Investor Protection in Switzerland

Form and content of explanation

Necessity, content and scope of explanation depend on the type of investment, the personality of the investor and the agreed scope of duties. The adviser must take account of the following with regard to explanation:

• Duty of investigation/duty to provide information: a personal discussion lasting approximately 1 hour applies as standard.
• Objective explanation: e.g. regarding speculation with retirement provision
• Investor-oriented explanation: “Know your customer rule” – get to know the investor
• Discount broking special case: abstract reference to the risks of assets investment and the product group generally suffices
• Time of explanation: before closing the first transaction
• Form: written explanation, if possible, especially in the case of complex transactions

Risky investments

When recommending and arranging risky forward and options contracts, in addition to duties of explanation, advice and warning, the adviser must also obtain detailed information on the customer’s level of knowledge and readiness to assume risk. Customers with no experience in such transactions must be given a clear explanation of the risk of loss and the reduction in profit opportunities in accordance with the amount of the commissions charged by the broker immediately on execution of the transaction, and must ensure that the customer is aware of the risk of possible loss of the invested money within a short period of time (Federal Court ruling BGE 124 III 163 E.3a). It is questionable whether questionnaires signed by the customer adequately meet the requirements of this adjudication.