This note is part of a series of briefings on the Financial Services Act (FINSA, FIDLEG in German and LSFin in French) that came into force in 2020 and is a reminder for fund managers and other entities advertising, offering or marketing foreign funds on a cross-border basis to Swiss qualified investors that all FINSA requirements will need to be satisfied by 31 December 2021.
Unlike under MiFID and AIFMD, the FINSA considers that investors are “clients” of the fund manager for the purpose of marketing as a result of which it imposes certain client obligations on fund managers when they market their funds to Swiss qualified investors – but it does not require a notification to the regulator or a license when carried out on a cross-border basis.
The rather generous 2 year transitional period under the FINSA allowed fund managers to adapt to the new regime and implement the new rules in stages, whilst in the meantime they could still benefit to a certain extent from the former regime, which had lower regulatory requirements, but largely depended upon the appointment of a Swiss representative and a paying agent. Under the new FINSA regime, although there are a few more regulatory obligations to satisfy there is no more need to appoint a Swiss representative and a paying agent except for marketing to high net worth individuals whether they invest directly or through an investment structure.
Now, given that the transitional period comes to an end, fund managers should make sure that they have fully implemented the last FINSA requirements, i.e. mainly the new client categorisation, the rules of conduct and the organisational requirements. To a large extent, regulated fund managers are likely to already be subject to requirements similar to those of the FINSA. Nevertheless, a review of the FINSA requirements remains necessary. At the same time, they may want to assess whether they can terminate their agreements with the Swiss representative and the paying agent as they will operate under the FINSA regime anyway from 1 January 2022.
The FINSA requirements depend very much on the type of investors targeted. The classification of clients applies to all investors, whether institutional, professional or retail. It is an important obligation that will allow fund managers to decide if they need to and if yes, how to satisfy the other FINSA obligations.
For example, the rules of conduct do not apply to dealings with institutional clients, unless they elect to be treated as professional clients. Professional clients can waive compliance with some of the rules of conduct, whilst organisational requirements must be satisfied irrespective of the types of investors targeted.
Further obligations, which are already applicable, depend on the type of clients to whom fund managers market. For instance, the affiliation with an ombudsman is not required for marketing only to institutional and professional clients (other than high net worth individuals) and the registration in the client advisor register is, although there is a debate in this respect, generally only needed for marketing to high net worth individuals and their investment structures (in addition to private clients) or if the entity marketing funds is not subject to a prudential supervision in its home jurisdiction.
To summarise, foreign fund managers may or may not be able to terminate the representative and paying agent agreements but whatever they do they should make sure that they (and all entities advertising, offering or marketing funds, or otherwise providing a financial service within the meaning of the FINSA, to Swiss investors) are fully compliant with the FINSA requirements and the fund documentation is updated accordingly.
If you have any questions on this topic, Dunja Koch (email@example.com) and Jérôme Pidoux (firstname.lastname@example.org) will be happy to assist you.