FINMA is clarifying some of its existing rules and expectations around information required to be given to potential investors.

Financial services providers are required to document the type of service that has been agreed on, and is being provided, in an “appropriate manner” – usually by way of a written contract or document.

In order to ensure the appropriateness and the suitability of the investment recommendations being made the financial service provider is required to create a client risk profile and establish the client’s relevant knowledge and experience. Specifically in connection with asset management and portfolio-related investment advice, this should take into account the complexity and risk profile of the investments or investment strategies.

Clients must be provided with information on the risks associated with the financial services being provided, and this should specifically include any concentration risk present.

Specifically in connection with contracts for difference clients must be informed about:

• the potential risk of unlimited losses as well as any additional payment obligations;
• any leverage, margin, counterparty and market risk; and
• statistical detail on private investors using contracts for difference in the last 12 months and who have:
  • lost money;
  • suffered a total loss of margin when closing their positions;
  • had to cover a negative balance after closing their positions.

Where securities lending involves client assets the regulator has clarified that key information on ownership and potential risks (including consequences of counterparty bankruptcy) must be made available to clients along with an indication that it is possible to exclude certain financial instruments from securities lending entirely.

Firms are also required to manage conflicts of interest including taking appropriate measures to avoid this, including implementing objective criteria to be used in financial instrument selection.

Finally, information on potential compensation must be available and easily accessible to clients.

The revised rules will enter into force on January 1, 2025.