Structured finance and securitisation in Switzerland: overview

A Q&A guide to structured finance and securitisation law in Switzerland.

This Q&A provides an overview of, among others, the markets and legal regimes, issues relating to the SPV and the securities issued, transferring the receivables, dealing with security and risk, cash flow, ratings, tax issues, variations to the securitisation structure and reform proposals.

To compare answers across multiple jurisdictions, visit the Structured lending and Securitisation Country Q&A tool.

This Q&A is part of the global guide to structured finance and securitisation. For a full list of contents visit www.practicallaw.com/securitisation-guide.

Contents

Market and legal regime

1. Please give a brief overview of the securitisation market in your jurisdiction. In particular:
  • How developed is the market and what notable transactions and new structures have emerged recently?

  • What impact have central bank programmes (if any) had on the securitisation market in your jurisdiction?

  • Is securitisation particularly concentrated in certain industry sectors?

The market for securitisations in Switzerland is still developing and the number of transactions (both public and private) continues to increase.

Typical transaction structures have evolved in the auto lease sector since 2012. AMAG Leasing Ltd, the largest auto lease service provider in Switzerland, was the last player to enter the Swiss securitisation market, with a first transaction in December 2015 and a second transaction in April 2016. In addition, regular issuers in the Swiss public securitisation market include:

  • Cembra Money Bank (transactions backed by auto lease portfolios).

  • Swisscard (transactions backed by credit card portfolios).

There are also a larger number of privately placed deals in various asset categories, such as trade receivables, auto leases and loans, and commodities receivables. Many of these Swiss securitisation transactions are refinanced through conduit platforms, rather than through the direct issuance of debt instruments to the private market.

In the last few years, the commercial and residential mortgage-backed securities markets have been very slow, but it is expected that players will continue to consider securitisation transactions in the real estate sector, given that regulators around the world will increase the pressure from a regulatory capital perspective (in particular under Basel IV).

The Swiss National Bank does not maintain a programme specifically relating to securitisations. The programmes of other central banks have attracted many transactions, but there may not be a direct connection to Swiss underlying assets.

The auto lease industry is one of the most active in the Swiss securitisation market. It is expected that there will be a lot of activity in the residential mortgage-backed security and covered bond area in the future.

 
2. Is there a specific legislative regime within which securitisations in your jurisdiction are carried out? In particular:
  • What are the main laws governing securitisations?

  • What is the name of the regulatory authority charged with overseeing securitisation practices and participants in your jurisdiction?

Switzerland does not have specific securitisation legislation. Accordingly, the general Swiss legal framework applies as it would for any other financing transaction. The relevant legislation includes:

  • The Swiss Code of Obligations (in particular in relation to matters relating to the formation of the special purpose vehicle (SPV) and the transfer of receivables and assets).

  • General capital markets regulations.

There is no specific regulatory authority for securitisation transactions. However, various regulatory authorities are relevant in the context of Swiss securitisation transactions, including the:

  • SIX Swiss Exchange in Zurich (SIX), whose SIX Exchange Regulation is relevant for listing-related matters.

  • Swiss Financial Market Supervisory Authority (FINMA) for certain regulatory matters, where relevant, depending on the structure of the transaction and the underlying asset category, such as:

    • confirmation of non-licencing requirements;

    • non-consolidation in bankruptcy;

    • non-application of anti-money laundering considerations.

  • Cantonal regulators for consumer credit licencing questions, where relevant.

In addition, transactions are typically presented to and signed off by relevant tax authorities by a tax ruling.

 

Reasons for doing a securitisation

3. What are the main reasons for doing a securitisation in your jurisdiction? How are the reasons for doing a securitisation in your jurisdiction affected by:
  • Accounting practices in your jurisdiction, such as application of the International Financial Reporting Standards (IFRS)?

  • National or supra-national rules concerning capital adequacy?

  • Risk retention requirements?

  • Implementation of the Basel III framework in your jurisdiction?

For Swiss originators, the main reasons for preforming securitisation transactions are typically:

  • Efficient funding.

  • The diversification of funding sources.

In particular, originators that have no general access to (public) capital markets (such as privately held entities) are keen to set up securitisation transactions to diversify funding sources and avoid (pure) dependency on bank lending.

Accounting practices are not an obvious motivation for securitisation transactions in Switzerland, but they naturally have an impact on the structuring of Swiss securitisations.

Financial institutions that are subject to capital adequacy requirements may set up structures to achieve relief in this respect. A number of players are currently looking at residential mortgage-backed security transactions and regulatory capital relief is one of the key reasons for doing so, given the increased pressure on such institutions following Basel III and Basel IV.

There are no risk retention rules in Switzerland. In particular, Regulation (EU) 575/2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) 648/2012 (Capital Requirements Regulation), including Part 5 has not yet been adopted by Switzerland and transposed into Swiss law. However, in order not to negatively affect distribution, a number of transactions impose covenants on the originator to retain, on an ongoing basis, a material net economic interest in the transaction in an amount equal to at least 5% of the nominal value of the assets (or a higher percentage as may be required from time to time in accordance with the applicable Risk Retention Rules). This would apply to exemptions, general operating conditions, depositaries, leverage, transparency and supervision, as if Switzerland had implemented:

  • Article 405(1)(d) of the Capital Requirements Regulation.

  • Article 51 of the Commission Delegated Regulation No. 231/2013 of 19 December 2012 supplementing Directive 2011/61/EU on alternative investment fund managers (AIFM Directive).

 

The special purpose vehicle (SPV)

Establishing the SPV

4. How is an SPV established in your jurisdiction? Please explain:
  • What form does the SPV usually take and how is it set up?

  • What is the legal status of the SPV?

  • How the SPV is usually owned?

  • Are there any particular regulatory requirements that apply to the SPVs?

In Swiss securitisation transactions, the SPV is incorporated as either a:

  • Joint stock corporation (Aktiengesellschaft) (AG).

  • Limited liability company (Gesellschaft mit beschränkter Haftung) (GmbH).

Typically, Swiss SPVs are held by the originator, as the availability of charitable trust structures or similar structures is limited in Switzerland. However, some rating agencies request the implementation of golden shareholder structures that provide (independent) golden shareholder(s) with some control (veto rights) at the level of the shareholders meeting. All transactions involving Swiss SPVs normally provide for independent director structures, which give the independent director some control (veto rights) at the board level.

There is no specific regulatory regime for SPVs set up in the context of a securitisation transaction. However, the structuring of Swiss securitisation transactions typically involves a ruling confirmation by FINMA that the SPV does not qualify as either a:

  • Bank under the Swiss Federal Banking Act.

  • Collective investment scheme under the Swiss Federal Collective Investment Schemes Act.

 
5. Is the SPV usually established in your jurisdiction or offshore? If established offshore, in what jurisdiction(s) are SPVs usually established and why? Are there any particular circumstances when it is advantageous to establish the SPV in your jurisdiction?

The pros and cons of Swiss SPV structures as against non-Swiss SPV structures must be carefully considered on a case-by-case basis. Considerations can include the following:

  • Generally, it is very difficult to use non-Swiss SPVs where the underlying asset relates to real estate located in Switzerland, as cantonal withholding taxes can be incurred on interest payments secured by Swiss real estate.

  • It may be the case that the transfer of receivables or assets abroad is not desirable for reasons, such as data protection or banking secrecy considerations in particular, where the underlying documentation does not provide for a proper waiver of data protection.

  • Interest payments on debt instruments issued by a Swiss SPV directly to multiple investors attract Swiss withholding tax at 35%. While Swiss withholding tax is generally recoverable, the process of doing so can be burdensome for non-Swiss investors and even Swiss investors suffer a delay in recovering these amounts. For investors located in a jurisdiction that does not benefit from favourable double tax treaties, or that do not otherwise benefit from treaty protection, even in case a favourable double tax treaty would be in place (such as tax-transparent funds), Swiss withholding tax might not be fully recoverable or not recoverable at all. Swiss withholding tax can be avoided by careful structuring if a non-Swiss SPV is used, but this adds a lot of complexity to the structuring process given that there will also be a strong focus on the true sale analysis from a tax perspective.

Swiss originators that do not have a presence abroad are normally inclined use a Swiss SPV for cost-efficiency and organisational purposes.

Ensuring the SPV is insolvency remote

6. What steps can be taken to make the SPV as insolvency remote as possible in your jurisdiction? In particular:
  • Has the ability to achieve insolvency remoteness been eroded to any extent in recent years?

  • Will the courts in your jurisdiction give effect to limited recourse and non-petition clauses?

Bankruptcy-remoteness is generally achieved by:

  • The limited corporate purpose of the SPV.

  • Limited recourse and non-petition provisions to which counterparties to the SPV are asked to sign up.

In addition, all parties contracting with the SPV are asked to waive set-off provisions. While there are no court precedents that explicitly address limited recourse and non-petition clauses, courts are likely to give effect to such clauses, and legal opinions supporting this have been provided to the full satisfaction of rating agencies and other relevant parties.

Ensuring the SPV is treated separately from the originator

 
7. Is there a risk that the courts can treat the assets of the SPV as those of the originator if the originator becomes subject to insolvency proceedings (substantive consolidation)? If so, can this be avoided or minimised?

In Switzerland, securitisation SPVs are set up as separate legal entities. Generally, the bankruptcy of a shareholder of the SPV does not lead to the bankruptcy or liquidation of the SPV itself. Instead, the bankruptcy of the shareholder results in the shares in the SPV falling into the bankruptcy estate of the shareholder and being sold in the course of the liquidation or bankruptcy. Any such transfer of shares in the SPV would not legally affect the contractual obligations of the SPV under the transaction documents. In addition, there is no concept of substantive consolidation under Swiss law (subject to extraordinary cases, such as fraud and abuse of rights) and a bankruptcy of a shareholder of the SPV would not, under Swiss law, result in a consolidation of its assets and/or liabilities with those of the SPV.

 

The securities

Issuing the securities

8. What factors will determine whether to issue the SPV's securities publicly or privately?

The decision whether to issue the SPV's securities publicly or privately is typically driven by:

  • The availability of the relevant investor base for certain transactions.

  • Pricing considerations.

  • Transaction costs considerations.

Generally, transaction costs are considered to be lower in the context of private transactions due to the limited disclosure requirements and the absence of an extensive rating agencies process. In addition, in private deals, there may be a higher level of flexibility in amending, extending or restructuring a transaction.

 
9. If the securities are publicly issued:
  • Are the securities usually listed on a regulated exchange in your jurisdiction or in another jurisdiction?

  • If in your jurisdiction, please identify the main documents required to make an application to list debt securities on the main regulated exchange in your jurisdiction. Are there any share capital requirements?

  • If a particular exchange (domestic or foreign) is usually chosen for listing the securities, please briefly summarise the main reasons for this.

In Switzerland, publicly issued securities are typically listed on the SIX Swiss Exchange, the largest regulated exchange in Switzerland. For pure Swiss deals, other jurisdictions are typically not considered for a listing, given the focus of the Swiss investor base. However, multi-jurisdictional transactions (including Switzerland) have been listed on exchanges abroad.

A listing on the SIX Swiss Exchange requires the prior approval of the issuer and the transaction structure by the exchange. Corporate documents, financial statements of the last two years and certain declarations must be submitted for approval by the SIX Swiss Exchange. However, for securitisation transactions, exemptions apply for financial statements (given that issuers are always newly incorporated entities). The prospectus must be submitted to SIX Swiss Exchange to receive listing approval for the securities. For securitisation transactions the preliminary prospectus will typically be pre-approved.

Constituting the securities

10. If the trust concept is not recognised in your jurisdiction, what document constitutes the securities issued by the SPV and how are the rights in them held?

The trust concept as such is not available under Swiss law, although foreign law governed trusts are generally recognised in Switzerland. Accordingly, securities issued in the framework of securitisation transactions are typically constituted and issued under an English law trust deed with a trustee located outside of Switzerland. There are no obstacles to listing securities in Switzerland that are governed by non-Swiss law.

 

Transferring the receivables

Classes of receivables

11. What classes of receivables are usually securitised in your jurisdiction? Are there any new asset classes to have emerged recently or that are expected to emerge in the foreseeable future?

Swiss securitisation transactions are based on, among other things:

  • Trade receivables.

  • Commodity warehouse receipts.

  • Auto leases and loans.

  • Credit card receivables.

  • Residential mortgage loans.

  • Commercial real estate loans.

  • Loans to small and medium-sized businesses (SME).

There is no class of receivables that is most likely to be the subject of a securitisation in Switzerland, even though the market has seen many public transactions involving auto lease assets and credit card receivables.

Accordingly, any type of assets can be securitised, but general considerations around the suitability of assets for securitisations transactions apply.

Transferring receivables from the originator to the SPV

12. How are receivables usually transferred from the originator to the SPV? Is perfection of the transfer subject to giving notice of sale to the obligor or subject to any other steps?

The assignment and transfer of assets to the SPV requires a written agreement between originator and SPV. Ideally, only receivables are transferred to the SPV. However, given the uncertainty relating to the assignment of future receivables in the context of bankruptcy, some transactions involve the transfer of entire agreements to the SPV, so that future receivables arise directly with the SPV.

Receivables can be freely assigned, provided the underlying agreement does not contain a ban on assignment (pactum de non cedendo). The transfer of an entire agreement requires the consent of the counterparty, but this consent can be obtained in advance and can cover any future transfer of the agreement. Ideally, this consent should be embedded in the relevant general terms and conditions that govern the relevant agreement.

Notification of the third party obligor is (except in specific cases) not a perfection requirement, but before such notification the third party debtor can still validly discharge its obligations towards the assignor.

 
13. Are there any types of receivables that it is not possible or not practical to securitise in your jurisdiction (for example, future receivables)?

Essentially, all receivables can be securitised and transferred, unless transferability is prohibited or restructured (see Question 15).

Existing and future receivables (that is, receivables that have not yet come into existence) can both be validly assigned under Swiss law, provided that future receivables can be clearly identified once they come into existence. However, future receivables might not be transferred in a bankruptcy remote manner, since future receivables that come into existence after the opening of bankruptcy over the originator are likely to be trapped in the bankrupt estate of the originator. Swiss legal doctrine and courts suggest that the receivable arises with the originator and travels to the SPV only thereafter. Obviously, this puts the SPV at risk, where the SPV already paid for the (future) receivable, but does not get the benefit of it.

One structural way to mitigate the issue around future receivables is the transfer of the entire underlying agreement so that the future receivable directly arises with the SPV. However, other concerns must be carefully addressed and structured if entire agreements are transferred, rather than just receivables.

 
14. How is any security attached to the receivables transferred to the SPV? What are the perfection requirements?

There is no general perfection requirement. Instead, this depends on the nature of the security interest to be transferred.

If the security interest is not evidenced by any certificate, note or other physical instrument, the transfer of the security can be effected by written transfer and assignment between the assignor and the SPV, whereby the assignor transfers and assigns the security interest it has received from the third party obligor. No notification to third parties is required, but again, the third party obligor may still deal with the assignor before a notification.

If a physical instrument has been transferred to the assignor to create the security interest, it must be ensured that physical control is transferred to the SPV and/or to a third party holding the physical instrument on behalf of the SPV.

Transferring guarantee claims requires careful structuring.

In the context of auto lease securitisations, the ownership interest in the leased vehicle is typically transferred to the SPV, while physical possession remains with the lessee. Again, the lessee can validly return the leased vehicle to the assignor, unless it has been notified of the transfer of ownership to the SPV.

Prohibitions or restrictions on transfer

15. Are there any prohibitions or restrictions on transferring the receivables, for example, in relation to consumer data?

Transferability of a receivable can be restricted by the underlying agreement, by law or by the nature of the claim and right to be transferred.

Contractual restrictions

If the underlying agreement between assignor and third party obligor contains a ban on assignment (pactum de non cedendo), the receivables cannot be assigned without the third party obligor's consent.

Restrictions by law

Transferability can further be restricted by law. This is normally irrelevant for a typical securitisation transaction, but the due diligence process must be carefully set up in the context of the securitisation of public law receivables, as specific legislation in the area of energy, public transport, infrastructure and similar areas may be relevant.

Restrictions by the nature of claims

Certain claims, by their nature, cannot be assigned. This is true for claims that are necessarily held by specific persons (such as claims for alimony and similar claims). While this restriction is generally irrelevant in the context of securitisation transactions, some legal scholars hold that transferability of certain rights related to a receivable (such as rights related to exercising the rights under a receivable) is not possible. These concerns can be structurally addressed.

Data protection and other secrecy rights

Third party obligors' rights under the Swiss Federal Data Protection Act and other secrecy rights (such as under the Swiss Federal Banking Act) must be addressed by obtaining relevant waivers in the underlying agreements or otherwise. While it is important to address such third party obligors' rights, a breach of these rights in itself would not prevent a valid assignment of the relevant receivable, although it would create other issues.

Avoiding the transfer being re-characterised

16. Is there a risk that a transfer of title to the receivables will be re-characterised as a secured loan? If so:
  • Can this risk be avoided or minimised?

  • Are true sale legal opinions typically delivered in your jurisdiction or does it depend on the asset type and/or provenance of the securitised asset?

When characterising a specific transaction, the courts will ultimately consider the actual mutual intentions of the parties to the specific agreement. Accordingly, the analysis around a transfer of receivables is highly factual, but one of the important factors that is considered by courts is the effective transfer of the collection risk relating to a receivable. Therefore, any repurchase obligations that go beyond the standard repurchase obligation for ineligible receivables can be critical. However, repurchase options are generally less problematic, but should be considered on a case-by-case basis. Finally, the at arm's length nature of the transfer will also be considered.

True sale legal opinions are typically delivered in Switzerland. While the opinions must rely on factual assumptions in relation to the mutual intentions of the parties, true sale legal opinions are satisfactory to rating agencies and other relevant parties. The availability of true sale legal opinions is not so much dependent on the relevant asset type, but rather on the structuring of the transfer and the call and put options as mentioned above.

Ensuring the transfer cannot be unwound if the originator becomes insolvent

17. Can the originator (or a liquidator or other insolvency officer of the originator) unwind the transaction at a later date? If yes, on what grounds can this be done and what is the timescale for doing so? Can this risk be avoided or minimised?

Any transaction is potentially subject to avoidance actions if it is a transaction at an undervalue (a suspect period of one year operates), and either:

  • The seller was over indebted (suspect period of one year).

  • The parties intended to disfavour a third party creditor (suspect period of five years).

The risk of avoidance actions does not appear to be higher than in other continental European jurisdictions and accordingly is not considered to be a major legal risk. This is because the following elements are typically reflected in Swiss transactions:

  • Transactions are typically structured on an at arm's length basis.

  • Transactions feature mechanisms to ensure that a seller cannot sell assets to the SPV when over indebted (such as representations, delivery of solvency certificates, monitoring mechanisms and so on).

  • Transactions generally benefit the seller from an overall perspective in a manner that makes it difficult for third party creditors to argue that the transactions will disfavour them.

Establishing the applicable law

18. Are choice of law clauses in contracts usually recognised and enforced in your jurisdiction? If yes, is a particular law usually chosen to govern the transaction documents? Are there any circumstances when local law will override a choice of law?

Choice of law clauses are generally valid, binding and enforceable. There are certain limitations, and the following should be considered, among other things:

  • The content of the relevant laws of the may need to be proven by the relevant party as a matter of fact.

  • A choice of law cannot extend to non-contractual obligations.

  • A Swiss court will apply Swiss procedural rules.

  • Regardless of a valid choice of law by the parties, a Swiss court or other authority will not apply a provisions of foreign law if and to the extent that this would, in the court's or authority's view, lead to a result violating Swiss public policy (ordre public) or similar general principles. In addition, a court of Switzerland or other authority will apply, regardless of a valid choice of law by the parties, any provisions of Swiss law (and, subject to further conditions, of another foreign law) which in the court's or authority's view imperatively demand application in view of their specific purpose (lois d' application immédiate).

Given the flexibility around choice of law clauses, transaction documents are typically governed by Swiss law for the asset side and by English law on the issuance side. In addition, an English law-governed security trust is typically structured so that the security trustee holds the security in a bankruptcy-remote manner.

 

Security and risk

Creating security

19. Please briefly list the main types of security that can be taken over the various assets of the SPV in your jurisdiction, and the requirements to perfect such security.

Typically, investors ask for a comprehensive security package over the assets held by the SPV, even though an investor should be able to rely on its (exclusive) indirect access to the assets held by the SPV on the basis of the bankruptcy remoteness analysis that applies to an SPV. Therefore, security packages often include the underlying receivables, bank accounts and claims under transaction agreements.

 
20. How is the security granted by the SPV held for the investors? If the trust concept is recognised, are there any particular requirements for setting up a trust (for example, the security trustee providing some form of consideration)? Are foreign trusts recognised in your jurisdiction?

The trust concept as such is not available under Swiss law, although foreign law governed trusts are generally recognised in Switzerland. Therefore, to avoid insolvency risks in relation to the security agent/trustee, security is typically provided for the benefit of a security trustee, who holds the security under an English law governed trust for the benefit of the secured parties, even when the security agreement itself is governed by Swiss law.

Credit enhancement

21. What methods of credit enhancement are commonly used in your jurisdiction? Are there any variations or specific issues that apply to the credit enhancement techniques set out in the Guide to a standard securitisation (Guide)?

The nature of credit enhancement is dependent on the type of transaction but is typically in line with the techniques set out in the Guide.

Typically, the excess spread generated by the asset pool (potentially increased by a discounted purchased price) is the first source of credit enhancement. The excess spread is sometimes combined with a requirement to fund a spread reserve if the minimum required spread is below a certain threshold. Swiss auto lease securitisation transactions typically benefit from an over collateralisation (financed by the proceeds of a subordinated tranche). There may also be further reserve funds and liquidity reserve funds to address commingling and other risks.

It is important to structure the credit enhancement elements in line with tax, regulatory and civil law requirements. There are limitations on how the various elements can be structured in light of transfer pricing considerations, an at arm's length analysis and further matters, which need to be carefully addressed on a case-by-case basis.

Risk management and liquidity support

22. What methods of liquidity support or cash reservation are commonly used in your jurisdiction? Are there any variations or specific issues that apply to the provision of liquidity support as set out in the Guide?

Typically, liquidity support is provided by setting up liquidity reserves that are funded by a subordinated tranche or an excess spread over time. Liquidity facilities, whether from the originator or from a third party liquidity provider, are less common under Swiss structures.

 

Cash flow in the structure

Distribution of funds

23. Please explain any variations to the cash flow index accompanying Diagram 9 of the Guide that apply in your jurisdiction. In particular, will the courts in your jurisdiction give effect to flip clauses (that is, clauses that allow for termination payments to swap counterparties who are in default under the swap agreement, to be paid further down the cash flow waterfall than would otherwise have been the case)?

The cash flows shown in Diagram 9 of the Guide are generally accurate for Swiss transactions. However, in CHF transactions, there is typically no swap directly with the SPV. In addition, liquidity facilities are not seen very often. Profit extraction must be addressed on a case-by-case basis and is typically structured as deferred purchase price or disbursement on the originator investment (such as a subordinated tranche).

Profit extraction

24. What methods of profit extraction are commonly used in your jurisdiction? Are there any variations or specific issues that apply to the profit extraction techniques set out in the Guide?

The methods of profit extraction described in the Guide are also accurate for Swiss transactions and, typically, profit extraction is structured as a combination of:

  • Servicing fees paid for the servicing of the asset pool.

  • Disbursements to the originator under a subordinated tranche, which is also seen as consideration for receiving credit enhancement from the originator through the overcollateralisation.

  • Sometimes, deferred purchase prices payments for the assets.

Tax considerations are relevant when structuring the profit extraction and it is standard for Swiss transactions for a binding tax ruling to be obtained from the tax authorities before transactions go live.

 

The role of the rating agencies

25. What is the sovereign rating of your jurisdiction? What factors impact on this and are there any specific factors in your jurisdiction that affect the rating of the securities issued by the SPV (for example, legal certainty or political issues)? How are such risks usually managed?

Switzerland maintains top ratings from all rating agencies (AAA from S&P, Aaa by Moody's and AAA Fitch).

In comparison to other jurisdictions, the Swiss economy is still considered to be stable and robust, even though currency fluctuations against the EUR have hit the Swiss export and tourism industry quite heavily. The legal and political system is also relatively stable. There are no country-specific issues that affect the rating of a Swiss securitisation transaction, and the conditions in Switzerland can be seen to facilitate the rating process.

 

Tax issues

26. What tax issues arise in securitisations in your jurisdiction? In particular:
  • What transfer taxes may apply to the transfer of the receivables? Please give the applicable tax rates and explain how transfer taxes are usually dealt with.

  • Is withholding tax payable in certain circumstances? Please give the applicable tax rates and explain how withholding taxes are usually dealt with.

  • Are there any other tax issues that apply to securitisations in your jurisdiction?

  • Does your jurisdiction's government have an inter-governmental agreement in place with the US in relation to FATCA compliance, and will this benefit locally-domiciled SPVs?

No transfer stamp taxes or similar taxes or duties are payable on a transfer of receivables.

From an originator's overall corporate income tax perspective, it is, among other things, absolutely imperative that both:

  • The relevant assets/receivables can be transferred to the issuer without accelerating and triggering any corporate income taxes.

  • The profit potential associated with the underlying business remains with the originator.

If the transaction involves a Swiss issuer, the additional (issuer) entity level corporate income and net equity taxes are typically kept at a (negligible) minimum (of a few thousand CHF per year). Although there are no specific tax legislation and/or tax guidelines, securitisation transactions must be presented and signed off by the relevant tax authorities by way of advance tax rulings.

Typically, a (separate) VAT ruling covers the following topics:

  • VAT (non-) taxation of the transfer of assets/receivables.

  • Tax point acceleration regarding VAT due on supplies in respect of transferred assets/receivables.

  • Bad debt relief.

  • Mitigation of VAT costs and/or leakage on VAT-loaded, bought-in services (including servicing).

  • Mitigation of joint and several liability issues relating to VAT unpaid by the originator concerning transferred assets/receivables.

Interest payments on bonds issued by a Swiss (securitisation) vehicle directly to a broad range of investors are subject to Swiss federal withholding tax at 35%. Since this withholding tax is fully recoverable by Swiss investors, the withholding obligation does not constitute a significant impediment to transactions focused on the Swiss market. In transactions focused on foreign investors located in a jurisdiction that does not benefit from a favourable double tax treaty with Switzerland or otherwise not benefitting from treaty protection (such as foreign hedge funds), Swiss withholding tax must be avoided by using a non-Swiss issuing platform. This adds a lot of complexity to the structuring process since emphasis is laid on a true sale analysis from a tax perspective.

On 14 February 2013, Switzerland and the US signed an inter-governmental FATCA agreement (IGA). The Swiss Federal Act formally implementing FATCA in Switzerland entered into force on 30 June 2014 and allows locally-domiciled SPVs to be FATCA compliant.

 

Recent developments affecting securitisations

27. Please give brief details of any legal developments in your jurisdiction (arising from case law, statute or otherwise) that have had, or are likely to have, a significant impact on securitisation practices, structures or participants.

There are no reforms pending in Switzerland that would be specifically addressed to securitisation transactions in Switzerland. However, a significant development in the Swiss financial industry in general, and the Swiss debt capital market in particular, is the contemplated overhaul of the Swiss financial markets regulatory framework. The Financial Market Infrastructure Act (FinMIA) entered into force on 1 January 2016 in a general attempt to bring the Swiss regulatory framework in line with international regulations such as:

  • Directive 2014/65/EU on markets in financial instruments (MiFID II).

  • Directive 2003/71/EC on the prospectus to be published when securities are offered to the public or admitted to trading (Prospectus Directive).

It is further suggested that the Federal Financial Services Act (FinSA) and the Financial Institutions Act (FinIA) replace major portions of the existing regulations. The FinSA and FinIA will aim to:

  • Strengthen client protection.

  • Promote the competitiveness of the Swiss financial centre.

  • Minimise competitive distortions between providers by creating a level playing field.

 

Other securitisation structures

28. What other structures, including synthetic securitisations, are sometimes used in your jurisdiction?

While pure Swiss domestic transactions are typically structured as true sale transactions, synthetic structures (funded and unfunded) have also been implemented, in particular by larger banks. Synthetic structures have mainly been used where the actual transfer of an asset was not possible or burdensome, in particular in situations where:

  • The underlying documentation contained transfer restrictions.

  • Additional structural mechanisms would have been needed otherwise to address issues such as data protection, banking secrecy, prohibitions on foreign ownership of Swiss residential real estate, and so on.

Synthetic transactions must be structured carefully to avoid a qualification as (regulated) insurance.

 

Reform

29. Please summarise any reform proposals and state whether they are likely to come into force and, if so, when. For example, what structuring trends do you foresee and will they be driven mainly by regulatory changes, risk management, new credit rating methodology, economic necessity, tax or other factors?

Interest payments on bonds issued by a Swiss (securitisation) vehicle directly to a broad range of investors are subject to Swiss Federal withholding tax at 35%. As this withholding tax is fully recoverable by Swiss investors, the withholding obligation does not constitute a significant impediment for transactions focused on the Swiss market. However, in transactions focused on foreign investors located in a jurisdiction that does not benefit from a favourable double tax treaty with Switzerland or otherwise not benefitting from treaty protection (such as foreign hedge funds), Swiss withholding tax imposes a limitation on Swiss issuers accessing international debt capital markets. Exemptions from Swiss withholding tax are only (temporarily) available for certain types of debt qualifying as regulatory capital such as contingent convertible bonds issued by systemic risk relevant banks (too big to fail banks), as well as certain write-off and bail-in bonds.

To discourage bond issuances by Swiss groups abroad and to strengthen the Swiss market, Switzerland has for some time been considering a major overhaul of its withholding tax system. On 24 August 2011, the Swiss Federal Council proposed new legislation under which the current deduction of Swiss withholding tax of 35% by the issuer of bonds on interest payments at source would have been replaced by a deduction by Swiss paying agents (generally excepting foreign investors). It was initially expected that the new regime would enter into force in 2015 or 2016.

However, bearing in mind the negative outcome of the consultation on the draft legislation in 2014 and 2015, the Swiss Federal Council decided to put off the radical reform of the Swiss withholding tax regime originally envisaged on 24 June 2015. It now remains to be seen when and, if so, on what terms, the withholding tax reform will be relaunched. However, a general change to the Swiss withholding tax system is likely to further boost the Swiss securitisation market.

 
30. Has the nature and extent of global, regional and domestic reforms had a positive or negative affect on revitalising securitisation in your jurisdiction?

The effect of global, regional and domestic reforms is difficult assess, as the Swiss market is a relatively young and rapidly developing market. However, the increasing pressure on regulated banks under Basel III and Basel IV has clearly had a positive effect on securitisation transactions in Switzerland.

However, low (and negative) interest rates in the CHF market has had a negative impact on securitisations transactions, because the arbitrage for issuers with general access to unsecured debt capital markets is relatively slim. In addition, cash-rich banks (such as the Cantonal banks) tend to offer very attractive rates in bank lending transactions, given the negative interest they would have to pay on cash deposits with the Swiss National Bank (currently minus 75 bps).

 

Online resources

Swiss government

W www.admin.ch

Description. Official website of the Swiss government, directs to Swiss Federal statutes and implementing provisions, broken down by topic (with non-binding English versions).

Swiss Financial Market Supervisory Authority (FINMA)

W www.finma.ch

Description. Official FINMA website, directs to statutes and implementing provisions applicable to persons/entities subject to FINMA supervision, broken down by sector (with non-binding English versions).

SIX Swiss Exchange

W www.six-swiss-exchange.com

Description. Official SIX website, directs to statutes and implementing provisions relating to SIX Swiss Exchange (with non-binding English versions).



Contributor profiles

Lukas Wyss, Partner

Walder Wyss Ltd

T +41 58 658 56 01
F +41 58 658 59 59
E lukas.wyss@walderwyss.com
W www.walderwyss.com

Professional qualifications. Switzerland, 2002

Areas of practice. Corporate finance and capital markets; financial services.

Recent transactions

  • Advised AMAG Leasing in its inaugural CHF310.4 million (December 2015) and in its second CHF515 million dual tranche Swiss auto lease securitisation transaction (April 2016), which was the largest public Swiss ABS transaction ever.
  • Advised Swisscard in its dual tranche credit card receivables securitisation, issued through Swisscard's issuance platform (established in 2012 under advice by Walder Wyss) and in its restructuring in light of the transfer of Credit Suisse's credit card receivables portfolio to Swisscard and in its latest single tranche credit card receivables securitisation.
  • Advised Cembra Money Bank AG (former GE Money Bank AG) in all its Swiss auto lease securitisation transactions.
  • Advised several Swiss originators on privately placed securitisations of auto lease assets.

Languages. English, German, French.

Professional associations/memberships. Zurich and Swiss Bar Associations.

Publications

  • Developments in Swiss debt capital markets – 2015, The International Debt Capital Markets Handbook 2016.
  • Recent developments in the Swiss ABS market – 2015, The Securitisation & Structured Finance Handbook 2015/16.
  • The Acquisition and Leveraged Finance Review, The Acquisition and Leveraged Finance Review, Edition 2.
  • 2014: a very good year, IFLR (International Financial Law Review), Switzerland Guide 2015.
  • The relevance of FATCA in Swiss finance transactions, Walder Wyss Newsletter 111.
  • Leveraged acquisition finance in Switzerland: recent trends in structural features, Practical Law, Multi-Jurisdictional Guide 2013/2014.
  • Swiss securitisation is picking up speed, The Euromoney Securitisation & Structured Finance Handbook 2012/13.
  • The launch of the first covered bond programme in Switzerland set up outside the framework of the Swiss statutory covered bond system, The Euromoney International Debt Capital Markets Handbook 2011.

Johannes A Bürgi, Partner

Walder Wyss Ltd

T +41 58 658 55 59
F +41 58 658 59 59
E johannes.buergi@walderwyss.com
W www.walderwyss.com

Professional qualifications. Switzerland, 1998, authorised representative with the SIX Swiss Exchange Ltd

Areas of practice. Corporate finance and capital markets; financial services.

Recent transactions

  • Advised AMAG Leasing in its inaugural CHF310.4 million (December 2015) and in its second CHF515 million dual tranche Swiss auto lease securitisation transaction (April 2016), which was the largest public Swiss ABS transaction ever.
  • Advised Swisscard in its dual tranche credit card receivables securitisation, issued through Swisscard's issuance platform (established in 2012 under advise by Walder Wyss) and in its restructuring in light of the transfer of Credit Suisse's credit card receivables portfolio to Swisscard and in its latest single tranche credit card receivables securitisation.
  • Advised Cembra Money Bank AG (former GE Money Bank AG) in all its Swiss auto lease securitisation transactions.
  • Advised several Swiss originators on privately placed securitisations of auto lease assets.

Languages. English, German, French.

Professional associations/memberships. Zurich and Swiss Bar Associations.

Publications

  • Recent developments in the Swiss ABS market – 2015, The Securitisation & Structured Finance Handbook 2015/16.
  • Asset-Backed Securitisation in der Schweiz (Asset-Backed Securitisation in Switzerland), Europa Institut Zürich Band 144, Kapitalmarkttransaktionen VIII Zurich/Basel/Geneva 2014.
  • Securitisation in Switzerland: A growing market, The Euromoney Securitisation & Structured Finance Handbook 2014/2015.
  • Constant growth of Swiss securitisation, The Euromoney Securitisation & Structured Finance Handbook 2013/14.
  • Debt capital markets in Switzerland: regulatory overview, PLC multi-juridictional guide to capital markets law 2013/2014.
  • Recently implemented tax regulation to stimulate the Swiss bond market, European Tax Service 01/2013.
  • Swiss securitisation is picking up speed, The Euromoney Securitisation & Structured Finance Handbook 2012/13.
  • New tax regulation to stimulate the Swiss bond market, The Euromoney International Debt Capital Markets Handbook 2012.
  • The launch of the first covered bond programme in Switzerland set up outside the framework of the Swiss statutory covered bond system, The Euromoney International Debt Capital Markets Handbook 2011.
  • Banking rehabilitation and insolvency reform in Switzerland, Restructuring and Insolvency Handbook 2011/12.
  • Securitisation transactions in Switzerland are making a comeback, The Euromoney Securitisation & Structured Finance Handbook 2011/12.

Maurus Winzap, Partner

Walder Wyss Ltd

T +41 58 658 55 59
F +41 58 658 59 59
E maurus.winzap@walderwyss.com
W www.walderwyss.com

Professional qualifications. Switzerland, 1997

Areas of practice. Tax, corporate finance and capital markets, financial products.

Recent transactions

  • Advised AMAG Leasing in its inaugural CHF310.4 million (December 2015) and in its second CHF515 million dual tranche Swiss auto lease securitisation transaction (April 2016), which was the largest public Swiss ABS transaction ever.
  • Advised several Swiss originators on privately placed securitisations of auto lease assets.
  • Advised Swiss Life in a CHF450 million (March 2016) undated subordinated hybrid bond transaction and in its EUR750 million (June 2015) undated subordinated hybrid bond transaction.

Languages. English, German.

Professional associations/memberships. Zurich and Swiss Bar Associations.

Publications

  • Developments in Swiss debt capital markets – 2015, The International Debt Capital Markets Handbook 2016.
  • Recent developments in the Swiss ABS market – 2015, The Securitisation & Structured Finance Handbook 2015/16.
  • The Acquisition and Leveraged Finance Review, The Acquisition and Leveraged Finance Review, Edition 2.
  • 2014: a very good year, IFLR (International Financial Law Review), Switzerland Guide 2015.
  • The relevance of FATCA in Swiss finance transactions, Walder Wyss Newsletter 111.
  • Leveraged acquisition finance in Switzerland: recent trends in structural features, Practical Law, Multi-Jurisdictional Guide 2013/2014.

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