UK and Switzerland sign landmark mutual recognition agreement

What does this mean?

The MRA represents a new approach to cross-border financial services trade, with the UK and Switzerland recognising each other’s domestic regulatory and supervisory frameworks as achieving equivalent outcomes across a suite of financial services sectors. 

The Agreement delivers three core outcomes for specific financial services sectors: (1) provides enhanced market access for UK and Swiss firms, (2) locks in existing cross-border market access, and (3) establishes an institutional framework for enhancing UK-Swiss regulatory and supervisory cooperation. 

For the insurance sector, UK insurers and intermediaries providing wholesale services into the Swiss domestic market will be able to largely rely on UK rules to do so. Policies in scope of the MRA include cyber insurance, indemnity, sellers’ and buyers’ warranty and policies on renewable energies.

UK insurers will be required to issue pre-contractual disclosures to clients, and report annually to the Swiss Financial Markets Supervisory Authority (FINMA) on its activity. 

UK insurers will also be exempt from Swiss requirements mandating the establishment of local presence to service Swiss clients from 2024. The MRA also locks-in existing access for Swiss wholesale insurers to the UK market. 

For investment services, Swiss firms providing certain investment services into the UK - for example, the reception and transmission of orders of transferable securities, money market instruments, and derivatives - will be able to rely on Swiss authorisation, prudential regulation, and supervision. The level of access granted to Swiss firms is similar to that under MiFIR Article 47 equivalence, but it also enables those firms to continue using the Overseas Persons Exclusion, where appropriate.

Swiss firms will be required to issue pre-contractual disclosures to clients, and notify the FCA of the services they wish to supply. They are also required to report annually to the FCA on their ongoing activity.

UK financial advisers to High Net Worth (HNW) clients in Switzerland will no longer need to register with relevant Swiss bodies. Instead, FCA notification and client disclosure requirements will apply. 

On asset management, the MRA introduces commitments that lock in the UK’s ability to market funds to Swiss HNW clients, and includes a bilateral commitment to maintain openness on portfolio management delegation. 

For the corporate banking sector, the Agreement locks in access for UK banks to serve Swiss corporate clients, and vice versa. The Bank of England and FINMA also commit to deepening bilateral cooperation on bank resolution.

Regarding FMI, the MRA secures a  deference agreement between UK and Swiss rules on CCP authorisation and prudential regulation. The two also agree to defer to each other’s risk mitigation rules on OTC derivative contracts, allowing counterparties to these contracts to choose whether to rely on UK or Swiss rules. The Agreement also introduces commitments to lock in existing market access for UK and Swiss trading venues. 

Additionally, the Agreement establishes an enhanced regulatory and supervisory cooperation architecture for UK and Swiss authorities. This includes establishing clear and transparent processes in the event recognition is withdrawn, and tools and safeguards to manage residual regulatory risk in domestic markets.

HMT states that the MRA is designed to be a ‘living document’ which will enable both jurisdictions to build on existing sectoral commitments going forwards. The UK and Switzerland plan to take forward discussions to progress mutual recognition of respective mandatory climate-related disclosures.

What do firms need to do?

The MRA is a new and novel agreement for financial services that will potentially bring benefits for firms, investors and sophisticated clients in the UK and Switzerland across the areas covered in the Agreement.

Firms should take the opportunity to understand how the commitments included in the MRA can be utilised to bring about a reduction in costs and compliance burden, as well as open new revenue and growth opportunities for their business. Firms should also consider how the commitments balance with other potentially conflicting priorities as part of their cost-benefit analysis. 

Firms aiming to benefit from the enhanced market access delivered by the MRA, in particular UK insurance firms and Swiss investment firms, should understand the relevant eligibility, notification and reporting conditions that apply and take steps to prepare ahead of the Agreement ratification.

Next steps

The MRA is now subject to parliamentary ratification in the UK and Switzerland. This process will take place over the course of 2024.