As EU Member States had to implement the “Directive 2011/61/EU on Alternative Investment Fund Managers” (AIFM Directive) into national law by 22 July 2013, EU asset managers could only market collective investment schemes in adequately supervised non-EU jurisdictions. Therefore, it was important for Swiss law to adapt the AIFM Directive (as well as the “Directive 2009/65/EC on Undertakings for Collective Investment in Transferable Securities” (UCITS IV Directive)) to enable Switzerland’s regulation to qualify as equivalent to EU regulatory rules. It was also important to remove potential impediments to Swiss financial players who are active in the EU. Therefore, a revision of the Swiss fund legislation came into force on 1 March 2013 which contained new requirements for the management, custody and distribution of collective investment schemes. The aim of the revision was mainly to improve investor protection and safeguard the quality and competitiveness of the Swiss fund industry.
The revision also amended the general obligations of conduct for authorised institutions and third parties who are subject to the CISA. One of the most crucial parts of the revision was the new definition of the legal term “distribution”. The new law abandoned “public advertising” as a relevant criterion for activities that fall under the scope of the CISA. Now, any solicitation of a fund product is qualified as a “distribution”, which is subject to an authorisation from the Financial Market Supervisory Authority (FINMA). Although certain exemptions apply to persons who distribute foreign funds to qualified investors (qualified investors pursuant to the CISA include among others regulated financial intermediaries, regulated insurance institutions, public entities and retirement benefits institutions with professional treasury and high-net-worth individuals which declare in writing that they wish to be deemed qualified investors), the revision broadened the scope of the CISA by placing certain obligations on such distributors.
The revised CISA sets out new general licensing requirements for asset managers of foreign funds. Exceptions apply to asset managers of funds that are only open to certain qualified investors. A de minimis exception applies to asset managers who manage either (i) assets of less than CHF 100 million, including any assets acquired through the use of leverage or (ii) assets that comprise funds that are (a) unleveraged, (b) closed-ended for a period of five years and (c) less than CHF 500 million or (iii) if the asset manager belongs to same group of companies as the investors.
Further, the new rules include the duty of the fund manager to provide adequate information to the investor and to record that information on a regular basis. Particularly, all authorised institutions subject to the CISA (and their agents that fall within the collective investment scheme) must inform the investors on all funds managed, deposited and distributed and all directly or indirectly charged fees and costs, and their specific purpose. The revised CISA also includes new recording duties which came into force on 1 January 2014. Under these new duties, the fund manager and the custodian bank are responsible for ensuring that all their distribution and solicitation activities and those of authorised agents are recorded in written form. The recording must describe the (i) client’s information requests, (ii) replies of the fund manger or the custodian bank, as the case may be, to client’s information requests, and (iii) reasons why a specific collective investment product was purchased for a client. A copy of the written records must be given to the client on his request.
To sum up, even if the revision may have led to higher administrative burdens and increased costs for the parties involved, we consider the revision as an important step towards an adjustment of the Swiss fund legislation to international standards to ensure access for the EU market to the Swiss fund industry. To maintain the importance of Switzerland as a destination for foreign collective investment schemes, the Swiss fund legislation has to be updated in accordance with international standards on an ongoing basis. In particular, the supervisory authorities and recognised business associations constantly monitor EU developments of the fund industry and adapt the Swiss regulations to EU industry practice, for example, the revised “Directive 2004/39/EC on Markets in Financial Instruments” (MiFID II) which will have to be adopted into Swiss law.
Currently, the FINMA has opened the consultation (which last until 19 May 2014) on the FINMA Collective Investment Schemes Ordinance (CISO-FINMA) in which pending issues of the revision of the CISA as per 1 March 2013 shall be clarified and finally settled. This revision aims to enhance investor protection, maintain market access in light of the standards that have been changed at the national and international level and oblige license holders to ensure that appropriate and efficient risk management is in place. In particular, the revision inter alia includes the following rules:
- The rules on the delegation of fund manager’s duties to third parties will be governed principle-based by the revised CISO-FINMA in detail. The current practice shall be maintained but amended in certain aspects to allow a more flexible delegation considering the corporate and fund law legislation. These rules shall also apply to asset managers of collective investment schemes and representatives of foreign collective investment schemes. The new rules on the delegation in the CISO-FINMA abrogate the FINMA Circular 2008/37 “Delegation by fund management companies / SICAVs”.
- The risk assessment models for derivatives will have to be made based on calculating the market value of the derivatives’ underlying base value (equivalent underlying assets).
- To minimise the risks involved in managing securities, rules on the requirements for the management and custody of securities will be introduced that comprise all OTC derivative investment techniques and business transactions. Particularly, securities must be highly liquid, have trading day values and be issued by a creditworthy issuer who is independent of the counterparty.
- The revised rules explicitly provide for the possibility to set up master feeder structures.
- Custodian banks have to introduce internal guidelines on controlling fund management companies and SICAVs.
- The revised CISO-FINMA sets out the details on calculating the de minimis threshold under which asset managers – which only market collective investment schemes to qualified investors – do not fall within the scope of the CISA (see above).
- The new rules set out in the Swiss Code of Obligations for companies on accounting, valuation, accountability and publication requirements will be reflected in the CISO-FINMA for collective investment schemes accordingly.