Changes to the Swiss regulations on the obligations of foreign and domestic distributors of investment funds are on the horizon. A new Federal Act on Financial Services Act ("FinSa") and Federal Act on Financial Institutions ("FinIa") are likely to come into effect on 1 January 2020, and will lead to greater (although not complete) alignment between the Swiss rules and EU rules under MiFID II. FinIa contains a new authorisation requirement for independent asset managers and FinSa imposes new obligations on foreign and Swiss distributors of investment funds. The main changes under FinSa are outlined below.
FinSa introduces a registry of client advisors (Beraterregister). Under Article 28(1) of FinSa, individual client advisors of foreign financial service providers must be registered in an advisor capacity prior to any activities being undertaken in Switzerland. It is anticipated that this will involve a fee per person and potentially includes any individuals involved with related activities in the jurisdiction.
A FINMA-authorised registration body (yet to be established) will be in charge of this register, which will include the particulars of the registered individuals, their fields of activity and their completed training and professional development. This obligation will apply to all distributors of collective investment schemes ("CIS") which will no longer require FINMA authorisation under FinSa.
Requirements for obtaining registration include:
• Sufficient knowledge of the FinSa’s conduct rules;
• The required professional expertise;
• A professional liability insurance or equivalent financial security;
• An affiliation with an ombudsman’s office, either directly or through the financial service provider for whom the advisors work; and
• A confirmation of no criminal conviction or industry ban.
Client advisors (including CIS distributors) will have six months to apply to the advisor registry, and all financial service providers will have six months to affiliate themselves with an ombudsman’s office. The transition period for registration will end on 1 July 2020.
FinSa also introduces a new client classification regime. While the current categorisation between qualified investors and non-qualified investors contained in the Swiss Federal Act on Collective Investment Schemes ("CISA") will remain in place, FinSa will provide for a new client classification regime of 'professional client', 'institutional client' and 'retail client'. While these definitions in FinSa will be connected with the definitions of qualified investor and non-qualified investor under CISA, they will still not be completely aligned.
'Opting-in and Opting-out'
Further to this, FinSa also allows for the possibility of certain pre-defined client types, such as high-net-worth retail clients, pension schemes, management companies of CIS, to change their classification by opting out of their current classification of professional clients and opting into the category of retail clients and vice versa.
Offering to Qualified Investors
The current requirement that obliges foreign funds offered exclusively to qualified investors to appoint a Swiss representative and paying agent in Switzerland will be abolished in part. Following implementation, it should only be necessary to appoint a representative and paying agent when offering units to high-net-worth retail clients who have 'opted out' and wish to be treated as professional clients.
Rules of Conduct
FinSa contains certain code of conduct provisions with which financial service providers must comply (vis-à-vis their clients). Further FinSa contains fund documentation requirements, notably the addition of the Swiss key information document ("KID").
We are currently awaiting a more formal gap analysis from our Swiss advisors following which we can advise of any direct impact on your existing registration. Please do let us know in the meantime if you would like to discuss any of the above.