Switzerland will have mandatory self-regulation from January 1, 2023. The Swiss Bankers Association (SBA) has published new minimum requirements for sustainability criteria in investment and mortgage advice.
The desire for greater transparency in the area of sustainable finance is intensifying. It follows an initial wave of innovation that arose from increased interest in the topic from various stakeholders and the associated development of new banking products. The European Union (EU) has responded to this desire with a wide range of regulations.
In June 2020, the Swiss Bankers Association (SBA) published a guideline for the inclusion of environment, social, and governance (ESG) criteria in the advisory process for private clients. Two years later, in June 2022, SBA followed up with two binding self-regulations on sustainable finance, obliging all member institutions to comply with them. This means that Switzerland now also has binding regulations in both the investment and mortgage sectors.
Banks have particularly focused on implementing sustainability at the corporate, product, or financial instrument level. Self-regulation aims to define sustainability at the business unit level (see Figure 1).
This creates an elementary link for embedding the product map in a holistic sustainability concept. In turn, it helps institutions to reduce latent reputational risks and successfully exploit business opportunities.
The SBA has developed the "Guidelines for Financial Service Providers on the Inclusion of ESG Preferences and ESG Risks in Investment Advice and Asset Management" based on the Swiss Financial Services Act (FIDLEG), with the following objectives:
Sustainability criteria chosen by private clients must be included in the appropriateness and suitability test under FIDLEG. Professional clients can waive their applicability and the new directive does not apply to institutional investors. By integrating sustainability into client advice, financial service providers must review the entire advisory process (client profiling and target definition, selection of investment solutions, service provision, and target review) for the new requirements and adapt it if necessary.
In addition, institutions must review and, if necessary, realign the investment process of the advisory and research teams as well as portfolio management so that the management of client portfolios can be carried out in a regulatory compliant manner.
The main objective of the new "Guidelines for Providers of Mortgages to Promote Energy Efficiency" is to make customers aware of the energy efficiency of their properties and assist them in promoting energy efficiency.
The guidelines make it possible to adjust mortgage conditions with a view to the sustainability of a property in terms of loan-to-value, affordability, amortisation, and effective interest rate. In addition, financial service providers can develop their own products for financing energy-efficient properties.
Specifically, financial services providers need to add the following elements to their customer advisory process and existing mortgage requirements:
This means that financial service providers must revise both the advisory process vis-à-vis the clientele and the bank's internal credit process.
The new self-regulation is central to the creation of greater transparency and the inclusion of individual customer needs with regard to sustainability. The guidelines affect both the investments themselves and all financing of real estate. Therefore, financial service providers must review the advisory process, investment process, and credit process, revise them if necessary and create new documents (e.g. investor profile). Furthermore, they must train all persons with customer service tasks accordingly.
We are convinced that this development offers you, as a financial services provider, a unique opportunity. Take advantage and position yourself as a farsighted company that already takes into account the needs of its clientele and requirements of regulation for holistic sustainability products today. In this way, you will not only reduce hidden reputational risks, but also be ideally positioned to meet the requirements of the future generation of customers.
At the beginning of 2023, the two self-regulations will come into force with different transition periods. This is, therefore, an ideal time to determine the appropriate positioning in the area of sustainable finance.
We will be happy to support you in all your projects on this topic, whether it is revising processes and documents or training your staff. For further information or a non-binding initial consultation, please do not hesitate to contact us. We look forward to hearing from you.
 Swiss banks usually choose a Swiss jurisdiction in the customer contracts and declare the Swiss law applicable. Therefore, at first glance, the application of the European regulation has no impact. However, according to the Lugano Convention, under certain circumstances, a private client may be granted a mandatory place of jurisdiction in the state of his domicile. In this case, there is at least a risk that certain provisions in connection with sustainability from consumer protection will be applied despite contracts to the contrary.