Switzerland’s legal market faces similar reversals to the world at large: regulatory shifts, geopolitical flux and technological advancements are keeping partners on their toes. ‘The legal market is always developing in parallel to the general economic situation,’ comments Bär & Karrer’s Susanne Schreiber, who co-heads the firm’s tax team. In Q1 2023, Switzerland’s annual inflation rate rose to a high of 3.4% in February, 0.6% up on December 2022. In Q2, things started to look up with rates decreasing to 2.6% in April. Since then, rates have been on a steady decline, remaining at 1.7% for both September and October 2023.

Interest rates, too, have stabilised. Since July 2023, the Swiss National Bank has kept its policy rate at 1.8%, providing a sense of stability to the Swiss economy. Practice areas such as litigation and tax were extremely busy in 2023 while areas like M&A and capital markets saw a decrease in deal volume compared to previous years. Banking and finance and real estate and construction remained stable throughout the year.

The M&A market in Switzerland has experienced a noticeable shift, deviating from the robust trends in previous years. At the beginning of 2023, there was a discernible slowdown in M&A activity with deal volumes on a steep decline. Tino Gaberthüel from Lenz & Staehelin, who heads the corporate and M&A team and co-heads the capital markets team, highlights that: ‘The rate of transactions that do not get to a signing or don’t progress is above average, one reason being differing valuation expectations. Overall processes take a lot longer.’ Schreiber reports that the firm ‘saw a slowdown in certain M&A activities like private equity funds, which are less active both on the sell and the buy side’.

Despite the slow start to the year, Gaberthüel notes that ‘market activity has picked up significantly since Q2’. Still, he says that there has been a dearth of mega-deals: ‘The big-ticket deals are not yet on the map, meaning parties may assess potential opportunities, but they have not happened yet.’ For Patrik Peyer, managing partner of NKF, this increase in mid-market deals ‘underscores the resilience and adaptability of businesses in navigating the economic landscape’. Lawyers predict that mid-market deals will continue to dominate in 2024, and firms overall remain cautiously optimistic that they will have a busy year in corporate M&A.

There were some positive signs towards the end of the year. Gaberthüel highlights Partners Group’s acquisition of infrastructure-sector inspections provider ROSEN Group, with reported value as high as $4bn, as one transaction that stands out. The deal was announced in November and is expected to close in the first half of 2024, pending regulatory approval.

On 19 March 2023, the Swiss market experienced a seismic shift with the announcement that UBS was acquiring Credit Suisse for CHF3bn (€3.2bn) in an all-stock deal brokered by the Swiss government and FINMA. This unexpected development sent shockwaves through the financial sector, reshaping the Swiss banking landscape.

Law firms have also stood to benefit from the UBS acquisition of Credit Suisse. The complexity of this deal, as well as its implications, have required the involvement of various firms to keep up with the increasing demand for legal services generated. Firms involved included Walder Wyss acting as lead counsel to Credit Suisse and Bär & Karrer advising UBS, with Schreiber noting that the firm was ‘also selected to work on the integration, which keeps us busy’. Homburger also advised on various aspects of the deal. The potential employment law issues could present opportunities for law firms to provide counsel on workforce restructuring, layoffs, and related litigation.

While the transactional market is slower than in previous years, M&A-related litigation has experienced a discernible increase. ‘After Covid, there was a general dip in arbitration and litigation matters, as companies were being more cautious. This has picked up fully for quite some time now,’ says Caroline Clemetson, a partner in Schellenberg Wittmer’s banking and finance department in Geneva and Zürich and a member of the firm’s management committee. Now, activity in disputes ‘has picked up fully’. Gaberthüel explains this trend: ‘When valuations go down or there is uncertainty, there is willingness for potential disputes post closing.’

In other practice areas, commodities work has remained a focus for Geneva-based firms, despite a sanctions-induced slowdown in work for Russian clients. Advisory services have also seen increased activity, driven by ongoing developments in regulatory frameworks.

‘Even real estate survived,’ says Schreiber. ‘In neighbouring countries, they say real estate is dead. In Switzerland, there is still a lot of activity.’ Despite difficulties in real estate and construction across Europe, the Swiss market maintains transactional activity, albeit at a lower level than in previous years. Institutional investors shedding portfolios and challenges in meeting construction demands due to employment-related issues from the Covid pandemic contribute to this trend. Higher interest rates in Switzerland correlate with decreased real estate prices, creating a mismatch between seller and buyer expectations. However, many in the market expect the gulf in expectations to narrow, and forecasts suggest a resurgence in activity, with smaller but more frequent transactions.

In contrast, equity capital markets work is, in Gaberthüel’s words, ‘an area that’s been very quiet’. He mentions that ‘there haven’t been any IPOs this year in Switzerland’, reflecting a cautious approach from market participants. The subdued nature of capital markets has prompted legal professionals to adapt to a less bustling environment, emphasising the need for strategic diversification in response to the evolving dynamics of the financial market.

Flexible working is still a challenge facing all firms and balancing this with the correct culture is key for Swiss firms to attract and retain talent. Bär & Karrer has opened smaller offices in Basel and St Moritz, with the aim of, in Schreiber’s words, helping people ‘feel comfortable in the office and give them opportunities to develop in Switzerland’. Pestalozzi has also followed this approach and opened an office at the lake in Zürich.

The most notable development in this space occurred early in 2023, when Niederer Kraft Frey (NKF) opened a new office in Geneva consisting of 27 lawyers, which Schreiber highlights as ‘a very important move’. The office was the result of the firm’s ‘joining forces’ with Tavernier Tschanz and a team of lawyers from Python, and grants it access to the French-speaking market. ‘The reception from both existing and new clients has been encouraging,’ says Peyer. ‘The Geneva office is well-positioned for growth.’

As interest rates stabilise, many in the market see prospects for higher activity in 2024. The full impact of Credit Suisse’s collapse has yet to be fully felt, but few doubt that it will generate work across a range of sectors. Regulatory reform, too, poses both challenges and opportunities. Switzerland revised its corporate law in 2024, shifting to what Clemetson calls ‘a more modern way of doing corporate things such as dividends that can be done throughout the year’. The change will impact listed companies, notes Gaberthüel, as they ‘had to adapt their articles of incorporation and internal regulations’. Clemetson also points to new fund regulation the Limited Qualified Investor Fund (L-QIF), which ‘will probably come into force on 1 March, subject to the Federal Council deciding at the end of January’, and upcoming reform of the Financial Market Infrastructure Act, due ‘this year’. As businesses adapt to these evolving regulations, the legal sector is poised to play a pivotal role in guiding clients through the intricacies of the updated legal landscape.

‘Geopolitical tensions, notably exemplified by the Ukraine conflict, have injected an element of uncertainty,’ notes Peyer. ‘Legal professionals must remain vigilant about international developments that may impact their clients’ interests.’

‘The rate of transactions that do not get to a signing or don’t progress is above average, one reason being differing valuation expectations. Overall processes take a lot longer.’ Tino Gaberthüel, Lenz & Staehelin

Lawyers also point to technological changes as a key concern for 2024. ‘Cyber risk has become a persistent threat, necessitating legal practitioners to implement robust data protection measures and rapid response capabilities,’ comments Peyer. ‘As generative AI becomes more prevalent, there will be a need to assess its implications for the enforcement of privacy, securities, and antitrust laws.’ This will impact firms as well as clients: ‘Questions may arise about the reliability and accountability of AI-generated legal documents, and legal professionals may need to adapt to new challenges and opportunities presented by these technologies.’

Still, as the Swiss legal world gears up for 2024, practitioners look forward with anticipation, ready to navigate an environment shaped by regulatory shifts, geopolitical uncertainties, and technological change. In Peyer’s words: ‘As the Swiss legal market confronts these multifaceted challenges, the resilience and adaptability of legal practitioners become crucial in shaping a forward-looking legal landscape.’ LB

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In the words of Patrik Peyer, managing partner of Niederer Kraft Frey (NKF): ‘As the Swiss legal market confronts these multifaceted challenges, the resilience and adaptability of legal practitioners become crucial in shaping a forward-looking legal landscape.’

‘The legal market is always developing in parallel to the general economic situation,’ says Bär & Karrer’s Susanne Schreiber, who co-heads the firm’s tax team. In Q1, Switzerland’s annual inflation rate rose to a high of 3.4% in February, 0.6% up on December 2022. In Q2, things started to look up with rates decreasing to 2.6% in April. Since then, rates have been on a steady decline, remaining at 1.7% for both September and October 2023. Interest rates, too have stabilised. Since July 2023, the Swiss National Bank has kept its policy rate at 1.8%, providing a sense of stability to the Swiss economy. Following these economic trends, there are several trends practitioners have seen regarding the work that’s been done. For example, practice areas such as litigation and tax were extremely busy this year while areas like M&A and capital markets saw a decrease in deal volume compared to previous years. Banking and finance and real estate and construction remained stable throughout 2023.

The M&A market in Switzerland has experienced a noticeable shift, deviating from the robust trends in previous years. At the beginning of 2023, there was a discernible slowdown in M&A activity with deal volumes on a steep decline. Tino Gaberthüel from Lenz & Staehelin, who heads the corporate and M&A team and co-heads the capital markets team, highlights that: ‘The rate of transactions that do not get to a signing or don’t progress is above average, one reason being differing valuation expectations. Overall processes take a lot longer.’ Schreiber reports that the firm ‘saw a slowdown on certain M&A activities like private equity funds, which are less active both on the sell and the buy side’.

Despite the slow start to the year, Gaberthüel notes that ‘market activity has picked up significantly since Q2’. Still, he notes that there has been a dearth of mega-deals: ‘The large ticket deals are not yet on the map, meaning parties may assess potential opportunities, but they have not happened yet.’ For Peyer this increase in mid-market deals ‘underscores the resilience and adaptability of businesses in navigating the economic landscape’. Lawyers predict that mid-market deals will continue to dominate in 2024, and firms on the whole remain cautiously optimistic that they will have a busy year in corporate M&A.

There were some positive signs towards the end of the year. Gaberthüel highlights Partners Group’s acquisition of infrastructure-sector inspections provider ROSEN Group, with reported value as high as $4bn, as one transaction that stands out. The deal was announced in November and is expected to close in the first half of 2024, pending regulatory approval.

‘In neighbouring countries, they say real estate is dead. In Switzerland, there is still a lot of activity.’
Susanne Schreiber, Bär & Karrer

While the transactional market is slower than in previous years, M&A-related litigation has experienced a discernible increase. ‘After Covid, there was a general dip in arbitration and litigation matters, as companies were being more cautious, this has picked up fully since quite some time now,’ says Caroline Clemetson, a partner in Schellenberg Wittmer’s banking and finance department in Geneva and Zürich and a member of the firm’s management committee. Now, activity in disputes ‘has picked up fully’. Gaberthüel offers an explanation of this trend: ‘When valuations go down or there is uncertainty, there is willingness for potential disputes post-closing.’

In other practice areas, commodities work has remained a focus for Geneva-based firms, despite a sanctions-induced slowdown in work for Russian clients. Advisory services have also seen increased activity, driven by ongoing developments in regulatory frameworks.

Tax work was particularly busy in 2023, defying initial expectations of a slowdown due to the pandemic. The EU Tax Action Plan, comprised of 25 initiatives aimed at fostering fairer and simpler adaptive taxation, triggered a rise in tax audits and administrations involving intricate procedural work. Although Switzerland is not an EU member, it is entwined with EU developments, witnessing a surge in tax litigation and controversy. In addition, transfer-pricing complexities have escalated, promoting tax authorities to form specialised teams, which in turn has had an impact on unprepared businesses. Traditional tax work closely tied to M&A transactions faces uncertainty amid rising interest rates, and economic indicators hint at an impending recession, leading companies to defer projects and focus more on internal reorganisations. Another notable trend is an increase in successful taxpayer outcomes in litigation, challenging the conventional dominance of tax authorities in such cases. Firms anticipate that these trends will continue through to 2024.

‘Even real estate survived,’ says Schreiber. ‘In neighbouring countries, they say real estate is dead. In Switzerland, there is still a lot of activity.’ Despite difficulties in real estate and construction across Europe, the Swiss market maintains transactional activity, albeit at a lower level than in previous years. Institutional investors shedding portfolios and challenges in meeting construction demands due to employment-related issues from the Covid pandemic contribute to this trend. Higher interest rates in Switzerland correlate with decreased real estate prices, creating a mismatch between seller and buyer expectations. However, many in the market expect the gulf in expectations to narrow, and forecasts suggest a resurgence in activity, with smaller but more frequent transactions. Price decreases have been lower in residential housing, buoyed by immigration. The Der Schweizerische Ingenieur- und Architektenverein (SIA), supported by public procurement authorities, has been a hot topic this year. Public law considerations, too, have come to the fore, with increasing debates over how to align construction with action on issues such as noise pollution, climate change, and city planning. Many in the market expect real estate and construction work to maintain stability into 2024, keeping law firms in Switzerland actively engaged.

In contrast, equity capital markets work is, in Gaberthüel’s words, ‘an area that’s been very quiet’. Gaberthüel mentions that ‘there haven’t been any IPOs this year in Switzerland’, reflecting a cautious approach from market participants. The subdued nature of capital markets has prompted legal professionals to adapt to a less bustling environment, emphasising the need for strategic diversification in response to the evolving dynamics of the financial market.

A shotgun marriage – UBS acquires Credit Suisse

On 19 March 2023, the Swiss market experienced a seismic shift with the announcement that UBS was acquiring Credit Suisse for CHF 3bn ($3.2bn) in an all-stock deal brokered by the Swiss government and FINMA. This unexpected development sent shockwaves through the financial sector, reshaping the Swiss banking landscape. This takeover marked a significant consolidation of two major players, raising concerns in many areas of law. Previously, in the corporate banking and corporate lending space, Swiss companies had two potential relationships. Now, they have one: UBS. Companies must think about whether to form a relationship with another bank – and, if so, which. In this way, the merger could lead to a re-evaluation of existing banking relationships, and has introduced a new level of uncertainty regarding the continuity of financial services. The merged entity’s approach to lending and banking practices are likely to become a focal point for corporate clients as they continue to navigate the ever-shifting terrain of financial services.

‘Financial service providers are also now obligated to include ESG topics in the training and professional development of their client advisers.’
Nicolas Piérard, Borel & Barbey

The merger will likely impact the strategies used in public takeovers, with the shift to one dominant market player in the banking world shifting the negotiating dynamics between acquiring and target companies, with fewer banks capable of exchanging shares against consideration. The integration of the two financial giants’ operations has also triggered concerns about job security, potentially leading to an increase in employment work. It is not all negative, however. Gaberthüel highlights that this merger could bring new opportunities for ex-employees. ‘Looking at investment banking,’ he says, ‘there is room for other players, such as international banks or smaller boutique financial advisers, to take on people who used to work at Credit Suisse.’

Law firms have also stood to benefit from the UBS acquisition of Credit Suisse. The complexity of this deal, as well as its implications, have required the involvement of various firms to keep up with the increasing demand for legal services generated. Firms involved included Walder Wyss acting as lead counsel to Credit Suisse and Bär & Karrer advising UBS, with Schreiber noting that the firm was ‘also selected to work on the integration, which keeps us busy’. Homburger also advised on various aspects of the deal. Other firms, such as Buis Bürgi, Quinn Emanuel Urquhart & Sullivan (Schweiz), and LALIVE, have been supporting clients in challenging the write-down of the AT1 bonds issued by Credit Suisse. The potential employment law issues could present opportunities for law firms to provide counsel on workforce restructuring, layoffs, and related litigation.

Despite the tumult of the Credit Suisse collapse, Swiss lawyers argue that the overall banking and finance market has maintained stability, reflecting the country’s reputation for financial security. This may change, however. ‘It’s still difficult to assess what the implications will be,’ says Gaberthüel. ‘It’s still too early.’

Regulation and reform: revving the engine for 2024

While the UBS-Credit Suisse merger takes centre stage, other notable legislative developments and initiatives are occurring on the sidelines. ‘There are various impending legal and regulatory changes in Switzerland that will impact the work of commercial law firms,’ says Peyer.

The New Federal Act on Data Protection (nFADP) entered into force on 1 September 2023, taking a risk-based approach to the methodology of data protection by companies. Under this new legislation, the processing of personal data of natural persons is included, and not that of legal entities, with the scope of sensitive data extended to include genetic and biometric data. The jurisdictional scope of the act now encompasses data processors and controllers external to Switzerland who receive data from within the country.

Furthermore, the principles of privacy by design and privacy by default have also been introduced, which require companies to reduce the risk of privacy breaches during data processing, as well as to ensure that personal data is only processed for its relevant purpose. Additionally, all data controllers and data processors need to keep records of processing activities (ROPA), bringing Swiss law closer into line with article 30 of the GDPR, which does not apply to Swiss companies outside of operations in the EEA. This record includes the purposes of data processing and recipients of data alongside an array of other requirements for the purpose of transparency and accountability. ‘It is implementing the same GDPR principles in Switzerland,’ says Clemetson. This alignment also enables the free flow of data between Switzerland and the EU to be maintained, ensuring that Swiss companies remain competitive.

Precisely what kind of work the nFADP will generate in 2024 remains to be seen. For Schreiber, it has ‘brought come clarity’ after ‘a very long preparation period’. While international clients were already familiar with European regulations, Schreiber notes that the act has already led to work in ‘advice and continued review’. ‘The main point is that it’s real now.’

Transparency is a key theme here – and the nFADP is not the only development that enhances transparency in the Swiss landscape. The Swiss government has recently initiated consultations regarding the reform of its anti-money laundering framework. This reform proposes the introduction of beneficial ownership reporting requirements for companies and the extension of due diligence rules to consultancy companies. Clemetson states that ‘they want to introduce transparency of UBOs for companies in Switzerland, this is a big project, but this is not yet in force’.

Solidifying sustainable finance in Switzerland

‘ESG is a topic in Switzerland that is everywhere,’ says Schreiber. ‘The more pressure from the regulatory side, the more the companies are forced to implement ESG measures, whether they want it or not.’ Integrating ESG aspects into investments through vehicles such as green bonds and administering climate-friendly policies are of increasing significance, as well as the management of risks and opportunities around sustainability issues. In parallel with this, the emergence of ESG rating agencies and emphasis on corporate accountability requires businesses to adopt an ESG-aware mindset.

Nicolas Piérard, partner at Borel & Barbey, describes the current ESG landscape in the financial sector: ‘The Swiss Bankers Association has issued new Guidelines, the legal basis of which is the Financial Services Act. Clients will be asked about their ESG preferences, and then offered appropriate products and services. The Guidelines also set out obligations for the provision of information, documentation and accountability when establishing the client’s ESG preferences. The scope is to make sustainability themes – in other words ESG factors and energy efficiency – an integral part of the advisory sessions with private clients. According to the latest report published by Swiss Sustainable Finance, total sustainable investment volumes climbed to almost CHF 2,000 billion in Switzerland in 2022.

Piérard also highlights that ‘Financial service providers are also now obligated to include ESG topics in the training and professional development of their client advisers. For Swiss large, listed companies reporting on environmental issues and specifically CO2 targets (but also social issues, staff issues, respect for human rights, and the fight against corruption) is already expected and the subject of a first mandatory non-financial report in 2024.’

And more regulation may well be on the horizon. ‘There’s a big discussion going on with the Federal Department of Finance as to whether there will be regulation or not,’ comments Clemetson. ‘Federal Council communicated recently that they are giving the industry until February to see whether they need to adapt the self-regulation; if not, they will regulate with an ordinance in Switzerland.’

Sanctions are here to stay

The impact of the ongoing Russia-Ukraine war was also a major theme. ‘Switzerland cannot issue its own sanctions regime as it is a neutral country,’ notes Clemetson. Instead, Swiss regulation has implemented EU sanctions. For Clemetson, this has been effective: ‘As sanctions are being respected and implemented in the various companies, it has had an impact the same way it does in the UK, or in the EU.’

Piérard observes that ‘national and international sanctions are relevant and challenging for a large number of Swiss companies, especially for the commodities trading companies and for the financial sector. The reputational risk is important for banks considering the increased interest of the media for sanctions-related matters. The State Secretariat for Economic Affairs (SECO) implements the Embargo Act and the separate ordinances based on this act. Due to the substantial increase of sanctions against Russia between February and August 2022, the challenge was to help clients, mainly in the financial services industry, to take immediate steps to implement necessary processes. Information and guidance made available by SECO have proved to be useful in practice to provide updated advice in a quite complex and changing environment.’

While the outcome of the Russia-Ukraine conflict remains to be determined, these sanctions will remain in place for the foreseeable future. And what consequences may emerge from the Israel-Palestine conflict remains to be seen. This geopolitical turmoil adds a layer of complexity and challenge to the current markets and businesses will need to navigate carefully moving forwards.

Office politics: navigating employment trends and office developments

In January 2019, the new Swiss Foreign Nationals and Integration Act (FNIA) entered into force. The underlying rationale of this new act was to facilitate access to the Swiss labour market. It did so by implementing several measures to curb the administrative hurdles faced by workers from third countries seeking work in Switzerland. This was in response to the shortage of qualified personnel in the Swiss market. The cantons are afforded a wide margin of discretion with regards to decision making within the labour market. Despite unemployment falling from 4.3% to 4.2% in Q3 2023, the lack of specialised workers remains a problem. Following this, firms have seen an increase in immigration-related mandates. These trends in the Swiss labour market are affecting not just the work firms are doing but the firms themselves, with many reporting that they have been struggling to find qualified lawyers to build up their teams.

This is not the only factor influencing firms’ hiring processes. Gaberthüel mentions that: ‘Over the past 10 to 15 years, what has changed considerably is that first contact with future associates starts at university where they come in as summer interns at the end of the bachelor studies before doing their master’s degree.’ This differs to the traditional hiring processes, whereby firms would find associates, who have already completed both degrees, through first-year position applications. Gaberthüel points to the risk that this process may make it more difficult for smaller firms to find lawyers, as ‘there’s less capacity to have interns during university and the larger firms have already made this first contact.’

‘Salaries are just one aspect of being happy and fulfilled in your job.’
Tino Gaberthüel, Lenz & Staehelin

‘If you compare this to London, probably also Frankfurt or New York, later hiring happens very seldomly,’ says Gaberthüel. ‘What you are more likely to see is senior associates moving from a large firm to a smaller firm or setting up their own shop.’ Switzerland has seen an influx of boutiques set up by former big firm employees. Notable examples include tech law focused Arioli Law, corporate firm Advestra, and employment and pension firm Blesi & Papa.

Rather than lateral hiring, Gaberthüel says that Lenz & Staehelin aims to have a team of ‘home-grown’ lawyers ‘who were trainees and have returned to the firm’. And to achieve this, large firms must change their offerings. ‘Salaries are just one aspect of being happy and fulfilled in your job,’ argues Gaberthüel. ‘Things such as interesting, challenging work, flexibility of where you work and when you do your work as well as business developments and personal training are important things to offer.’ This approach rests on a quid pro quo: firms require flexibility from lawyers in terms of working longer hours to complete their work, and offer those lawyers the same flexibility in return.

At the same time, firms must balance flexibility against collegiality. Gaberthüel notes that: ‘Advocates of having a home office pre-Covid are now more likely to be physically in the office because they’ve realised that social interaction and getting to absorb the corporate culture is very important, especially for the younger colleagues.’ Bär & Karrer has opened smaller offices in Basel and St Moritz, with the aim of, in Schreiber’s words, helping people ‘feel comfortable in the office and give them opportunities to develop in Switzerland’. Pestalozzi has also followed this approach and opened an office at the lake in Zürich.

The most notable development in this space occurred early in 2023, when NKF opened a new office in Geneva consisting of 27 lawyers, which Schreiber highlights as ‘a very important move’. The office was the result of the firm’s ‘joining forces’ with Tavernier Tschanz and a team of lawyers from Python, and grants it access to the French-speaking market. ‘The reception from both existing and new clients has been encouraging,’ says Peyer. ‘The Geneva office is well-positioned for growth.’

Looking into the crystal ball: what to expect for 2024

As interest rates stabilise, many in the market see prospects for higher activity in 2024. The full impact of Credit Suisse’s collapse has yet to be fully felt, but few doubt that it will generate work across a range of sectors. Regulatory reform, too, poses both challenges and opportunities. Switzerland revised its corporate law in 2024, shifting to what Clemetson calls ‘a more modern way of doing corporate things such as dividends that can be done throughout the year’. The change will impact listed companies, notes Gaberthüel, as they ‘had to adapt their articles of incorporation and internal regulations’. Clemetson also points to new fund regulation the Limited Qualified Investor Fund (L-QIF), which ‘will probably come into force on 1 March, subject to the Federal Council deciding at the end of January’, and upcoming reform of the Financial Market Infrastructure Act, due ‘next year’. As businesses adapt to these evolving regulations, the legal sector is poised to play a pivotal role in guiding clients through the intricacies of the updated legal landscape.

‘Geopolitical tensions, notably exemplified by the Ukraine conflict, have injected an element of uncertainty,’ notes Peyer. ‘Legal professionals must remain vigilant about international developments that may impact their clients’ interests.’ Lawyers also point to technological changes as a key concern for 2024. ‘Cyber risk has become a persistent threat, necessitating legal practitioners to implement robust data protection measures and rapid response capabilities,’ comments Peyer. ‘As generative AI becomes more prevalent, there will be a need to assess its implications for the enforcement of privacy, securities, and antitrust laws.’ This will impact firms as well as clients: ‘Questions may arise about the reliability and accountability of AI-generated legal documents, and legal professionals may need to adapt to new challenges and opportunities presented by these technologies.’

Still, as the Swiss legal world gears up for 2024, practitioners look forward with anticipation, ready to navigate an environment shaped by regulatory shifts, geopolitical uncertainties, and technological change. In Peyer’s words: ‘As the Swiss legal market confronts these multifaceted challenges, the resilience and adaptability of legal practitioners become crucial in shaping a forward-looking legal landscape.’ LB

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What amendments or additions to Swiss ESG laws have been introduced in the past year, and how are these expected to influence businesses in the coming year?

In January 2022, the Swiss rules on due diligence and reporting regarding non-financial matters in the Swiss Code of Obligations (Swiss CO), which were adopted as a counterproposal to the ‘Responsible Business Initiative’ that was rejected by Swiss voters in November 2020, came into force (art. 964a ff. Swiss CO). These rules have started to apply as of the current financial year 2023 and the first reports according to the rules will have to be published next year (covering the financial year 2023). In a nutshell, large, listed companies and large companies supervised by the Swiss Financial Market Supervisory Authority (FINMA) will be required to publish a report on non-financial matters covering environmental matters, in particular CO2 goals, social issues, employee-related issues, respect for human rights and combating corruption. The companies in scope will have to let their shareholders vote on the report on non-financial matters at the general meeting. Additionally, certain Swiss companies will have to publish a report on due diligence regarding child labour and/or conflict minerals and metals.

Even though many of the large Swiss companies have been producing sustainability reports of some sort for several years, so far no precedents of reports following the Swiss law requirements have been published. In addition, the Swiss rules leave a lot of room for interpretation and freedom of implementation, and the development of a Swiss CO reporting practice is currently using additional resources of businesses – which we believe will continue over the coming years, as best practices are established, and the legal framework evolves. At the same time, we expect that Swiss companies will adapt and amend the due diligence efforts in their supply chains. Additionally, based on international developments, particularly the EU Corporate Sustainability Reporting Directive (Directive (EU) 2022/2464) that entered into force in January 2023, the Swiss Federal Council has announced amendments to the Swiss CO rules that are expected to be published for review in summer 2024. It is expected that the scope of application for the reporting on non-financial matters will be expanded. For the reporting on climate matters, it should be noted that a specific ordinance (the Ordinance on the Reporting of Climate Matters) provides guidance on such reporting and will enter into force on 1 January 2024.

Finally, in June 2023, Swiss voters approved a new Federal Act on Climate Protection Targets, Innovation and Strengthening Energy Security (the Climate and Innovation Act), which is an important step for Switzerland’s climate protection efforts and is expected to enter into force in 2025. The main obligation for Swiss companies included in the Climate and Innovation Act is that they must have net zero emissions by 2050 at the latest, considering direct and indirect emissions, with interim greenhouse gas reduction goals (by 2040) for the buildings, transport, and industry sectors. Even though it is not clear (yet) what the implications are for companies that do not reach these targets, there is no doubt that the Climate and Innovation Act is going to significantly influence all businesses in Switzerland over the next two decades, arguably more than the reporting obligations that were introduced recently, since it requires operational changes rather than transparency on the status quo.

‘There is no doubt that the Climate and Innovation Act is going to significantly influence all businesses in Switzerland over the next two decades.’ Dr. Vera Naegeli, Bär & Karrer

How has the revision of the Swiss corporate law affected ESG compliance and reporting requirements for Swiss companies?

In addition to the new due diligence and reporting obligations that have been introduced in the Swiss CO as a counterproposal to the ‘Responsible Business Initiative’ in 2022, certain additional ESG-related regulations in the Swiss CO have been introduced or amended as part of the corporate law reform:

i) transparency obligations regarding certain payments to authorities for raw material companies;

ii) a gender quota on a comply-or-explain basis for the board of directors and executive management of listed companies exceeding certain thresholds (with long transition periods); and

iii) an annual binding shareholder vote on the board of directors’ proposal on the compensation of the board members, the senior management and the advisory board (if any) (the so called ‘say-on-pay’).

The say-on-pay rules have largely applied in Switzerland since 2014, but they were newly introduced into the Swiss CO, with a few notable changes. The corporate law reform introduced the requirement of a consultative vote of the general meeting of shareholders on the remuneration report if the aggregate amount of variable compensation (typically for executive management) is voted on prospectively as well as the prohibition of sign-on bonuses, compensation for post-contractual non-compete covenants, and compensation payments for board members or members of a management body which are not in line with market practice.

Swiss laws applicable to financial institutions contains provisions related to ESG criteria. How have these provisions been integrated into Swiss financial services and institutions?

In addition to the due diligence and reporting obligations in the Swiss CO, ESG rules in the financial industry in Switzerland are characterised by FINMA and the self-regulation of professional associations, eg FINMA requires the largest banks and insurance companies (supervisory categories 1 and 2) to specifically disclose climate-related financial risks and FINMA has adopted guidelines on sustainability-related information for Swiss collective investment schemes. Further, the conduct rules in the Federal Act on Financial Services (FinSA) have been complemented by guidelines and requirements of professional associations aiming at the prohibition of greenwashing, eg the guidelines of the Swiss Bankers Association (SBA) that are mandatory for its members provide that as of January 2024 clients must be informed on ESG risks and ESG characteristics of the products offered, that clients’ ESG preferences must be assessed and documented, and that client advisers should be trained in ESG investment solutions. The Asset Management Association Switzerland (AMAS) has developed a self-regulation for sustainable asset management that its members must adhere to.

In light of the Swiss Parliament’s recent discussions on biodiversity, how might emerging environmental regulations impact businesses within Switzerland?

Based on Switzerland’s biodiversity strategy, the Federal Council adopted the biodiversity action plan in 2017 with a current implementation phase until the end of 2024. However, due to certain shortcomings of the plan, in 2020, NGOs have launched the biodiversity initiative calling on the government and the cantons to preserve and increase biodiversity in Switzerland, mainly by protecting land and by providing more financial resources. The Swiss Parliament is currently discussing the biodiversity initiative and an indirect counterproposal. While it remains to be seen whether Swiss voters will have to vote on the biodiversity initiative, it is imminent that Swiss companies will increasingly be required to address environmental aspects of how they do business (see also the next question).

Considering the Swiss Federal Council’s objectives for a circular economy, what legislative measures are anticipated to promote sustainability and resource efficiency among Swiss businesses?

The Federal Council aims to foster the circular economy by a revision of the Environmental Protection Act, which is currently still being discussed in the Swiss parliament. The revised act will introduce specific regulation on circularity measures aiming at conserving natural resources, reusing products and recycling materials that are currently often disposed of. The Swiss regulation is inspired by the EU new circular economy action plan, one important pillar of the European Green Deal, and it will have direct effects on Swiss businesses.

The post Sponsored briefing: Overview of ESG law in Switzerland appeared first on Legal Business.

Dr Vera Naegeli and Marie-Cristine Kaptan discuss the evolving ESG legal field in Switzerland and how companies can abide by the new regulations.

Overview of the Swiss Legal ESG Framework

General overview

The term ‘ESG’ as such does not exist in Swiss legislation. It may be interpreted in many different ways and encompass a diverse set of rules that are related to environmental, social or (corporate) governance matters. Laws on the protection of the environment (such as the Federal Act on the Protection of the Environment of 7 October 1983), on human rights and workers’ protection (ie, regarding social matters, such as certain provisions of the Swiss Federal Constitution and the Federal Act on Work in Industry, Commerce and Trade of 18 April 1999) and on certain governance aspects of corporations (in the Swiss Code of Obligations of 11 March 1911, ‘CO’) are not new and not part of this insight into Swiss ESG laws. For the purposes of this article, we use the term ‘ESG’ to capture a trend around sustainability that emerged over the past few years whereby, based on requests from the people, (mostly) states and companies are asked to act in a more considerate way towards the environment and society, and to continue to implement best practices in their governance.

Currently, the most significant Swiss ESG rules are the newly introduced provisions regarding reporting on non-financial matters and the due diligence and reporting obligations on conflict minerals/metals and child labour.’

This new ESG legal field is evolving quickly. For example, on 18 June 2023, the Swiss citizens will vote on the introduction of a new Federal Act on Climate Protection Goals, Innovation and Strengthening Energy Security which contains specific greenhouse gas emissions goals both for the state and all companies. Currently, the most significant Swiss ESG rules are the newly introduced provisions regarding reporting on non-financial matters (art 964a ff. CO) and the due diligence and reporting obligations on conflict minerals/metals and child labour (art 964j ff. CO and the Ordinance on Due Diligence and Transparency in relation to Minerals and Metals from Conflict-Affected Areas and Child Labour of 3 December 2021, ‘DDTrO’) [1] (together, referred to as the ‘ESG Laws’ in this article). They are effective since 1 January 2022 and affected companies are required to publish their first reports with respect to the business year starting in 2023 (hence, the first reports are expected early to mid-2024).

Report on non-financial matters

The reporting obligations on non-financial matters apply to large [2] Swiss companies that are listed on a (Swiss or foreign) stock exchange or supervised by the Swiss Financial Market Supervisory Authority (‘FINMA’) and require such companies to publish an annual report covering five matters: (1) environmental matters, in particular CO2 goals; (2) social issues; (3) employee-related issues; (4) respect for human rights; and (5) combating corruption. The report should contain the information required to understand in particular the business performance and the effects of the company’s activities on these non-financial matters (art 964b para 1 CO).

This includes a description (and thus prior internal identification) of the main risks related to these matters – arising from the company’s own business operations but also, where relevant and proportionate, arising along the supply chain – as well as a presentation of the policies adopted in relation to these matters and the measures taken to implement the respective policies and handle the risks identified (art 964b para 2 CO).

With respect to climate (ie, a sub-category of the first matter regarding environment), the Swiss Federal Council enacted an ordinance to clarify the obligations of affected companies and enable better comparability of climate reports, which will enter into force on 1 January 2024 [3] . This Ordinance on the Reporting of Climate Matters (ORCM) establishes the legal presumption that the obligation to report on climate matters is fulfilled if the report is based on the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) (art 2 para 1 ORCM). Companies are thus not forced to follow the TCFD recommendations, but in such case must provide evidence that they comply with the reporting requirements.

The annual report on non-financial matters must be approved by the board of directors as well as the general meeting of shareholders (art 964c para 1 CO), and published online immediately following approval, remaining publicly accessible or at least ten years (art 964c para 2 CO). It should be noted that while Swiss law requires the publication of a report on non-financial matters, the five areas only have to be covered on a ‘comply or explain’ basis. This means that if a company does not follow a policy with respect to one or more of the matters, this must be explained in the report, stating the reasons why the company took that approach (art 964b para 5 CO). Hence, if a company deems one or several of the matters not to be relevant for its business activities and operations, the respective reporting obligations are fairly limited. On the other hand, even though the law only mandates disclosure (rather than any actions or omissions with respect to any of the five matters), compliance with the reporting obligations requires some prior due diligence in order to properly analyse the risks a company faces and impacts its operations have. The implications for affected companies may therefore go beyond the mere preparation of a report.

Due diligence and reporting obligations regarding conflict minerals and metals and child labour

The Swiss due diligence and reporting obligations regarding conflict minerals and metals as well as child labour are more extensive than the rules with respect to the report on non-financial matters in two ways:

(1) the number of companies potentially affected by these rules is significantly greater than the number who must complete the report on non-financial matters; and (2) the areas of conflict minerals and metals and child labour not only require the publication of a report, but also adherence to certain due diligence standards.

‘The rules regarding conflict minerals and metals as well as child labour apply to all companies with a legal seat, head office or principal place of business in Switzerland.’

In principle, the rules regarding conflict minerals and metals as well as child labour apply to all companies with a legal seat, head office or principal place of business in Switzerland (Swiss companies) (art 964j para 1 CO). If a Swiss company places in free circulation or processes in Switzerland minerals containing tin, tantalum, tungsten or gold or metals from conflict-affected and high-risk areas, and those materials exceed the thresholds specified in annex 1 of the DDTrO, the respective obligations apply regardless of the size of the company.

With respect to child labour, small and medium-sized companies [4] are generally exempt from the Swiss obligations [5]. Any other Swiss company must, as a minimum, check whether there are reasonable grounds to suspect child labour, unless such company qualifies as a low-risk undertaking. A low-risk undertaking is a company which only procures or manufactures products or primarily procures or provides services in countries whose due diligence response is rated as ‘basic’ by UNICEF in its Children’s Rights in the Workplace Index (art 7 DDTrO). If a Swiss company does not qualify as a small or medium-sized company, or a low-risk undertaking in the sense of art 7 DDTrO, and if it offers products or services in relation to which there is a reasonable suspicion that they were manufactured or provided using child labour, the respective due diligence and reporting obligations apply. If any of the above-mentioned exemptions apply, this must be documented internally (but no report must be published).

‘When considering transactions or business deals with Swiss companies, it should become part of the legal due diligence to examine whether the target or business partner complies with all applicable Swiss ESG laws.’

There are two further exemptions which are relevant for conflict minerals and metals as well as child labour: a Swiss company is exempt if (1) it is included in the consolidated report of another Swiss company or an equivalent report of a foreign company by which it is controlled (art 17 DDTrO) – in this case, the company must indicate in the notes to its financial statements the other legal entity in whose report it is included; or (2) it adheres to and applies in their entirety the internationally recognised equivalent regulations listed in annex 2 of the DDTrO (art 9 DDTrO) – in which case the company shall prepare a report in which it names the internationally recognised regulations. The equivalence of a report by a foreign company must be determined on a case-by-case basis.

Swiss companies that are affected by the due diligence and reporting requirements regarding conflict minerals and metals or child labour (and that cannot rely on any of the exemptions) have several due diligence obligations: they must establish a supply chain policy, a supply chain traceability system, an early warning mechanism for risk identification and a reporting procedure allowing interested parties to raise reasonable concerns, and put in place a risk management plan – all in accordance with the likelihood of occurrence and the severity of potential adverse impacts (art 965k paras 1 and 2 CO, art 10-15 DDTrO). On an annual basis, a report must be produced, approved by the board of directors and published electronically within six months of the end of the financial year (art 964l CO).

Only the report regarding conflict minerals and metals must be audited by a licensed audit firm (art 16 DDTrO) [6].

Potential Consequences of Violating the Swiss ESG Laws

Contrary to some other European jurisdictions, the reports on non-financial matters and on due diligence obligations for conflict minerals/metals and child labour do not have to be submitted to any government agency. Rather, they have to be made publicly available. There is criminal liability for wilfully or negligently (i) not publishing any of these required reports at all; (ii) providing false information in any of these reports; or (iii) not complying with the related archiving and documentation requirements (art 325ter of the Swiss Criminal Code of 21 December 1937,‘CC’). It would be upon the cantonal criminal prosecution authorities to (either at their own initiative or based on a criminal complaint) initiate criminal proceedings against the individuals at the respective company who are responsible for preparing and publishing the reports or who bear overall responsibility for the reporting (ie, the members of the board of directors) – the company itself cannot be fined. [7]

Even though the law does not foresee a limitation in terms of the materiality of violations, we expect that in practice, a materiality threshold will be applied, similar to the practice regarding compliance with accounting regulations. It remains to be seen how the criminal prosecution authorities will implement these new criminal provisions; however, there is a risk that NGOs or other interest groups (or even whistleblowers) might take the opportunity to scrutinise any ESG reports and file criminal complaints that the prosecution authorities must then investigate. In addition, the fact that a violation of the ESG laws may lead to a criminal record could have serious consequences for the responsible individuals.

In addition, any member of the management board or board of directors can become liable under art 152 CC if he or she makes or causes to be made a false or incomplete statement of substantial significance by means of a public announcement or report (which all of the above-mentioned ESG reports would qualify as) that could cause another to dispose of his or her own assets and to thereby sustain financial loss. The penalty here is a custodial sentence of up to three years or a monetary penalty. In this case, the company itself can also become liable if false or incomplete statements relating to ESG matters cannot be attributed to a specific person due to deficiencies in the organisational structure, which could lead to a fine of up to CHF 5m (art 102 para. 1 CC).

The violation of the Swiss ESG reporting obligations could also potentially result in civil liability if a claimant can prove that he or she suffered damages due to such violation.

Practical Implications for Companies and Their Leadership

Companies organised under Swiss laws or operating in Switzerland should first and foremost carefully evaluate whether any of the Swiss ESG due diligence and reporting obligations apply to them and if so, to what extent.

Secondly, if any of the obligations apply, it is important for members of the board of directors to recognise that they bear responsibility for the preparation and publication of the required ESG reports since they need to approve their contents, and that non-compliance may result in criminal liability and lead to civil liability risks. Therefore, the board of directors should establish processes and delegate responsibilities appropriately to ensure compliance with the applicable Swiss ESG laws.

When considering transactions or business deals with Swiss companies, it should become part of the legal due diligence to examine whether the target or business partner complies with all applicable Swiss ESG laws. Similarly, Swiss companies contemplating the acquisition of a foreign company (that is generally not subject to the Swiss ESG laws) to the extent that they will, after the transaction, exercise control over such foreign entity, should take into account whether they will still be in a position to comply with the applicable Swiss due diligence and reporting requirements, or what would be required to achieve that, respectively, and reflect any necessary changes or additional expenses in the agreements.

The particular challenge for multinational corporations is that ESG-related laws and regulations differ between jurisdictions, and for each jurisdiction where the organisation operates, a separate analysis of the applicable laws and their implications is required. Having said that, the Swiss legislation tries to avoid ‘double reporting’ and encourages consolidated group reporting if an international organisation follows foreign rules covering the topics of the Swiss ESG laws (eg, directives enacted by the EU).

Firm Profile

Bär & Karrer is a leading Swiss law firm with more than 200 lawyers. The firm was repeatedly awarded Switzerland Law Firm of the Year by the most important international legal ranking agencies in recent years. Bär & Karrer is a full-service firm and most of the firm’s work has an international component. Thus, we have broad experience in handling cross-border matters.

In our ESG practice we apply our expertise in and passion for ESG to the full spectrum of our client work and we provide our clients with teams of specialists on all ESG-related matters, each one with experience advising at the forefront of ESG developments in their respective field.

We advise clients on corporate governance, Swiss ESG reporting and disclosure requirements, supply chain and human rights due diligence obligations, legal ESG due diligence, ESG litigation and arbitration, sustainable finance, setting up ESG-compliant investment products, complex and cross-border ESG related internal investigations, and ESG-driven transactions. Dr Vera Naegeli is the head of Bär & Karrer’s ESG practice and the firm’s ESG team includes several partners and associates. The team regularly contributes to thought leadership by publishing articles and accepting speaking engagements in the ESG field.

Recent ESG work highlights include advising MET Group on the formation of a joint venture with Keppel Infrastructure to pursue Western European renewable energy opportunities, supporting Prewave with the implementation of the requirements of the Swiss ESG rules with regard to its artificial intelligence (AI) risk and sustainability monitoring platform, supporting a large Swiss company on all corporate governance related matters in view of its contemplated listing on the SIX Swiss Exchange, advising several listed and large non-listed companies on the implementation of the new Swiss ESG reporting and due diligence requirements, and advising a European company regarding ESG-related shareholder activism questions.

‘In our ESG practice we apply our expertise in and passion for ESG to the full spectrum of our client work and we provide our clients with teams of specialists on all ESG-related matters.’

Bär & Karrer also contributes to ESG goals and is committed to the sensible use of natural resources. For example, our infrastructure, event management and marketing supply processes are focused on sourcing all products and labour from local suppliers and producers who can provide proof of sustainable sourcing. We actively promote paperless work by providing each employee with tablets and phones, as well as tools to conduct their work without using paper. We are committed to a sustainable recycling system for all types of packaging, and we recycle our daily coffee grounds, part of which is converted into biogas and sent to households to generate heat and electricity, and part of which is sent to farmers in the region as organic fertiliser. Furthermore, we offer our employees recyclable glass bottles to protect the environment by avoiding plastic waste.

In summer 2019, we finished a project creating a sustainable eco-system on a 2500m2 rooftop area in our office building in Zürich. The project, conducted with specialists, aimed to create a sustainable, biodiverse and eco-friendly space for our employees and external stakeholders to use for meetings, events, lunch breaks and recovery. With the rooftop we created a valuable new habitat and natural landscape for flora and fauna (seven bee colonies, chickens and spur-thighed tortoises live on our rooftop). We store rainwater for plants and the retained water evaporates and is used to cool the neighbourhood and the building. In 2020, we were awarded the ProSpecieRara label. The Swiss ProSpecieRara label awards businesses that actively work to preserve traditional plant and animal species.

Footnotes:

1. There are also industry-specific rules such as FINMA Circulars 2016/1 ‘Disclosure – banks’ and 2016/2 ‘Disclosure – insurers’, and FINMA Guidance 03/2022 on the implementation of climate-related risk disclosures by category 1-2 institutions of November 29, 2022, which are not discussed in more detail in this article.
2. In terms of size, such companies must have, together with the Swiss and foreign companies they control, (i) at least 500 full-time equivalent (FTE) positions on annual average in two successive financial years, and (ii) either (a) a balance sheet total of CHF 20m or (b) sales revenues of CHF 40m, also in two successive financial years (art 964a para 1 CO).
3. Except for certain provisions which have a longer transitional period and only apply as of 2025.
4. Small and medium-sized companies are those which, together with (Swiss and foreign) companies they control, fall below two of the following amounts in two successive business years: (i) a balance sheet total of CHF 20m; (ii) sales revenues of CHF 40m; (iii) 250 FTE positions on average for the year (art 6 para 2 DDTrO).
5. The exemption does not apply if the company offers products or services that have evidently been produced or provided using child labour (art 8 DDTrO).
6. The audit is a ‘negative assurance’ audit, meaning that the audit firm must examine whether there are circumstances from which it may be concluded that the due diligence pursuant to art 964k paras 1 and 2 CO has not been complied with (art 16 para 2 CO).
7. Article 325ter in connection with art 105 para 1 and 103 CC.

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2022 brought fresh challenges for the Swiss market, given the widespread instability in the global economy. Despite strong consumer spending and the removal of the last of the pandemic restrictions ensuring that economic growth has remained steady, the lingering aftershocks of the pandemic, war in Ukraine and the ensuing energy crisis, mean official predictions for growth were cut to 2% by the end of 2022. Inflation stood at just under 3% last year and the Swiss National Bank opted to raise interest rates to 1% in December 2022, having only increased them to 0.5% a few months earlier.

‘The SNB is concerned by current inflation rates,’ says Juerg Bloch, investigations and enforcement partner at Niederer Kraft Frey (NKF), says. ‘The aim is to keep inflation within the range of price stability over the medium term.’

Within the larger international context, it is clear the Swiss market is weathering the year’s challenges relatively well, with lower inflation and interest rates than many other parts of Europe and the US.

A useful way of assessing Switzerland’s position on the international stage is its involvement in the EU’s sanctions on Russia. While the decision may be interpreted as a departure from the traditional stance of neutrality, Bloch observes that it was received with little surprise in the market. ‘As a small country with extensive economic ties, Switzerland has adapted to the EU framework. If Switzerland had not joined the EU sanctions, this would likely have led to considerable political and economic pressure on Switzerland.’

Adhering to the changes means that Swiss banks are now prohibited from accepting deposits from Russian nationals in excess of CHF100,000 (€101,000), sanctions have been introduced on oil products and coal, investments into the Russian energy sector have been banned and distribution companies are prohibited from selling restricted products to Russia.

The exclusion of Russian participants in the market is already contributing to notable shifts in work, with corporate finance one practice area where partners predict activity levels will be impacted, given reduced lending from Russia.

Meanwhile, the commodities market is experiencing a slowdown. Switzerland has a strong reputation as a hub for global commodities trading and has historically seen Russian players active in the market.

Private banking is another area seeing consequences from Russian sanctions. The country has long been a destination for high and ultra-high-net-worth individuals drawn to the stability and security of the jurisdiction. Among these have inevitably been a number of now sanctioned Russian oligarchs. Relationships with these clients have been terminated and relevant assets frozen.

While the full effects of sanctions remain to be seen, the flip side for law firms is that disputes teams across the leading independents are already seeing a lot of sanctions-related activity.

Domestically, one development driving some activity has been a new licensing system targeted at asset managers. Implemented in January 2020, The Financial Services Act (FinSA) and Financial Institutions Act (FinIA) introduced a new requirement for all asset managers in the country to obtain licences from the financial regulator FINMA by January 2023.

‘Asset managers with small assets under management are no longer profitable due to the increased costs in order to fulfil the regulatory requirements.’
Juerg Bloch, NKF

Switzerland has historically been a highly active centre for wealth management, however, the new licence requirement is presenting a significant challenge.

‘The licence requirements of asset managers are rather high and require a certain size in order to ensure control functions that are independent from the business functions,’ Bloch says. ‘Asset managers with small assets under management are no longer profitable due to the increased costs in order to fulfil the regulatory requirements.’

Perhaps due to this, the rate of licence applications has remained low, with hundreds of asset managers informing FINMA that they will not be seeking the licence. Market observers have been expecting to see consolidation in the market as a result but, so far, this anticipated wave of M&A transactions has failed to kick off.

Fintech and crypto also remain hot topics in Switzerland, with the Canton of Zug, nicknamed the ‘Crypto Valley’, a notable hub. The market has withstood the turbulence blockchain and cryptocurrency technologies have seen globally over the past year, with market sentiment being that this has driven a ‘clean out’, with speculators and opportunists departing, leaving only true believers and entrepreneurs.

While some may be sceptical as to the value of this sector, or its potential to achieve anything but a niche following, Bloch observes that distributed ledger technology (DLT) holds the possibility of higher dividends across the banking industry: ‘In the short term, blockchain, based on smart contracts, will enable faster and cheaper digital transactions, improve access to capital, make compliance smoother, harness identity management and the trading of digital assets.’

The potential opportunities are indicated by the steady increase in interest from traditional financial institutions, which are now beginning to make inroads. Fintech solutions are also becoming normalised in capital markets, with new strategies such as share tokenisation steadily gaining popularity.

Switzerland has faced significant challenges in 2022 and may expect to see more reversals in the coming years. Those looking ahead foresee the ongoing energy crisis and the burden on businesses to repay government coronavirus-era loans as presenting further difficulties.

But these are the same obstacles faced by countries around the globe, and the Swiss market has fared better than many. Recent years have made clear the uncertainties with which nations must contend, and in the face of these difficult times, Switzerland and its legal market has demonstrated nothing but fortitude. LB

Return to the Euro Elite contents

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The ever-changing legal and economic environment for insurers calls for experts with a solid background and comprehensive expertise in the field of insurance law, as well as a solution-oriented approach to the client’s needs.

The insurance practice of Prager Dreifuss can look back on a longstanding tradition and unrivalled expertise in advising and representing insurers and reinsurers in all aspects of insurance law, and fields one of the largest insurance teams in Switzerland. The team is led by Christoph K. Graber who has repeatedly been named as a ‘Thought Leader’ and as Switzerland’s ‘most highly regarded practitioner’ in leading insurance law rankings.

The Prager Dreifuss insurance team consists of four partners (Christoph K. Graber, Hans-Ulrich Brunner, Gion Christian Casanova and Reto M. Jenny) one counsel (Andrea Stäubli) and six associates (Mike Abegg, Lydia P. Buchser, Martin Heisch, Raphael Keller, Raphael Märki and Alain Michael-Gaudy). The team’s members have excellent academic backgrounds, and contribute to legal commentaries and law journals on a regular basis.

Prager Dreifuss has been involved in many high-profile insurance and reinsurance investigations and disputes (litigation and arbitration) in connection with professional indemnity, errors and omissions and directors and officers liability, losses under bankers’ blanket bonds and fidelity bonds, property and construction losses, product liability and air freight loss. The insurance team acts as counsel for large Swiss and foreign insurance and reinsurance companies, including numerous underwriters at Lloyd’s, in contentious and non-contentious matters, be it as counsel for primary insurers or supervising counsel for reinsurers and co-insurers. In addition, members of the insurance team are regularly designated by insurers as defence counsel for policyholders, requested to provide expert opinions or selected as arbitrators in reinsurance disputes.

The insurance practice of Prager Dreifuss also encompasses all types of regulatory matters and the representation of clients vis-à-vis the Swiss Financial Market Supervisory Authority. The team advises both domestic and foreign insurers and reinsurers on regulatory matters, and holds considerable expertise in these areas, namely regarding the licensing of insurance products and business activities, portfolio transfers and cross-border restructurings of insurance undertakings. The team members’ profound understanding of the insurance business allows them to provide creative and pragmatic solutions for their clients’ needs. Recent matters include advice in relation to international private medical insurance, travel insurance and reinsurance activities in Switzerland.

Prager Dreifuss is consistently ranked as an outstanding firm worldwide by leading publications, including Chambers, The Legal 500, IFLR1000 and Who’s Who Legal.

The post Sponsored Spotlight: Insurance, reinsurance and insurance regulatory – Unrivalled expertise appeared first on Legal Business.

At the beginning of 2022, with the pandemic finally receding into recent memory, commentators would have been forgiven for foreseeing a more optimistic market outlook.

However, any sighs of relief may have been premature, as the recovery from the pandemic has given way to fresh challenges in the form of the war in Ukraine, not to mention the resultant increasingly unsteady global economy.

The Swiss economy largely retains the resilience it demonstrated during the Covid years – strong consumer spending and the removal of the last of the pandemic restrictions has helped ensure that economic growth has remained steady. However, the lingering aftershocks of the pandemic, compounded by uncertainty around the Russia-Ukraine war and the ensuing energy crisis, have seen official predictions for growth cut to 2%, down from a forecast of 2.6% in June 2022.

Riding it out

The strain on the economy may be betrayed by the steady rise in inflation over the past year, remaining above 3% in recent months, a historic high for Switzerland. This has been met by the decision from the Swiss National Bank (SNB) to raise interest rates to 0.5%, significant not only because rates have been negative for years, but also because it followed so swiftly on the heels of the SNB’s previous decision to set its policy interest rate at -0.25% in June 2022.

‘The SNB is concerned by current inflation rates,’ Juerg Bloch, investigations and enforcement partner at Niederer Kraft Frey (NKF), says. ‘The SNB was signalling in its September meeting that the interest rates will likely continue to increase in the coming meetings. The aim is to keep inflation within the range of price stability over the medium term.’

‘Mortgage debt per household is exceptionally high in Switzerland, which is significant in the context of the previously high lending volumes of banks and climbing real estate prices.’
Fabian Teichmann, Teichmann International

Positive interest rates promise a notable power shift in corporate and asset-based transactions, with sellers now holding additional leverage. Fabian Teichmann, managing partner of Teichmann International, identifies the housing market as an area likely to be affected.

‘Mortgage debt per household is exceptionally high in Switzerland, which is significant in the context of the previously high lending volumes of banks and climbing real estate prices. Variable-rate mortgage loans are impacted by the increase in interest rates, although considering the increase is moderate (0.75%), its impact is limited.’

This view is shared by NKF senior associate Simon Bühler, who agrees that while the real estate market is likely to be impacted, a sharp downturn of borrower defaults remains unlikely. He extends this positive outlook to the broader economy. ‘Currently, the general perception is that a tighter monetary policy will not have a material impact on the economy, in particular since the Swiss labour market is considered to be flexible compared to the neighbouring countries.’

‘Prior to the war, Russian banks were fairly big lenders in Europe. Now, of course, that has come to a complete stop. We don’t see Russian lending any longer.’
Marcel Tranchet, Lenz & Staehelin

Indeed, within the larger international context, it is clear that the Swiss market is weathering the year’s challenges relatively well. Tino Gaberthüel, Lenz & Staehelin’s head of corporate and M&A, observes that inflation is significantly higher across other parts of Europe and America, with the UK, for example, experiencing rates in excess of 8%.

Correspondingly, interest rates have been increased internationally. In the US these currently stand at 4.25%, while in the UK, the Bank of England voted on 3 November to increase rates to 3%. Switzerland’s position, in comparison, speaks to the notable fortitude and stability of its market.

Sanctions

A useful way of assessing Switzerland’s position on the international stage is its involvement in the EU’s sanctions on Russia. While the decision may be interpreted as a departure from the traditional stance of neutrality, Bloch observes that it was received with little surprise in the market.

‘As a small country with extensive economic ties, Switzerland has adapted to the EU framework. If Switzerland had not joined the EU sanctions, this would likely have led to considerable political and economic pressure on Switzerland.’

Adhering to the changes means that Swiss banks are now prohibited from accepting deposits from Russian nationals in excess of CHF100,000, sanctions have been introduced on oil products and coal, investments into the Russian energy sector have been banned and distribution companies are prohibited from selling restricted products to Russia.

The development and implementation of new technologies is an enduring hot topic in Switzerland. This includes cryptocurrency, for which the Canton of Zug, nicknamed the ‘Crypto Valley’, is a notable hub.

The exclusion of Russian participants in the market is already contributing to notable shifts. Marcel Tranchet, head of Lenz & Staehelin’s Zürich banking and finance group, identifies corporate finance as one area being affected. ‘Prior to the war, Russian banks were fairly big lenders in Europe, including in Switzerland’, says Tranchet. ‘Now, of course, that has come to a complete stop. We don’t see Russian lending any longer.’

Elsewhere, as in the rest of Europe, the commodities market is experiencing a slowdown. Switzerland has a strong reputation as a hub for global commodities trading and has historically seen Russian players active in the market. The loss of Russian commodities houses has had an impact, even as other nations work to fill the gap.

Private banking is another area seeing consequences. The country has long been a destination for high and ultra-high-net-worth individuals drawn to the stability and security of the jurisdiction. Among these have inevitably been a number of now sanctioned Russian oligarchs. Relationships with these clients have been terminated and relevant assets frozen.

However, the full effects of sanctions remain to be seen, and may not become apparent for years to come. The show of support for the EU and the West makes the jurisdiction less appealing for Russian clients in the future, with many now anticipating distribution, trading and banking activities permanently moving to alternative, sympathetic jurisdictions in the long term.

This is underscored by the brewing of potential disputes on the implementation of sanctions. ‘Dispute teams across the large law firms are seeing a lot of activity in that area,’ Tranchet observes. ‘Especially on long-term contracts, there’s a fair amount of disputes, or pre-litigation work going on. Questions as to whether it’s force majeure.’

Regulatory Developments

Focusing on the exclusively Swiss, one development driving activity has been a new licensing system targeted at asset managers. Implemented in January 2020, The Financial Services Act (FinSA) and Financial Institutions Act (FinIA) introduced a new requirement for all asset managers in the country to obtain licences from the financial regulator FINMA. The deadline for certification in January 2023 is now fast approaching.

Switzerland has historically been a highly active centre for wealth management, with some estimates putting the number of external asset managers as high as 2,500. However, the new licence requirement, coming as it does alongside so many other pressures, is presenting a significant challenge.

‘The licence requirements of asset managers are rather high and require a certain size in order to ensure control functions that are independent from the business functions,’ Bloch says. ‘Asset managers with small assets under management are no longer profitable due to the increased costs in order to fulfil the regulatory requirements.’

‘Banks have become more open to crypto business models and some have even specialised in this area.’
Simon Bühler, NKF

Perhaps due to this, the rate of licence applications has remained low, with more than 600 asset managers informing FINMA that they will not be seeking the licence. Market observers have anticipated an imminent consolidation in the market as a result, as asset managers strive to increase their volume to a level that allows continued operations.

Despite this, the anticipated wave of M&A transactions has failed to kick off. As Gaberthüel remarks: ‘There was talk that consolidation would start a year ago, but that hasn’t materialised yet. I think the view is still that there must be consolidation, which in my view would make sense from a cost savings perspective, but it hasn’t happened yet.’

It remains to be seen what solution the large number of still-unregistered asset managers will pursue. Further contributing to the uncertainty is the high volume of applications still under consideration by FINMA, leaving many practitioners potentially in limbo as the new year approaches.

‘I think asset managers still have to find out that life alone will be costly,’ says Gaberthüel. ‘Then we’ll think and look at different options.’

New Growth

The development and implementation of new technologies is an enduring hot topic in Switzerland. This includes cryptocurrency, for which the Canton of Zug, nicknamed the ‘Crypto Valley’, is a notable hub, with hundreds of companies active in the region.

‘The Crypto Valley has done a good job in attracting talent and companies’, says Tranchet. ‘They’ve created a good environment for companies to try out their ideas, and if they’re valuable, to pursue and market them.’

This positive landscape has even withstood the turbulence blockchain and cryptocurrency technologies have seen over the past year, with market sentiment being that this has driven a ‘clean out’ of the market, with speculators and opportunists departing, leaving only true believers and entrepreneurs.

While many may be sceptical as to the value of this sector, or its potential to achieve anything but a niche following, Bloch observes that distributed ledger technology (DLT) holds the possibility of higher dividends across the banking industry: ‘In the short term, blockchain, based on smart contracts, will enable faster and cheaper digital transactions, improve access to capital, make compliance smoother, harness identity management and the trading of digital assets.’

‘We’ve set up a procedure whereby companies that tokenise shares using CMTA standards are then certified, and so potentially investors have assurance that the tokenised shares comply with the law.’
Tino Gaberthüel, Lenz & Staehelin

The potential opportunities are indicated by the steady increase in interest from traditional financial institutions, which are now beginning to make inroads. As Bühler observes: ‘In the initial phase, banks were cautious and made it difficult or refused access for cryptocurrency and fintech providers. This was also due to the lack of access rights for third-party providers, such as those provided by the Payment Services Directive 2 in the EU. In the meantime, banks have become more open to crypto business models and some have even specialised in this area.’

Fintech solutions are also becoming normalised in the field of capital markets, with new strategies such as share tokenisation steadily gaining popularity. While the advance of technology is one reason for this, it is also crucial to acknowledge the parallel development of new regulatory measures, which aid growing investor confidence.

This is something of which Gaberthüel, a member of the Capital Markets and Technology Association (CMTA), is well aware. ‘We’ve set up a procedure whereby companies that tokenise shares using CMTA standards are then certified, and so potentially investors have assurance that the tokenised shares comply with the law.’

The pursuit of new technology applications extends beyond the relatively niche area of cryptocurrency. Digitalisation is a buzzword from the insurance industry to governmental departments.

‘In low to mid-level sophistication use cases it really is driving efficiency’, says Tranchet. ‘In companies and even in governments and law firms it really is making all of us more efficient. But the killer applications that make us humans irrelevant? That we don’t really see.’

A stable haven

Switzerland has faced significant challenges in 2022 and may expect to see more reversals in the coming years. The steadily increasing rate of inflation shows the pressure placed on the economy by the effects of the Russia-Ukraine War, following so soon after the strain of the pandemic. Those looking ahead foresee the ongoing energy crisis and the burden on businesses to repay government coronavirus era loans as presenting further difficulties.

But these are the same obstacles faced by countries around the globe, and the Swiss market has fared better than many. Recent years have made clear the uncertainties with which nations must contend, and in the face of these difficult times, Switzerland has demonstrated nothing so much as its fortitude.

Concludes Tranchet: ‘In the current environment it’s difficult even for the collective intelligence of market participants to speak to the future.’ Yet we may place some faith in the endurance of the market and its capacity for flexibility. LB

The post Switzerland: Another year, another challenge appeared first on Legal Business.

Insolvency and restructuring proceedings are intricate and complex. Practitioners must be able to combine legal knowledge, in particular in the areas of litigation, finance and transactions, with strategic, tactical and managerial skills to deliver positive results.

PRAGER DREIFUSS has extensive experience and a longstanding tradition in insolvency and restructuring matters. In the wake of the financial crisis, we combined our finance and bankruptcy knowledge which enabled us to assist in complex project financing, also lately in a major multinational commodity project. Our attorneys regularly represent creditors, some of which are banks, hedge funds or other financial institutions, in large national and international insolvency and restructuring proceedings, whether in registering or purchasing claims or in enforcing disputed claims vis-à-vis bankruptcy administrators and before courts. Assisting clients in the recognition and enforcement of foreign judgments in Switzerland and abroad is a key feature of our daily practice. Frequently and increasingly, we are retained by creditors in enforcing claims (awards, bonds) against sovereigns.

With its more than 40 lawyers and a total of approximately 80 employees at our offices in Zürich, Berne and Brussels, PRAGER DREIFUSS is one of the leading Swiss law firms. With the ability to draw on additional specialised experience within the firm ranging from M&A, dispute resolution, banking and finance to insurance law, private clients and tax, PRAGER DREIFUSS is ideally placed to offer clients a comprehensive range of required legal services in addition to the representation in bankruptcy-related matters and effective and innovative solutions adapted to the legal and economic realities of complex challenges.

The PRAGER DREIFUSS insolvency and restructuring team is led by Daniel Hayek. The team consists of three partners (Daniel Hayek, Gion Jegher, Gion Christian Casanova) and a number of highly skilled associates (Mark Meili, Laura Oegerli and Stefan Pavlovic).

In as far as necessary and suited for a client matter, we are able to form a tailored team of partners and lawyers of varying seniority to manage any insolvency and restructuring case that is entrusted to us.

With our wide network of insolvency and restructuring experts in other major jurisdictions (US, EU, Asia etc.) we also ensure that all aspects of complex multinational bankruptcy proceedings are duly taken into consideration at an early stage. This may encompass, inter alia, asset tracing and asset recovery, mutual legal assistance, piercing the corporate veil of offshore companies and/or trusts, possible barriers to enforcement whether national or international etc. PRAGER DREIFUSS also maintains active ties to liquidators and bankruptcy administrators, which has proven helpful in reaching settlement agreements.

Recent work undertaken by this team includes, amongst others, advising the bondholders vis-à-vis the insolvent Petroplus group. PRAGER DREIFUSS has further been working on the bankruptcy cases of Lehman Brothers. We have been involved in litigation emanating from agreements to finance or hedge assets of the debtor and in claims contesting the schedule of claims amounting to several hundred million dollars. PRAGER DREIFUSS was successful in terminating these cases by way of an amicable settlement.

PRAGER DREIFUSS is the lead counsel to the majority holders of bonds issued by a major Italian bank, which is currently undergoing a restructuring process. We have the lead in supporting the clients’ efforts to prevent expropriating measures and we are working with lawyers in various EU jurisdictions on this matter. The case also deals with the EU Banking Recovery and Resolution Directive and the EU Commission’s Banking Communication, giving any litigation in this matter significant publicity as a test case in this field.

Recently, PRAGER DREIFUSS advised a major bondholder vis-à-vis gategroup, the world’s largest provider of airline catering services, in connection with the company’s restructuring plan. We were successful in requesting certain alterations to the restructuring plan and the company agreed to meet the client’s legal costs.

PRAGER DREIFUSS is consistently ranked as an outstanding firm worldwide by leading publications, including The Legal 500, Chambers, IFLR1000 and Who’s Who Legal.

FOR MORE INFORMATION

To find out more about PRAGER DREIFUSS LTD.’S insolvency and restructuring team contact daniel.hayek@prager-dreifuss.com or visit www.prager-dreifuss.com
T: +41 44 254 55 55

The post Sponsored practice area spotlight: Insolvency and restructuring: Combining unique skills to achieve a successful outcome appeared first on Legal Business.

When the world went into lockdown in March/ April 2020, everyone expected the worst for the economy: market crashes, sky-rocketing unemployment numbers and a wave of insolvencies. While it is safe to say that some countries struggled more than others, Switzerland weathered the crisis well, even exceeding pre-Covid-19 activity in some areas.

One of the wealthiest countries in the world, Switzerland’s GDP has been on a steady increase and almost tripled in the last 20 years. Projections also show tangible growth from 2020 to 2021, underlining the fact that the pandemic had little to no impact on the Swiss economy. This was also witnessed by Thierry Calame, who in January 2022 becomes the new managing partner of one of the leading Swiss powerhouses, Lenz & Staehelin: ‘The pandemic continued to be the largest challenge. However, thanks to the robust Swiss economy there has not been any economic downturn in 2021, but rather a significant recovery.’

Common narrative

The story of how Switzerland fared during the pandemic is a familiar one. From mid-March until May 2020, it was hit by the first wave; in this period, as dictated by the Federal Council, all non-essential shops had to close, working from home where possible was mandatory, and social gatherings were strongly limited. However, the summer saw life return to normal for Swiss residents, and the power to decide on what measures to take was handed back from the federal level to the cantons again.

‘The pandemic continued to be the largest challenge. However, thanks to the robust Swiss economy there has not been any economic downturn in 2021, but rather a significant recovery.’
Thierry Calame, Lenz & Staehelin

When the second wave hit in October 2020, the rise in Covid-19 cases and the excess mortality worried cantons; but they managed to get the situation eventually back under control without enforcing mandatory home working, for instance. The arrival of the vaccine was seen as a major boost to getting things under control, even though the initial roll-out was not seen as a success story. As of late November 2021, around 65% of the population had received both doses of the vaccine, with booster shots to follow. Switzerland was also one of the first European countries to introduce the 3G-rule – where you have to show proof you are either vaccinated, recently tested or recovered to participate in public life. With cases on the rise again and a new variant appearing, discussions about having a 2G – vaccinated or recovered – or even compulsory vaccination are circulating but the population agrees strongly on one thing: no more lockdown.

Aside from a partly liberal approach to lockdown, the reasons for Switzerland’s smooth sailing included the measures introduced by the government to assist businesses. More than CHF65bn ($71bn) was set aside at the beginning of the pandemic; a large part of it was made available as emergency loans for struggling businesses, and additional loans for the start-up scene were also handed out.

‘While sectors such as sports, events, travel and hospitality were inevitably the ones that had to take some hits, other industries that Switzerland is well known for were quickly back to thriving again.’

Another key measure to protect against the feared wave of insolvencies was the introduction of a waiving of the obligation to declare insolvency for several months. While sectors such as sports, events, travel and hospitality were inevitably the ones that had to take some hits, other industries that Switzerland is well known for – banking and finance, life sciences, technology – were quickly back to thriving again.

Covid-19: a catalyst

‘Over the last 12 months, we have seen a very strong M&A market which exceeds pre-Covid activity levels,’ says Calame. His firm was recently involved in a series of large-cap M&A transactions, often in the life sciences area, including representing Roche in the purchase of Novartis’ stake in Roche in late 2021. He credits the pandemic to some extent with having an accelerating effect on the digitalisation efforts of not only businesses but also law firms: ‘They have equally embraced remote technologies, artificial intelligence and document automation to increase the efficiency, flexibility and speed of the work. Due to the implementation of digital technologies, workflows are becoming streamlined and more efficient, which in turn enables businesses to reduce operational costs.’

This is also noted by Urs Feller, head of the dispute resolution practice at Prager Dreifuss: ‘The crisis has surely given the legal proceedings a boost into the digital age. We have noted good transitions of most parts of the economy to digital processes, as well as in courts.’

As Switzerland is a federal republic with 26 cantons as member states, the cantons are responsible for organising the cantonal courts themselves. When halfway through 2020 the power to decide the measures to counter the pandemic was largely handed back to the cantons, one of the main challenges was the discrepancy of restrictions and approaches. This has put the focus even more on Justitia 4.0, a project to digitalise the country’s entire justice system by 2026. Its main goal is to develop an exchange platform for electronic legal communications and electronic court files. It is evident that authorities, law firms and businesses alike are taking the pandemic as a learning experience to be better prepared, should another comparable crisis happen. But despite the challenges, everyone had to adapt quickly as business returned back to normal faster than some estimated. Whether it was transactional, disputes or regulatory work, after a two-to-three-month dip in Q2 2020, demand for legal support was higher than ever.

‘The crisis has surely given the legal proceedings a boost into the digital age. We have noted good transitions of most parts of the economy to digital processes, as well as in courts.’
Urs Feller, Prager Dreifuss

As one of the mid-sized full-service law firms in Switzerland, Prager Dreifuss can also look back on two busy years. Says Feller: ‘We have been able to continue this positive trend. All teams have had a successful year with complex and demanding work across all practice areas, in particular in dispute resolution, cross-border financing and insurance law.’

While digitalisation of the legal profession has been fast-tracked in the last couple years in Switzerland, another topic that has been around for some time also received renewed attention: ESG (environmental, social and corporate governance). With companies, investors and consumers all emphasising the importance of ESG best practice, law firms have witnessed a wave of interest from clients on how best to integrate this into their businesses.

One of the main challenges for counsel and clients alike is the fact that Switzerland, like many other jurisdictions, doesn’t have a unified code of conduct. Since it signed the Paris Agreement in 2017, there has been a wave of public and private sector initiatives: the monitoring of climate-related financial risks by the Swiss Financial Market Supervisory Authority (FINMA); transparency obligations for resources extraction companies; a gender equality corporate law reform; and support for sustainable finance by industry groups. According to Nicolas Piérard, who is a partner in the finance and corporate practices at Borel & Barbey: ‘The demand for ESG financial products and services from investors and clients has grown significantly in recent years. In this context, early November, FINMA issued guidance on preventing and combating greenwashing to ensure that investors are not deceived regarding the alleged sustainability of products and financial services.’

However, at this point there is very little sign of enforcement of the initiatives; the track record of FINMA opening investigations or proceedings is limited, as is related litigation. The pressure on businesses comes primarily from investors and consumers at the moment.

At the forefront

‘Switzerland continues to see an increase in the volume of investments in private equity and venture capital structures. After the uncertainty created by the pandemic, M&A deals started to pick up at the end of 2020, in particular in the information and communications technology and biotech sectors,’ says Piérard. His firm Borel & Barbey has been active in Geneva since 1907 and, according to him, ‘general corporate, private equity investments, financial services, construction and real estate, and employment disputes were among the busiest areas in the last year.’

Thanks to its diversified market, Switzerland is an attractive place to look for opportunities for a variety of PE funds. Lately, particularly attractive targets have been Swiss SMEs in the industrial, TMT and consumer goods sectors, and the majority of investors are from Europe. Switzerland’s traditionally flourishing start-up scene also survived the pandemic without a hit. In 2019 and 2020, investment into Swiss start-ups totalled just over CHF2bn ($2.2bn) on an annual basis for the first time. By July 2021, this amount had already been raised. The high activity in this space is only enhanced by Switzerland ranking number one in the Global Innovation Index, a spot it held for more than ten years.

Another hurdle for the Swiss market is its relationship with the EU, with only a number of bilateral agreements defining the rules of play between the parties. For the past 13 years, there have been on-and-off efforts to reach an overarching agreement, so it came as a shock when Switzerland withdrew from negotiations completely in May 2021. Bern cited the EU’s state aid rules as a particular reason for its withdrawal, as well as issues around freedom of movement.

‘Switzerland continues to see an increase in the volume of investments in private equity and venture capital structures.’
Nicolas Piérard, Borel & Barbey

Calame reports: ‘Switzerland’s withdrawal is currently causing challenges ranging from regulatory certification hurdles for the medical device sector to a reduction in electricity security and severe limitation of opportunities for Swiss researchers to participate in Horizon Europe, the EU’s most ambitious framework programme for research and innovation ever.’

Negotiations were picked up again in November 2021, with the EU requesting that Switzerland propose a timetable on how a framework agreement can be reached. The main agenda is to find an alignment of Swiss and evolving EU laws, a mechanism to settle disputes, and regular contributions to EU funds. A significant disbursement of cohesion funds, given the green light by the Swiss parliament in Q3 2021, was taken as a sign of goodwill, but there is still a long way to go. ‘Notwithstanding this, we are confident that Switzerland and the EU will find a pragmatic way forward to continue the successful partnership and economic relations,’ says Calame.

Place to be

Regardless of its quarrels with the EU, Switzerland has always been seen as a favoured place to settle down for various reasons. Since the beginning of the pandemic, governments around the world have paid out trillions of dollars in their efforts to combat the crisis, which will ultimately result in a rise in taxes. Currently, Switzerland is only one of four countries to adopt a recurring annual wealth tax, which offers HNWIs and UHNWIs much-required certainty. Fabian Teichmann, managing partner at Teichmann International, says: ‘We have experienced an increasing demand for relocations to Switzerland among private clients.’ Beyond the tax situation, wealthy private clients also famously value the Swiss lifestyle and its education system but, according to Teichmann: ‘Switzerland’s key advantage continues to be its unparalleled stability. While compliance practices may be a bit more demanding in Switzerland compared to other jurisdictions, clients continue to appreciate the high level of security.’ That is also mirrored in the real estate market: prices for prime locations in Zürich and Geneva as well as for larger, rural homes have not dropped since the pandemic began.

‘Prices for prime locations in Zürich and Geneva as well as for larger, rural homes have not dropped since the pandemic began.’

However, despite the obvious attractions of Switzerland to wealthy private individuals and international businesses, apart from a few exceptions, the market is traditionally dominated by independent full-service law firms and boutiques. And there are different reasons for that: ‘Considering Switzerland’s various specificities, including four official languages spoken in different regions of the country, independent firms build better connections with local business or regulators through their day-to-day activities and contacts,’ says Piérard.

Feller echoes that sentiment: ‘As an independent law firm, we encounter significantly less conflict-of-interest situations as firms forming part of global networks. The current form of co-operation with the London Magic Circle firms or other major law firms around the world seems to meet their expectations and is also much welcomed in domestic matters.’ Teichmann agrees, as he sees his clients appreciate that ‘being independent guarantees efficient chains of command.’

‘While compliance practices may be a bit more demanding in Switzerland, clients continue to appreciate the high level of security.’
Fabian Teichmann, Teichmann International

Calame concludes: ‘Independent firms in Switzerland typically possess a strong base of local clients with international operations. This gives them to some extent direct access to global markets without having to rely on cross-border networks to generate business.’

There is little sign of anything on the horizon to upset the status quo for law firms dominating the Swiss legal market. Not even Covid. And given the success enjoyed by a flourishing independent legal market thus far, why would disruption be welcome? LB

L500 EMEA 2021 – Switzerland top-tier rankings

Banking and finance: Geneva

Firm
Lenz & Staehelin
Schellenberg Wittmer

Banking and finance: Zurich

Firm
Bär & Karrer
Homburger
Lenz & Staehelin
Niederer Kraft Frey

Commercial, corporate and M&A

Firm
Bär & Karrer
Homburger
Lenz & Staehelin
Niederer Kraft Frey

Dispute resolution: Arbitration

Firm
Bär & Karrer
Homburger
LALIVE
Lenz & Staehelin
Pestalozzi
Schellenberg Wittmer

Dispute resolution: Litigation

Firm
Bär & Karrer
Homburger
Lenz & Staehelin
Niederer Kraft Frey
Pestalozzi
Schellenberg Wittmer

Fintech

Firm
Bär & Karrer
Kellerhals Carrard
Meyerlustenberger Lachenal
MME Legal | Tax | Compliance
Niederer Kraft Frey

Healthcare and life sciences

Firm
Bär & Karrer
CMS
Homburger
VISCHER

The post Switzerland focus: Bouncing back appeared first on Legal Business.

Switzerland is often singled out as the prime model for a stable economy – apart from a temporary blip in 2009 following the global economic crisis, GDP growth has moved consistently upwards. The country’s strong employment figures and national debt position have only underlined its positive reputation even more. But when Covid-19 hit, not even Switzerland could roll with all the punches it had to take, and continue growing.

That said, at the end of 2020 the economic activity was only 2% below its pre-crisis level – a strong bounceback, especially compared to other European countries. While Switzerland remains locked down for the first quarter of 2021, the prognosis for the year ahead looks promising.

But economic performance aside, Switzerland’s pristine copybook was blotted in its handling of the Covid-19 crisis. The country’s handling of the first wave was received positively and proved effective; after it introduced a nationwide partial lockdown in mid-March 2020, infection and mortality rates fell quickly. The country was re-opened in May and the Swiss could enjoy a summer with few worries, with case numbers being close to zero at times. However, the second wave then hit hard: infection levels spiked with high speed from late August on, leading to hospitals getting close to being overwhelmed in late autumn.

‘Many small employers are under financial distress but so far the provided state aid has prevented a wave of insolvencies.’
Stefan Breitenstein, Lenz & Staehelin

As it was down to the 26 individual cantons to introduce their own restrictions, these were often inconsistent and confusing – for example, Switzerland’s decision to allow ski resorts to remain open was highly controversial, especially since neighbours France and Germany decided against it. As of March 2021 Switzerland, which has a population of close to 8.5 million, had more than 9,300 deaths – one of the highest per capita rates in Europe. Even though Switzerland was quick to approve two vaccines at the beginning of the year, the government seemed to have not ordered enough batches to meet its first targets. The rollout was also widely criticised as disorganised and slow.

To assist and save struggling businesses, the government developed a twofold package, the so-called ‘corona loans’. It introduced ‘Covid-lite’ loans with a principal amount of up to CHF500,000 (€462,000), available to all Swiss companies that did not turn over more than CHF500m in the previous year and ‘Covid-plus’ loans, with a principal amount of up to CHF20m (€18.5m). The application process was praised for being straightforward as the company in question simply had to submit an online declaration to a participating Swiss bank. The government initially set the bridge loan programme to be at CHF20bn but later increased it to CHF40bn.

In addition, the Swiss Federal Council enacted the Covid-19 insolvency ordinance from April to October, which took away the obligation on companies to report excessive debts within that timeframe, causing the level of bankruptcies to be only slightly above trend. While there is no certainty that some bankruptcies have only been delayed by the programmes, they have at least prevented the worst for the time being. The Swiss government also quickly moved to introduce and ultimately extend measures to protect the country’s workforce through its €14bn furlough scheme, which was lauded on an international as well as on a national level. Throughout the year, almost two million people made use of this scheme. This meant that even when shops, restaurants and leisure facilities were closed for much of the first year of the pandemic, the unemployment rate did not spike. While it was at a ten year high of 3.7% in January 2021, this is still a moderate rate compared to many other countries.

The new normal

The response from the legal sector with regards to measures taken by the government to save the economy have been positive. Stefan Breitenstein, managing partner of Lenz & Staehelin, says: ‘In lockdown 1.0, everyone seemed very pessimistic but the market was very robust overall. Many small employers are under financial distress but so far the provided state aid has prevented a wave of insolvencies.’

His firm can look back on a strong 2020, with increases in revenue, profit, and headcount. It remained busy throughout the year as well, taking a lead role in several multibillion-euro transactions, including acting as lead counsel to Sunrise Communication Group in Liberty Global’s acquisition of all its shares for CHF6.8bn (€6.2m) which Breitenstein says showcased Lenz & Staehelin’s strength across different practice groups. He doesn’t expect a decrease in new instructions either: ‘Clients keep looking for high-quality services across all sectors. Despite the lockdown, we remain accessible, flexible and agile – that is the strategy.’

‘In these times of uncertainty, more than ever, clients look for a trusted adviser and an efficient person they can have direct contact with.’
Caroline Clemetson, Schellenberg Wittmer

The expectation from clients that their lawyers step up their game has also been witnessed by Caroline Clemetson, a member of Schellenberg Wittmer’s management committee: ‘In these times of uncertainty, more than ever, they look for a trusted adviser and an efficient person they can have direct contact with. Clients also expect you to be more reactive as they know you are not travelling.’

Clemetson even goes so far as describing 2020 as ‘fantastic’ when it comes to the performance of the firm, praising the flexibility and foresight of its people. ‘Thanks to our office in Singapore, we saw the lockdown coming and we shifted everyone to remote working right away. Therefore, we got business done without any interruptions,’ she says. Standout matters include advising the Russian anti-doping agency in an international arbitration and assisting Swiss private investors in the acquisition of retailer Conforama.

Senior partner and chair of the board of directors at Bär & Karrer, Daniel Hochstrasser, gives a similar view: ‘Covid-19 has not had, so far, a profound negative effect on the Swiss economy.’ With high activity in the industrial, manufacturing and financial services sectors, Bär & Karrer can look back on a successful 2020 overall.

‘The effects were certainly less pronounced than we anticipated when we drew up contingency plans in March,’ says Hochstrasser. ‘In the end, we fortunately didn’t have to take any of the measures we had contemplated.’ A highlight for the firm was advising Libra Association on its bid to build a global payment system based on the Libra blockchain; a matter that combined expertise from its banking and finance, fintech and tax departments. But, he adds, one thing is for certain: ‘The way people work has probably changed forever.’

Novel territory

In the year leading up to the Covid-19 pandemic, companies based in international hubs in Europe had started to introduce the possibility of working from home on certain days of the week. However, in Switzerland, where it is fair to say that a more traditional approach prevails in certain aspects of the life, this idea was relatively unpopular – the firms Legal Business spoke to agreed that the idea of home working was historically uncommon and sometimes even frowned upon.

A federal supreme court ruling in 2019 held that if an employee is required to work from home, the company must pay a share of their rent. This decision certainly did not take a significant increase of people having to shift to permanent home offices into account. However, this forced development has brought an opportunity – management figures at Switzerland’s leading law firms say they have not seen a drop in productivity and that their more junior staff in particular have welcomed the flexibility home working has offered. The coronavirus removed the stigma of working from home quickly and all at once and it may also present a solution to a problem that has been a sore one for the country: gender equality. Switzerland has long lagged behind, with women only making up about a third of senior or management positions; a number that has barely changed over the last ten years. The increased and unstigmatised flexibility over when and where people may work could present an opportunity for women to combine career and motherhood in the future.

‘Covid-19 has not had, so far, a profound negative effect on the Swiss economy.’
Daniel Hochstrasser, Bär & Karrer

Another blessing in disguise turned out to be the speed in which technology had to be embraced in the wake of the pandemic. ‘A functioning home office was successfully created within weeks,’ says Christian Oetiker, who became managing partner at Vischer at the start of this year. ‘I am certain it will increase the flexibility of the workforce tremendously.’ He goes on to praise the efforts of his team: ‘For us lawyers and all our staff, it was certainly an intensive year, especially from a workload point of view. With our stronghold in the healthcare and energy sector, we see a lot of activity unaffected by Covid-19.’

Vischer opened an office in Geneva in September 2019 – adding to its existing locations in Zürich and Basel – and was recently active for NBE-Therapeutics in its sale to Boehringer Ingelheim for €1.18bn. ‘Despite the crisis, there are still significant transactions going on,’ adds Oetiker.

The solid dealflow and anticipated economic recovery is also why Beat Brechbühl, managing partner at Kellerhals Carrard, has no concerns for the future for independent law firms in the market. ‘It is too small for the very big international law firms. I could, however, imagine there to be more consolidation between Swiss firms in the future.’

A prominent tie-up is already in the pipeline: full-service law firms Meyerlustenberger Lachenal and Froriep have announced their merger, which will take place this summer. The new firm will focus on the hi-tech, innovative and regulated sectors, and will comprise 155 lawyers in four Swiss locations as well as offices in Madrid and London.

The country’s legal market has historically been dominated by independent full- service business law firms as well as local boutiques. The only exceptions are Baker McKenzie and CMS, which have managed to establish themselves over the years. Quinn Emanuel Urquhart & Sullivan also has a competitive offering, which is limited to its specialism in disputes and investigations.

Brechbühl is happy with his firm’s performance, particularly as it was instructed in a Swiss-wide procurement project originating from the crisis. It is acting for four government-accredited loan guarantee organisations responsible for the Covid bridging loans to uncover possible credit abuses, persecute possible fraudsters and recover the unlawfully obtained loans for the next seven years. He expects that ‘some companies might use this crisis as a reset button in order to strategically adapt and rebrand. Furthermore, clients have become more budget – and liquidity – conscious.’

This is a trend that is also observed by Christoph Lang, chair of Pestalozzi: ‘Large corporations already implemented e-billing systems before Covid-19 to try to keep fees down. This might be amplified through the pandemic.’ He and Laurent Killias – the firm’s arbitration practice head – are clear on the reasons why the country has navigated the crisis fairly smoothly: ‘Overall, Switzerland is in the lucky position of being a wealthy economy to start with. Our structure enabled us to even benefit in some areas – if you look at all the pharmaceutical sector and banks for instance.’ This strong performance also extends to the Swiss legal profession. Says Lang: ‘Initially everybody got slightly nervous but the legal sector has been surprisingly stable. Our end-of-year report is positive.’

‘Inevitably, the pandemic has had a profound effect on all types of businesses. We have seen increased levels of activity in both our arbitration and litigation practices.’
Domitille Baizeau, LALIVE

And, according to Killias, this upward trajectory will remain: ‘In the fields of disputes and bankruptcies we will see the effects of the pandemic in the future – and for those, lawyers are needed.’ However, litigators in particular didn’t have it easy at the beginning of the pandemic: with the lockdown came the closure of Swiss courts and Swiss judges and lawyers were not accustomed to virtual proceedings.

Despite a new regulation that temporarily allowed the use of videoconferencing in civil trials entering into force in April 2020, just a month after the beginning of lockdown, some struggled. While the practice of remote hearings has been used in arbitration before, this 100% shift posed a challenge for all. The repeated delay of proceedings has created a backlog of cases; combining those with the much-anticipated disputes to arise from Covid – such as force majeure and insolvency-related claims, disputes practitioners can prepare themselves for some busy months ahead.

LALIVE already finds itself in this situation. ‘Inevitably, the pandemic has had a profound effect on all types of businesses. As a firm focusing on disputes and crisis-related work, we have seen increased levels of activity in both our arbitration and litigation practices,’ says Domitille Baizeau and André Brunschweiler, both members of the management board.

The consensus among interviewees is that there were a few weeks in early 2020 in which M&A transactions experienced a momentary slump but in the main work levels haven’t experienced a notable decline and, in some areas, there was actually an increase. Restructuring and employment teams saw a strong uptick in instructions as companies found themselves in novel territory. Although there were minimal IPO listings, capital market lawyers remained busy with debt work. Furthermore, as Baizeau and Brunschweiler highlight: ‘Switzerland’s “safe haven” reputation played particularly well during the pandemic, with banking and wealth management services continuing to prosper, as well, of course, as the pharmaceutical industry.’ The firm also notes an increase in asset recovery cases and in compliance/internal investigations. They conclude: ‘Even if it remains strong, the economic environment has evolved in Switzerland as has demand for legal services. Firms need to be able to adapt quickly to change and challenges, as we have.’

Onwards and upwards

‘As a lawyer, you’re definitely in the right place at the moment,’ says Homburger finance and capital markets partner René Bösch. Like its main rivals in Zurich and Geneva, Homburger did not see a decrease in business last year because – besides assisting its usual client base – it was also instructed in matters originating from the pandemic. The capital markets team had a particularly strong year in debt transactions, and a group at the firm advised FIFA on the set-up of the FIFA Covid-19 Relief Plan. Bösch gives a promising prognosis: ‘The economy remains remarkably resilient and I’m confident the other driving forces behind the Swiss economy will also survive.’

‘The economy remains remarkably resilient and I’m confident the other driving forces behind the Swiss economy will also survive.’
René Bösch, Homburger

He could be right: according to The Economist, real GDP will grow by 2.7% in 2021 after an estimated decline of roughly 3% in 2020 – this will mean a faster recovery in Switzerland than in regional peer economies. Real GDP could return to pre-crisis levels as early as 2022.

Of course, one of the biggest takeaways from this pandemic is that nothing can be said with absolute certainty. But Bösch sums up the sentiment shared by the Swiss legal community: ‘Even if progress is made in small steps, I am staying optimistic.’ LB

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