Financial Services and Markets Act 2023 (Mutual Recognition Agreement) (Switzerland) Regulations 2025

Considered in Grand Committee

Moved by

That the Grand Committee do consider the Financial Services and Markets Act 2023 (Mutual Recognition Agreement) (Switzerland) Regulations 2025.

My Lords, these regulations are a vital step in implementing the UK’s commitments under the Bern Financial Services Agreement, signed with Switzerland in December 2023. This agreement is a landmark in our financial services relationship, reflecting the UK’s status as a leading global financial centre and our long-standing ties with Switzerland.

The purpose of these regulations is straightforward. They create a legal framework to allow Swiss investment service firms to supply certain cross-border services directly to UK clients, including sophisticated and high net worth individuals, without the need for UK authorisation.

This new market access is based on mutual recognition. This means that each party recognises the other party’s regulatory and supervisory regimes and deems that the other party’s regulatory and supervisory regime achieve equivalent outcomes to its own. These outcomes relate to market integrity, financial stability and the protection of consumer and investors.

Mutual recognition is underpinned by enhanced supervisory co-operation between the Swiss Financial Market Supervisory Authority, or FINMA, the Financial Conduct Authority, the Bank of England and the Prudential Regulation Authority. For UK insurers, the Swiss offer under the BFSA allows them to provide certain insurance services directly to Swiss clients, including sophisticated and high net worth individuals, without the need for Swiss authorisation, subject to the same principles of mutual recognition and supervisory co-operation.

To ensure this new access is safe and well-managed, the regulations also equip our financial regulators—the Financial Conduct Authority, the Prudential Regulation Authority, and the Bank of England—with new powers and duties. These include the ability to request information from Swiss firms, intervene if risks to UK consumers or financial stability arise, and oversee an orderly wind-down of Swiss firms’ UK activities if the agreement is terminated. The FCA is also required to maintain a public register of Swiss firms operating under the agreement, ensuring transparency for UK clients.

The regulations also establish enhanced co-operation arrangements between UK and Swiss regulators, including a formal memorandum of understanding. This will support regular information sharing, joint supervisory work and effective dispute resolution. The FCA and PRA will work closely with their Swiss counterparts to address any risks or issues that may emerge.

Importantly, these regulations do not diminish the UK’s high standards of consumer protection, market integrity or financial stability. Safeguards are in place to allow UK regulators to act swiftly and decisively if a Swiss firm’s conduct threatens our financial system or clients. Swiss firms will remain subject to supervision by the Swiss regulator, but UK authorities retain the right to intervene where absolutely necessary and if co-operation with the Swiss regulator has failed. These are backstop powers and will therefore be used only as an absolute last resort.

My Lords, I thank the Minister for introducing this statutory instrument, which, as he said, implements the UK’s commitment to the agreement between the UK and the Swiss Confederation on mutual recognition in financial services.

I note that the explanation of the SI says that it will, as the Minister said, allow the Financial Conduct Authority and the Prudential Regulation Authority to essentially oversee and ensure that nothing is going wrong and have oversight of Swiss operations here. That is perhaps not as reassuring as one might hope. I note a report in the Times yesterday that the Financial Conduct Authority had privately shared concerns about the 79th Group with the City of London Police eight months before the group collapsed, owing thousands of people more than £200 million. It is, to quote the Times,

“suspected of being one of the largest Ponzi schemes in British history”.

I note for the record that the company denies any wrongdoing. None the less, the Financial Conduct Authority appears to have had concerns but did not share those with consumers, who are clearly now very much paying the price.

It is worth reflecting that it is a little bit surprising that, as the Minister said, this reflects an agreement that was struck in December 2023 by the previous Government. They said that this was a

“ground-breaking pact on financial services cooperation”

and that it would enable

“frictionless, cross-border provision of financial services between the UK and Switzerland”.

It is interesting that a Government who have been elected on a promise of change now appear to be delivering exactly the agenda with the same kind of terminology as that of the previous Government who they replaced.

My Lords, this statutory instrument gives legal effect to the mutual recognition agreement between the UK and Switzerland known as the Bern financial services agreement. As the Minister has so clearly outlined, the agreement enables the UK and Swiss financial firms to provide services to each other’s markets, particularly in wholesale sectors, such as investment services, insurance and banking, without needing to establish a local presence or duplicate regulatory approvals.

The UK’s position as a global financial centre depends on maintaining strong transparent relationships with trusted international partners. We therefore welcome this agreement with Switzerland, developed on our watch. Mutual recognition, when accompanied by effective supervision and regulatory co-operation, can deliver meaningful benefits to both markets. Under this agreement, Swiss firms will be able to operate in the UK under the supervision of Swiss regulators, with the FCA and PRA granted powers to step in if issues arise—as the Minister explained. The same applies to UK firms offering services in Switzerland.

With that in mind, I would be grateful if the Minister could address the following points. First, I would like to probe the Swiss end. Has Switzerland yet put in place what is needed there to allow UK firms to benefit from mutual recognition? If not, when will this be done? What are the nature and scale of benefits to the UK financial institutions? That seems an important point.

Secondly, turning to our end, how confident are the Government that UK regulators have the necessary tools to monitor Swiss firms’ activities and act swiftly if concerns emerge? What protections are in place for UK clients—not only high net-worth individuals but small firms—should something go wrong?

Thirdly, on timing, why has it taken nearly two years from signing the agreement in December 2023 to putting this framework in place? Has there been a problem with the regulators not being ready or is the Treasury not working at pace?

I thank both noble Baronesses for their comments on this SI, which were gratefully received. This is an important SI because it is all about growth and building a relationship with a trusted trader in Switzerland that we can build on into the future.

On security and trust, the UK and Switzerland have a strong and established relationship in financial services, and last year we increased the number of transactions et cetera by 27%, and the amount by £4.9 billion. I cannot give a figure for how that is going to extrapolate into the future, but we are doing this to make it easier to have growth. Those figures will hopefully improve—they will improve, in my view—over the coming years.

In response to the noble Baroness, Lady Bennett, the agreement includes, for us, robust safeguards. Swiss firms must be authorised and supervised by FINMA, and the UK regulators retain powers to intervene if risks arise, including restricting activities and managing wind-downs, which both noble Baronesses raised. The FCA and the PRA act swiftly in urgent cases and collaborate closely with Swiss authorities. These measures ensure that, for UK consumers, market integrity and financial stability remain protected, while enabling the benefits of cross-border market access.

How they will be held to account was another issue raised by both noble Baronesses. Regulators will be held to account through clear statutory duties set out in regulations requiring transparency in their actions and co-operation with His Majesty’s Treasury. Their decisions, such as interventions against Swiss firms, are subject to oversight and include the right of affected firms to refer matters to an independent tribunal. The FCA public register will provide visibility of Swiss firms’ activity, supporting scrutiny by clients and stakeholders. Regular engagement with industry and reporting to the joint committee further ensures regulators’ accountability in implementing and managing the agreement. On the anti-money laundering aspect that was raised, Swiss firms will still need to comply with the UK anti-money laundering regime that we have in place.

We have a dualist legal system—treaties do not change domestic law until incorporated by legislation —so the agreement requires secondary legislation. Parliamentary scrutiny under the Constitutional Reform and Governance Act was completed in May 2024, and the Government have now laid the necessary statutory instruments. In Switzerland, the agreement received parliamentary approval and passed the referendum period. Implementation also involved the FCA and the PRA establishing operational processes, with the FCA consulting on rulebook changes. We just want to get this right and, if it takes a little longer to achieve that, that is a good thing, actually. Swiss regulators will have the same powers as the FCA and the PRA. We have signed a memorandum of understanding with the regulators there.

The statutory instrument marks a major milestone in the UK’s financial services policy, as it sets out the legislative framework required for the Bern financial services agreement with Switzerland to go live. It is important in three ways. The SI is essential for implementing the UK’s commitments under the agreement, which was signed in December 2023 and ratified by Parliament in April 2024. Without this legislation, the agreement could not be operationalised, as international treaties do not automatically change UK law. The SI creates a new legal route for Swiss investment services firms to supply cross-border services to certain UK clients—notably, sophisticated high net-worth individuals—without needing UK authorisation. It also sets up a public register for transparency and ensures that Swiss firms are subject to appropriate UK regulatory powers and safeguards.

The SI is a flagship deliverable under the Government’s strategy to enhance the UK’s position as a global financial centre by facilitating mutual recognition and regulatory co-operation with Switzerland. It supports increased cross-border trade flows, reduces duplicative regulatory burdens and strengthens the UK’s competitiveness in wholesale financial services. This SI is important because it translates an international agreement into practical and enforceable UK law, unlocking new opportunities for cross-border financial services trade and underpinning the UK’s wider strategy for growth and competitiveness in this sector.

I will ask a fairly technical question, so I will entirely understand if the noble Lord wishes to write to me about it. In his response, he said that this SI avoids duplicating regulatory burdens, but he also said that the Swiss companies would be covered by our anti-money laundering laws. As I referred to in my original contribution, my understanding is that transparency is avoided under Swiss law. I do not claim to be an expert on Swiss law; obviously I am taking advice here. Article 47 of the federal Act on banks and Article 127 of the direct federal tax Act effectively allow Swiss institutions to avoid scrutiny and reporting. But we are then saying that this will have to be covered by our anti-money laundering laws. As I said, I am not expecting the noble Lord to give me a response now, but could he commit to write to me about that issue of transparency and anti-money laundering, as well as how we can avoid duplication and ensure that we have our own anti-money laundering regulations?

Obviously, I will write with further detail but, as I said, the regulators will be held to account for what they do. This requires transparency—that is one of our stipulations—but I can write to the noble Baroness with further detail about that.

I am grateful to the Minister for explaining the scale of the opportunity to date and, therefore, our ambition for more; this is very good news. I am not sure that it has been quite quick enough for me—from May 2024 to today seems like quite a long time—but, of course, the Government are new and have been very busy with many things, so it is understandable.

Perhaps I could just come back to the point about parliamentary scrutiny. The Minister mentioned a Joint Committee; I am not sure which Joint Committee that was. Clearly, it is important that parliamentarians should be able to see the progress of important financial agreements such as this. I am not quite sure what the mechanism is. Is there an annual report from the FCA that covers this? That would be the FCA and the PRA. I am interested in how parliamentarians will be able to scrutinise this. What will be the best approach?

I will write to the noble Baroness with a fuller answer to her question.

Motion agreed.