FINMA granted the first licenses to two supervisory organisations for the supervision of portfolio managers and trustees and to one registration body maintaining client advisory registers. Recently, the Federal Finance Department recognized four Ombudsman offices. These licenses/recognitions triggered the last transition periods for various duties of financial service providers (such as investment advisors and most financial institutions) under the new Financial Services Act and for licensing of portfolio managers and trustees under the new Financial Institutions Act.
The new Financial Services Act (FinSA) and Financial Institutions Act (FinIA) came into force on 1 January 2020 together with the implementing ordinances (Financial Services Ordinance (FinSO), Financial Institutions Ordinance (FinIO) and Supervisory Organisations Ordinance (SOO)) passed by the Federal Council. The implementing regulations of the Swiss Financial Market Supervisory Authority (FINMA) are expected to be published in Q3 2020 in order to presumably enter into force in Q4 2020.
These laws oblige FINMA to license several new bodies like supervisory organisations (SO) being responsible for supervising portfolio managers and trustees as well as registration bodies being responsible for maintaining client advisory registers. The Federal Finance Department (FDF) has to recognize new ombudsman’s offices being responsible for mediation proceedings between clients and financial service providers.
At the same time, the new laws impose a complex transitory regime for the financial market participants with many transitory periods, whereof some are being triggered only with regard to the first respective bodies being licensed by FINMA or the FDF.
I. New Regulations for Financial Institutions including Portfolio Managers and Trustees
The FinIA standardises the licensing and ongoing business requirements for financial institutions that manage third-party assets, in particular:
- (external) portfolio managers;
- managers of collective assets;
- fund management companies; and
- securities firms (formerly securities broker or dealers).
The managers of individual assets (so-called portfolio managers) and trustees are only subject to prudential supervision since 1 January 2020 with FinIA and are subject to less stringent requirements than those for managers of collective assets, fund management companies and securities firms. In particular, a person eligible to accept assets on a commercial basis in the name of and on behalf of clients or who manages the assets of collective investment schemes or occupational pension funds below the defined thresholds must be licensed by FINMA as a portfolio manager and join an SO for ongoing supervision. A person who on a commercial basis manages or disposes of a separate fund for the benefit of the beneficiary or for a specified purpose based on the instrument creating a trust must be licensed by FINMA as a trustee and have to join an SO for ongoing supervision.
Persons applying to (i) an SO for membership and (ii) FINMA for a portfolio manager’s or trustee’s licence must meet a number of licensing conditions with regard to personal (e.g. fit and proper test for board members and executive management, experience and education), financial (e.g. minimum capital, business plan) and organizational elements (e.g. separation of functions, internal control system, risk and compliance, IT).
The SO is responsible for ensuring compliance by portfolio managers and trustees with licensing requirements and the ongoing day-to-day supervision. The SO is licensed and supervised by FINMA. Enforcement measures will only be taken by FINMA directly based on a respective notification of the SO.
II. New Regulations for Financial Service Providers including Financial Advisors
Client advisors at the point-of sale of financial service providers not being licensed, registered, recognized or approved according to the Swiss financial market laws according to article 3 of the Swiss Financial Market Supervisory Act (FinMaSa), such as financial advisors, licensed foreign financial service providers providing financial services to Swiss retail clients or non-licensed foreign financial service providers providing financial services to Swiss clients, are required to register with a client advisory register according to FinSA. The so-called registration bodies maintain a register of advisers as defined in the FinSA. The registration bodies will check that the client advisers have completed the necessary training and further education measures. FINMA is responsible for authorising the registration bodies, but not for their prudential supervision.
All financial service providers according to FinSA have to comply with the FinSA duties of conduct (e.g. information and documentation duty, best execution duty, suitability and appropriateness test), and organizational requirements (e.g. disclosure of retrocession payments, dealing with conflicts of interest, employee transactions). In particular, they have to join an ombudsman office. Unlike the self-regulatory ombudsman system of the past for banks, under the FinSA affiliation to an ombudsman’s office has become obligatory for all financial service providers that provide their services in Switzerland. Furthermore, the ombudsman’s offices must be recognised by the FDF. As in the past, the ombudsman’s offices should settle disputes regarding legal claims between the client and the financial service provider in mediation proceedings.
III. Transitory Regimes
Portfolio managers and trustees already active before 2020 who have become subject to an authorisation requirement (i) had to notify FINMA within six months of the FinIA coming into force, i.e. until 30 June 2020, and (ii) have to join a SO and file for a license with FINMA within three years of FinIA coming into force, i.e. until 31 December 2022. This electronic notification process as well as the licensing and licensing amendment process is processed electronically via FINMA’s new survey and application platform called EHP-platform (cf. https://www.finma.ch/en/finma/extranet/). All forms and information for submitting or changing a notification or an application are stored there. Confirmation of affiliation to an SO can be uploaded as an appendix to the licensing application. FINMA licensed the first two SOs on 6 July 2020 and informed that 2,206 portfolio managers and trustees are seeking for a license.
Financial advisors, licensed foreign financial service providers providing financial services to Swiss retail clients or non-licensed foreign financial service providers providing financial services to Swiss clients must register with a client advisory register within 6 months upon FINMA granting the first license to a registration body maintaining such client advisory register, which will take place with effect from 20 July 2020. Therefore, such registration must be made until the latest on 19 January 2021.
Financial service providers according to FinSA have to join an ombudsman office within 6 months upon the FDF’s recognition of the first ombudsman office, which took place on 24 June 2020. Therefore, the transitory period lasts until 23 December 2020.
Overview over the described transitory regime: