The end of the road for bearer shares in Switzerland?

Posted on January 23, 2018 by Croce

Last Wednesday, the Swiss Federal Council opened a consultation (lasting until 24 April 2018) into discontinuing bearer shares in Swiss companies limited by shares not quoted on the stock exchange. The draft bill will be debated by parliament in autumn 2018. If it becomes law, existing bearer shares will be converted automatically into registered shares. Companies will be required to adapt their articles of association within two years of the new law being passed.

Companies will also be required to keep a register of beneficial owners of shares (family name, given name and address). Failure on the part of a shareholder to report information and failure on the part of a company to keep a register will become criminal offences (new). A shareholder, creditor or registrar may also bring a case before a civil judge to have this failing in company procedures rectified.

Scrapping bearer shares would represent a minor revolution for Switzerland. It would bring our country into line with other financial centres such as the United Kingdom, Singapore, Hong Kong and the USA. However, it is important to understand that this change is not a Swiss initiative. It is a result of pressure from the Global Forum on Transparency and Exchange of Information for Tax Purposes, which seems to assume that all human beings have criminal intentions. Switzerland’s aim is to adapt its law to ensure the ticks go in the right boxes (and sanctions are avoided) during its next Peer Review, due to begin in the second half of 2018.

From a legal point of view, it is true that new provisions introduced by the FATF law on 1 July 2015 have brought bearer shares and registered shares very close together, to the point that the two securities have become almost identical in terms of anonymity and transfers. Consequently, the formal abolition of bearer shares as outlined in the project would not fundamentally alter shareholders’ rights and obligations.

Under the current law, anyone who buys bearer shares is required to inform the company within one month. They are required to provide their given name and family name (for an individual) or business name (for a legal entity) together with their address.

If, following the acquisition, one person or entity holds 25% of the share capital or voting rights, the identity of the beneficial owner must also be disclosed.

The buyer must produce an official piece of photographic ID (passport, identity card or driving licence) or a copy of a Commercial Register entry. Proof of share purchase is also required.

If anything is missing, the shareholder’s membership rights (e.g. voting rights) and their economic rights (payment of dividends) in relation to the shares are suspended until all the obligations have been fulfilled.

Under the new draft legislation, holders of bearer shares who have not informed the company of their identity as outlined above are required to rectify the situation within 18 months of the law entering into force so that their shares can be converted. If they have not communicated their details within this period of time, their rights to the bearer shares will cease definitively and the shares will be cancelled. The board of directors will then issue the company’s own shares to replace them. These will be paid up using contributions gained by the company as a result of the cancellation. The company is then free to use the replacement shares as it sees fit, by selling them, distributing them to shareholders, cancelling them and reducing the share capital, keeping them, etc.

In addition, limited companies (and also sole proprietorships, partnerships, branches and other legal entities) will be required to hold a bank account in Switzerland if they made sales of CHF 100,000 or more during the previous financial year. The idea of this is to bring companies within the scope of Swiss legislation against money laundering, because bankers are required to check the identity of contracting partners and beneficial owners.

Furthermore, as well as the authorities, financial intermediaries will be permitted to consult company registers (register of shareholders and beneficial owners) for the purposes of fulfilling their legal obligations. The idea of creating a central electronic register of owners of registered shares has been rejected at this time.

Finally, holders of registered powers of attorney representing Swiss branches of companies based abroad will be required to have access to information regarding shareholders of the main company abroad and the beneficial owners of the shares, and to be able to communicate this information to financial intermediaries and the authorities. This obligation is a simple legal prescription, with no sanctions attached. However, financial intermediaries will no doubt refuse to enter into a business relationship with a company that is unable to provide the information.

As we have outlined above, the consequences of this modification on Swiss company law will be minor. The impact is above all psychological, as the right to anonymity has existed since 1936. However, it is regrettable to see supranational bodies once again dictating changes in Swiss law. In addition, there is no guarantee that all these measures will work. A determined criminal will happily create a false document and use a nominee company to hold shares. The threat of a fine will prove little deterrent.

In Switzerland, a company limited by shares is known as a société “anonyme”. Perhaps the time has come for a new name…

New measures to fight mass immigration and unemployment in Switzerland

Posted on January 11, 2018 by Croce

Introduction

In late 2016, the Swiss Federal Assembly adopted the revision to the Federal Act on Foreign Nationals (LEtr) in order to implement the initiative against mass immigration accepted by the people and the cantons on 9 February 2014 (article 121a of the Constitution (Cst.) and more generally to fight unemployment in our country.

A major feature of the change in the law is a requirement for employers to give notice of vacant positions when the unemployment rate exceeds a certain threshold for the profession in question (based on the 5-figure code from the Swiss Standard Classification of Occupations 2000).

This measure aims to ensure that workers available on the Swiss labour market take up the vacant positions offered, and to fight mass immigration, in particular from the European Union.

Concretely, employers will be required to inform their region’s employment services of vacant positions if the national employment rate for the relevant professional category stands at 5% or more. A transitional threshold of 8% will apply until 31 December 2019. This will give employers and the implementing authorities time to adapt their processes and resources to the new rules.

The Federal Council adopted the changes to the implementing ordinances on 8 December 2017. The new provisions will come into force on 1 July 2018.

The unemployment statistics

Unemployment rates are calculated based on statistics from SECO and measure the number of unemployed workers registered with the regional employment offices.

In 2016, average unemployment stood at 3.6% across all professions and all cantons, according to labour market statistics.

Under the 8% threshold, looking at the 2016 statistics the requirement to communicate vacant positions applies mainly to the construction and hotel sectors. Once the 5% threshold is in place however, 88 profession types out of the 383 listed will be affected. These will include retail employees, drivers, domestic staff and the catering and cleaning sectors.

According to the Federal Council, at the 5% threshold the requirement will apply to around 218,000 vacant positions out of the approximately 700,000 filled each year. With the bar set at 8%, the number will be less than 75,000.

Employers’ obligations and the procedure

The information employers are required to communicate includes:

– profession sought;

– activity and specific requirements;

– location;

– employment basis (part-time, etc.);

– start date;

– contract type: temporary or permanent.

Vacant posts can be communicated via the employment services internet portal, by telephone or in person.

For five working days, information about vacant positions will be accessible exclusively to job seekers registered with the public employment services. Employers will not be permitted to advertise elsewhere (for example, in a newspaper) before the end of this period.

The five days are counted from the day after the employment services confirm receipt of the information. Saturdays and Sundays and national, cantonal and regional public holidays are excluded.

Within three days of receiving complete details of a vacant post, the employment services will send the employer relevant jobseekers’ details, or inform them that no one fitting the profile is available.

Employers themselves will then decide which candidates they consider suitable. There will be no direction on this, and no justification will be required. Similarly, employers will be free to organise their recruitment process as they see fit.

However, they will be required to invite suitable candidates to an interview or skills assessment. If they do not do so, they will have to tell the employment services why.

Lawmakers refused to compel employers to justify a decision not to take a suitable candidate’s application further. Similarly, employers will not be required to justify why a specific candidate was not chosen.

However, they will need to provide the following information: 1) a list of the people they consider appropriate, 2) who they have called for interview or a skills assessment, 3) whether they have employed one of the candidates proposed, or 4) whether the position remains vacant.

The notification procedure will not apply to contracts lasting 14 calendar days or less. Neither will it apply to employment contracts offered to former apprentices or family members or to positions filled by staff (including interns) already employed within the employer’s own group.

The cantons will have the facility to ask the Federal Council to introduce a requirement to notify vacant positions for a specific profession for a maximum period of one year, if the employment rate for the canton in question is 8% or more (or 5% from 1 January 2020). This request can be submitted jointly by several cantons if they all meet the requirements.

Penalties

Employers that intentionally breach the requirement to communicate vacant positions or to offer an interview or skills assessment will be liable for a maximum fine of CHF 40,000. If they unintentionally fail to comply, the maximum fine will be CHF 20,000.

Conclusion

This issue is important, both in the minds of the population and for the Swiss economy, and the parliament and Federal Council have taken the steps required to offer more opportunities to Swiss workers and strengthen the implementation of legislation regarding foreign nationals. The idea of requiring employers to notify vacant positions in order to reduce additional inflows of foreign labour is a good one, so long as compliance with international agreements such as the AFMP is maintained. It is however impossible at this stage to predict whether the desired results will be achieved, as this is the first time such a measure has been taken in Switzerland.

The transitory period is welcome, as the new requirement will oblige firms, and smaller businesses in particular, to reorganise, train specialised staff and perhaps even create legal departments. It will undoubtedly increase administrative costs for companies.

Lastly, it is important to note that the Federal Council has the power to change the threshold at any time, should the state of the labour market render this necessary.

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The contents of this newsletter are not to be construed as a legal or tax opinion or advice. Should you require more information, please either email us or get in touch with your usual contact at CROCE & Associés SA.

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New transaction reports for securities trading from 2018

Posted on December 5, 2017 by Croce

From January 2018, the Swiss Financial Market Infrastructure Act (RS 958.1, FMIA) which came into force in early 2016, will require participants admitted to a trading venue (Swiss securities dealers, foreign participants authorised by the FINMA, etc.) to report all the information required for the transparent trading of securities.

Similar requirements are already in place or will be added (depending on the types of counterparty) for OTC and ET derivatives. These will not be covered here.

Trading platforms (which in practice are the SIX Swiss Exchange, and the BX Berne eXchange) and multilateral trading facilities will be required to supervise price formation and the transactions conducted within their venues more closely to detect insider trading, price and market manipulation and any other violations of statutory or regulatory provisions. If a violation is suspected, the FINMA and possibly the relevant prosecuting authority will be informed.

Non-admitted securities traders will also be subject to the same transparent trading and reporting rules (article 15 paragraph 2 of the Federal Law on Stock Exchanges (LBVM; RS 954.1)).

Reporting requirements apply to all of a participant’s securities transactions (sale, purchase, etc.), whether proprietary or carried out on behalf of a client.

The following must be reported:

- the title and number of securities bought or sold;
- the volume and the date and time at which the transaction was concluded;
- the price;
- information required to establish the identity of the beneficial owner (new!).

The notion of beneficial owner will be the same as that used for provisions against money laundering.

However, operating legal entities, foundations and collective investments schemes will be identified by an internationally standardised Legal Entity Identifier (LEI). If no LEI is available, the BIC (business identifier code) or Commercial Register number, preceded by the country code, may be used. In the case of a trust, the trustee should be declared.

For natural persons, the nationality (country code), date of birth and a confidential identification number created by the participant will be used. This means that the person’s family name and given name will not be reported.

However, the system will be different for transactions on the European market (including for Swiss residents): under MiFID II/MiFIR, the first five letters of the person’s given name and family name must be reported (CONCAT code). Nevertheless, an identifier such as a passport number, personal number or social security number can be used and has been adopted by numerous EU countries that do not use CONCAT codes.