as possible; •
experience of the client when rendering advice. Further, the FinSA will introduce new uniformed prospectus
M&A activity in Switzerland cooled down in the first
requirements for all securities that are publicly offered or
two quarters of 2015. The strong Swiss franc is likely to
traded on a Swiss trading platform.
be one of the reasons for this. Obviously, this had a Also, there will be a new general requirement to produce a negative impact on the overall issuance activity.
basic information sheet for each financial product that can be presented to retail clients. It remains to be seen
Swiss financial market’s new regulatory framework in general
whether the Swiss law makes similar strict rules as proposed under the Regulation on key information documents for packaged retail and insurance based
A significant development in the Swiss financial industry in general and the Swiss debt capital market in particular, is the contemplated overhaul of the Swiss regulatory framework of financial markets.
investments products (PRIIPs). Private actions in the event of misconduct by financial service providers shall be improved; this includes the introduction of an ombudsman service. The ombudsman is contemplated to act exclusively
In a general attempt to bring the Swiss regulatory framework in line with international regulations, such as EMIR MiFID II and the EU Prospectus Directive, it is suggested that the Financial Market Infrastructure Act (FinMIA), the Federal Financial Services Act (FinSA) and the Financial Institutions Act (FinIA) replace major portions of the existing regulations and implement new rules on financial services.
as a mediator and will not get any decision-making powers. The FinIA will unify the supervision of all financial service providers that are active in the asset management business in whatever form. Existing licensing requirements for financial service providers and financial institutions that are now widespread in various bodies of law will be embedded in the FinIA, while essentially remaining unchanged as to substance, safe for further alignments, as
The FinMIA has already been approved by the Swiss
appropriate. In addition, new licensing requirements will
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likely be introduced for managers of individual client
the SIX Swiss Exchange in Zurich (SIX). Given that the
assets and managers of assets of Swiss occupational
prospectus requirements under the CO are rather slim, a
benefits schemes. Asset managers shall be supervised by
listing prospectus that complies with SIX’s regulations
the Swiss Financial Market Supervisory Authority FINMA
most often covers the CO requirements for an offering
(FINMA) or be subject to supervision by self regulatory
prospectus as well. Therefore, when issuing debt securities
organisation. The licensing of asset managers is still under
to be listed on the SIX, it is standard to produce one
debate.
prospectus only which qualifies as an offering prospectus under the rules of the CO and as a listing prospectus under
New prospectus requirements under Swiss law in particular
the rules of SIX. In the framework of examining the listing application for debt securities, SIX will examine whether the prospectus
The revision of the prospectus requirements contemplated by the FinSA will affect debt capital markets quite
meets the listing rules. Other than that, there are no general filing or approval requirements under Swiss law.
significantly.
In addition, it is important to note that SIX generally allows
Current Swiss prospectus regime and regulations
for a provisional admission to trading of debt securities (on the basis of an online short form application for provisional trading). The final listing application only needs to be filed
Under the current Swiss legal regime, the relevant rules with SIX within two months after the first trading day. applicable to debt securities offerings depend on whether Hence, a transaction can be closed and admitted to the offering is private or public. Private offerings are not provisional trading, without any authorities or any stock regulated and, accordingly, there is no obligation to exchange having formally approved the prospectus. This publish or provide for a prospectus. Nevertheless, prospectus or information memoranda are typically
makes issuances and listings of debt securities extremely efficient in Switzerland.
prepared in private offerings on a voluntary basis, in
expectations.
Regime under the new Federal Financial Services Act (FinSA)
The prospectus requirements for public offerings are
The regime suggested by the FinSA will differ significantly
generally set out in the Swiss Code of Obligations (CO).
from the current Swiss law regime reflected in the CO and,
Given that Switzerland is not a member of either the EU or
accordingly, will influence the Swiss debt capital market.
accordance with market standards and investor
the EEA, the EU Prospectus Directive, the PRIIPs and other
Requirement to issue prospectus
EU/EEA capital market regulations do not apply. The Articles 37 et seq. of the consultation draft of the FinSA content requirements for such prospectus are rather slim deal with the prospectus requirements for securities, and only cover, essentially, disclosures on the issuer (and including debt securities. The new rules state that “any guarantor, if relevant) relating to corporate form, capital person who offers securities for sale or subscription in a structure, board members, dividends distributed in the public offer in Switzerland or any person who seeks the past five years and latest annual audited accounts (not admission of securities for trading in a trading venue as older than nine months; otherwise, interim accounts will defined in the FinMIA must first publish a prospectus.” have to be established). The FinSA further provides for exemptions from the If debt securities are to be listed on a stock exchange in
prospectus requirements, which are very similar to the
Switzerland, the respective listing requirements and rules
exemptions provided by the EU Prospectus Directive (i.e.
of the relevant stock exchange will have to be complied
(i) addressed solely to investors classified as professional
with. In Switzerland, the most important stock exchange is
clients; (ii) addressed to less than 150 investors classified
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as retail clients; (iii) addressed to investors acquiring
Key information document
securities at a value of at least CHF100,000; (iv) minimum
Under current regulations, it is a requirement that a key
denomination per unit of CHF100,000; or (v) not to exceed
information document be produced in relation to certain
an overall value of CHF100,000 over a 12-month period).
collective investment schemes. The FinSA will introduce a
There are further exemptions that apply depending on the
general obligation to produce and publish a key
type of securities to be issued.
information document for any financial instrument offered to retail clients. This will generally be the case for debt
Requirements as to content of prospectus
securities.
Contrary to the current rules, the draft FinSA imposes quite extensive requirements as to the content of a prospectus.
Outlook
These requirements are generally in line with standard
It is not entirely clear yet, when the FinSA and the FinIA will
market practice and international regulations.
be enacted. An implementation prior to 2017 is not expected. Also, whilst it is expected that the FinSA and the
Relaxed standards The draft FinSA suggests that the Swiss Federal Council may, in the form of a federal ordinance, introduce relaxed standards on the prospectus requirements for small- and mid-size enterprises (i.e. enterprises not exceeding any two or all of the following: (i) balance sheet of
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FinIA will be enacted generally in the current draft form, it cannot be excluded that certain elements will still be adapted and some requirements will be dropped. However, given the international political pressure to bring the Swiss regulatory framework in line with the EU regulatory
CHF20,000,000; (ii) turnover of CHF40,000,000 per year; or
framework, it can be expected that the basic framework as
(iii) 250 employees – full-time equivalent).
per the current consultation drafts will remain.
Review of prospectus by review authority The new rules on the requirements to issue a prospectus,
Taxes
as well as the requirements as to its content are not
Interest payments by Swiss issuers and borrowers under
fundamentally different from SIX’s listing rules. Whilst the
collective fundraising transactions (such as bonds) are
FinSA will provide for a more explicit and possibly stricter
subject to Swiss withholding tax at a rate of 35%. Whilst
legal framework, these elements do not provide for
Swiss investors may claim back the 35% relatively easily –
fundamental changes.
but with a delay as to timing, the reimbursement process
However, under the FinSA, the issuance of a prospectus is
for foreign investors is more burdensome. Also, depending
subject to prior examination by a reviewing authority.
on the jurisdiction of the investors and further depending
In the review process, completeness, coherence and
on the legal structure of the investors, Swiss withholding
comprehensibility of the prospectus are checked against
tax may be claimed back only in part, if at all. This imposes
the requirements of the FinSA. The reviewing authority
a limitation on Swiss issuers to access the international
shall render its decision within 10 business days or, in case
debt capital markets. Exemptions are only available
of first time issuers, 20 business days.
(temporarily) for certain types of debt qualifying as regulatory capital (such as CoCos issued by systemic
Once the FinSA will be implemented, FINMA will appoint relevant banks (“too big to fail” banks) as well as certain the reviewing authority. The reviewing authority further write-off and bail-in bonds). needs to meet certain requirements, such as independence, due organisation, reputation, infrastructure
In an attempt to discourage bond issuances by Swiss
and knowledge. Given the lack of infrastructure and
groups abroad and to strengthen the Swiss market,
personnel, it is expected that a private organisation or
Switzerland is about to consider fundamental changes to
organisations will be appointed (such as SIX).
its withholding tax system. On August 24, 2011, the Swiss
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Federal Council proposed new legislation under which the
title occurs for consideration and a Swiss securities dealer
current deduction of Swiss withholding tax of 35% by the
is involved as a party or as an intermediary to the
issuer of bonds on interest payments at source would have
transaction.
been substituted for by a respective deduction by Swiss paying agents (subject, in principle, to an exception for foreign investors). It was initially expected that the new regime would enter into force in the course of 2015 or 2016. However, in view of the negative outcome of the consultation on the draft legislation in the course of 2014 and 2015, the Swiss Federal Council decided, on June 24, 2015, to postpone a complete overhaul of the Swiss
For direct tax purposes of Swiss resident individual bondholders, most of the returns of bonds are subject to Swiss income tax. Upon sale and redemption of structured products, the theoretical bond component is subject to pro rata Swiss income taxation. Until now, accrued interest is tax-free income upon sale of a bond; however, this could change if the revised draft legislation project from the Swiss Federal Council is enacted.
withholding tax regime, as originally planned. It now remains to be seen when and, if so, under which form, the withholding tax reform will be launched again. The paying
Contact us:
agent principle should be discussed again before the
Walder Wyss Ltd.
planned exemptions for CoCos, write-off and bail-in bonds
Seefeldstrasse 123, P.O. Box 8034 Zurich, Switzerland
expire. tel: +41 58 658 58 58 Further, bonds, like any other taxable securities, are subject to a Swiss transfer stamp duty at 0.15% for
fax: +41 58 658 59 59 web: www.walderwyss.com
domestic bonds and 0.3% for foreign bonds if a transfer of
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