There have been a number of financial services agreements and a 2023 accord between the financial centres of the UK and Switzerland was among the most significant. This article, from a legal expert, delves into the details.

The article is from Carmen Kiavila, founder of Kiavila Avocats. She is an attorney-at-law member of the Bern Bar Association and of the Paris Bar Association. (More on Kiavila below.) She examines a 2023 pact between the UK and Switzerland over financial services. Both jurisdictions are important private banking, wealth and asset management centres; the dynamics connecting them are familiar to some readers, but the implications of the Berne accord might not be. We welcome this article’s contribution to understanding; the usual editorial disclaimers apply. To comment, email tom.burroughes@wealthbriefing.com and amanda.cheesely@clearviewpublishing.com

Carmen Kiavila

The Berne Financial Services Agreement (BFSA), signed on 21 December 2023, represents a significant milestone in the liberalisation ant integration of financial services between Switzerland and the UK. 

This agreement is specifically designed to facilitate the provision and access of financial services across borders, based on mutual recognition agreement, it  is based on regulatory equivalence and aims to facilitate reciprocal access to markets. The agreement represents a turning point for financial services. (1)

1. Genesis and philosophy of the agreement
The origins of the Berne Agreement primarily stem from the context of Brexit and the need for Switzerland and the UK to maintain and enhance their bilateral financial relations outside the European Union's framework. 

Indeed, with no agreement in place after the Brexit, the financial services sectors of both countries faced difficulties in accessing each other’s market.

Since 2020, the two countries have been in dialogue to ensure the continuity of their financial institutions' cross-border activities and maintain stability in their respective markets. (2)

The agreement is founded on a philosophy of promoting mutual recognition based on the equivalence of regulatory frameworks. Unlike the European approach, which relies on a single passport and the harmonisation of rules, the BFSA emphasises confidence in the quality of national regulations and cooperation between supervisory authorities. (3) 

This approach enables each state to maintain its regulatory sovereignty and promotes access to the other party's market for financial service providers authorised in their home country. This philosophy is chosen due to the similarity of prudential and investor protection standards between Switzerland and the UK, as well as their common goal to foster innovation and enhance the competitiveness of their financial hubs. The agreement also includes mechanisms for dialogue and adaptation, allowing mutual recognition to be updated in line with changes in national regulatory frameworks, along with cooperation on supervision, in accordance with articles 13 and following of the Agreement.

The agreement is welcomed as the first mutual recognition by two countries of the equivalence of their regulatory and supervisory frameworks in certain parts of the financial sector, formalised through the signing of an international convention. 

It allows each party to access the other's financial services markets information or to facilitate access to it. The agreement also strengthens regulatory and supervisory cooperation, ensuring the stability and integrity of the financial market and guaranteeing customer protection. (4)

2. Material scope of application
The material scope of the BFSA is both extensive and clearly defined. 

The agreement aims to facilitate the cross-border provision of financial services between Switzerland and the UK but is specifically targeted at certain market segments and client categories. (5) 

The agreement covers:
--  Investment services, including:
--  portfolio management; 
--  investment advice; 
--  order execution; or
--  account management. 
--  Banking services, in particular:
--  deposits; 
--  credits; 
--  payments; or
--  cash management. 
--  Asset management, non-life insurance and reinsurance. (6)  

By focusing on these core financial services, the BFSA directly addresses the needs of banks, asset managers, and insurers seeking to operate internationally. 

The agreement applies only to financial service providers that are properly authorised and supervised in their country of origin, thereby ensuring a high level of security and confidence. (7)

The exclusion of non-professional clients is a key aspect of the system. 
Private clients under the LSFin definition, as well as consumers under UK law, are not covered by the Berne Agreement. 

Consequently, only professional and institutional clients, such as banks, insurance companies, pension funds, and large corporations, can benefit from the cross-border services enabled by the agreement. (8) 

This restriction is designed to protect non-professional investors, who remain subject to the national requirements of each country.

The agreement also provides for the possibility of extending or adjusting its scope to other financial services or customer categories, through subsequent consultations and amendments, making it an evolving and adaptable instrument. (9)

According to the UK government, the agreement represents a “new and innovative model of regulatory recognition,” that will be highly beneficial to the financial sector. 

3. Mutual recognition and cooperation mechanisms
This agreement offers key benefits to the financial services sector, including enhanced market access and expanded service coverage. 

The BFSA's specificity lies in its mechanisms for mutual recognition and cooperation between the Swiss and UK supervisory authorities.

The agreement establishes a system whereby each party recognises the equivalence of the other's regulatory framework, provided that certain objective criteria are met, and allows the financial services of both countries to operate more freely.

The evaluation of equivalence relies on analysing prudential standards, business conduct regulations, and investor or policyholder protection mechanisms.

This assessment is not static; it may be re-examined at any time, especially if there is a substantial change in the regulatory framework of one of the parties. 

Financial services providers authorised in their home country can offer certain cross-border services in another state without needing a new local authorisation if equivalence is acknowledged.

Financial services providers authorised in their home country can offer certain cross-border services in another state without needing to obtain new local authorisation if equivalence is recognised.

Cooperation among supervisory authorities, especially FINMA in Switzerland and the FCA and PRA in the UK, is formalised through regular information exchanges, consultations, and the option of conducting joint or coordinated inspections. This collaboration aims to prevent systemic risks, detect market abuse, and maintain financial stability.

In cases of differing interpretations or withdrawal of equivalence, the agreement outlines procedures for consultation and dispute resolution. Before any suspension or withdrawal of equivalence, the parties must enter a formal dialogue to seek an amicable solution. (10) 

This mechanism aims to ensure predictability and legal certainty for market players. 

4. Implications for banks
The Berne Agreement provides Swiss and UK banks with easier access to each other's markets for offering cross-border services to professional and institutional clients, thereby preventing duplication of licensing and supervisory procedures. It reduces regulatory hurdles across the entire financial sector and cuts down on redundant compliance duties.

In practical terms, a Swiss bank authorised by FINMA may, subject to recognised equivalence, offer services such as cash management, loans, deposits, payments, or liquidity management to professional clients in the UK without needing to open a local branch or obtain an additional licence from the FCA or the PRA. The same applies to UK banks operating in Switzerland. This opening up of the market, however, is subject to several safeguards. 

On the one hand, access to retail customers remains excluded from the scope of the agreement, with each member state retaining the option of imposing additional consumer protection requirements. (11)  

On the other hand, the supervisory authorities retain the power to monitor cross-border activities and take corrective measures in the event of risks to financial stability or customer protection. (12)

The BFSA thus promotes the competitiveness of Swiss and UK banks, enabling them to streamline their service offering and reduce the compliance costs associated with the multiplicity of licensing regimes. (13)

Finally, the agreement provides for enhanced cooperation mechanisms between FINMA and the UK authorities, in particular for:
-- exchange of information; 
-- monitoring systemic risks; and
-- management of cross-border banking crises. (14) 

5. Implications for insurance
The insurance industry also benefits from mutual recognition, particularly in reinsurance. Insurers licensed in their home country can offer certain products to professional clients in the partner country without needing a local licence.

In this case, retail customers are also excluded from the agreement's scope to ensure proper protection for policyholders. (15)

The agreement promotes competition and innovation in the insurance industry by strengthening cooperation mechanisms between FINMA and the UK. The agreement is currently being implemented in both countries and is expected to be fully operational by 1 January 2026.

Footnotes
1,  Presentation of the Berne Agreement, p. 2; FF 2024 2387. 
2,  CH-UK financial dialogue (doc 5),
3,  Presentation of the Berne Agreement, p. 3. 
4,  Press release dated 21 December 2023 "Switzerland and the United Kingdom sign a mutual recognition agreement in the field of financial services".
5,  FF 2024 2387, art. 2; Presentation of the Berne Agreement, p. 4
6,  Presentation of the Berne Agreement, p. 4-5; news.admin.ch, p. 1
7,  FF 2024 2387, art. 3-4
8,  Presentation of the Berne Agreement, p. 5; FF 2024 2387, art. 2
9,  FF 2024 2387; Presentation of the Berne Agreement, p. 8
10, FF 2024 2387; Presentation of the Berne Agreement, p. 5-6
11, Presentation of the Berne Agreement, p. 6; FF 2024 2387
12, news.admin.ch, p. 1
13, CH-UK financial dialogue, p. 2
14, Presentation of the Berne Agreement, p. 6; FF 2024 2387
15, Presentation of the Berne Agreement, p. 7; FF 2024 2387. 

About the author
Carmen Kiavila graduated from the Bar School Training Center of Paris and holds a Master of Science degree in financial economics from the prestigious business school HEC Paris. She works for large groups, small companies in France and Switzerland but also for individuals mainly in the context of Franco-Swiss and international disputes.