A. INTRODUCTION

The purpose of the present article is twofold: Driven by the AIFMD (Directive 2011/61/ EU on Alternative Investment Fund Managers), the Swiss collective investment schemes legislation underwent a major (partial) revision which entered into force on 1 March 2013. Most of the various transitory periods to adapt to the revised legislation have now lapsed. In addition, the regulator has issued further guidance pertaining to the application of the new rules in the meantime. This article summarizes the somewhat complex new framework affecting the management and distribution of collective investment schemes in Switzerland and compares them to the previous regime for better understanding (see below section B).

Furthermore, since a wide-reaching reform of the overall Swiss financial markets regulation is currently underway, we are further providing an outlook on the planned regulations affecting investment management under (in particular) the proposed Swiss Financial Institutions Act (Finanzinstitutsgesetz, FINIG) as well as the proposed Swiss Financial Services Act (Finanzdienstleistungsgesetz, FIDLEG) (see below section C).

B. THE COLLECTIVE INVESTMENT SCHEMES LEGISLATION

I. Revision of 2013 - Overview

The last major (partial) revision of the Swiss Collective Investment Schemes Act ("CISA") and the Swiss Collective Investment Schemes Ordinance ("CISO") entered into force on 1 March 2013. Broadly speaking, the purpose of such revision was to amend the rules regarding the management, safekeeping and distribution of collective investment schemes and to bring them in line with international standards for the purposes of investor protection and safeguarding the quality and competitiveness of the Swiss fund industry.

In particular, the Swiss legislator wanted to ensure that, in light of the new regulations of the AIFMD, Swiss institutions would continue to be eligible to act as asset managers of all European collective investment schemes.

II. Distribution of Collective Investment Schemes

1. Distribution

The revised CISA abolished the previously used distinction between public offering and private placement, which nationally and internationally generally serve as a criterion for segmenting marketing activities in relation to financial products. The previously rather straightforward private placement rules allowed the offering or advertisement of foreign collective investment schemes to all so-called qualified investors or to a limited number of non-qualified investors without imposing any particular regulatory requirements.

The applicable marketing regime is now more complex. The relevant activity triggering regulatory requirements in connection with marketing Swiss and foreign collective investment schemes in or from Switzerland is "distribution". This concept includes all forms of marketing and advertising pertaining to collective investment schemes, unless it is addressed to regulated financial intermediaries (banks, securities dealers, fund management companies, asset managers of collective investment schemes and central banks) or regulated insurance companies. In order to benefit from this exemption, the information on the collective investment schemes included in the offering or advertising of collective investment schemes intended for the regulated financial intermediaries may however not become accessible also to other investors (i.e. other qualified or non-qualified investors as defined below para. B.II.5).

Certain further activities have been specifically excluded from the scope of distribution:

  • the provision of information and the subscription of collective investment schemes at the instigation of or at the own initiative of investors (i.e. reverse solicitation), e.g. in the context of certain defined types of investment advisory agreements or for execution-only transactions;
  • the provision of information and the subscription of collective investment schemes based on a written discretionary management agreement with regulated financial intermediaries (such as banks, securities dealers, fund management companies, asset managers of collective investment schemes and central banks);
  • the provision of information and the subscription of collective investment schemes based on a written discretionary management agreement with an independent asset manager complying with minimal standards with respect to (Swiss) anti-money laundering regulations, conduct rules as well as the form and content of the agreement;
  • the publication of prices, net asset values and tax data by regulated financial intermediaries, unless contact information is provided; and
  • the offering of stock option schemes in the form of collective investment schemes to employees.

2. Distributors

Under the current regime, any individual or company distributing Swiss collective investment schemes to non-qualified investors (as defined below para. B.II.5) must obtain a distributor's license from the Swiss Financial Market Supervisory Authority ("FINMA"). This regime is in line with the previous regulations of the CISA.

Furthermore, distributors in Switzerland of foreign collective investment schemes must hold a FINMA distributor's license, whether the foreign collective investment scheme is distributed to non-qualified investors or to qualified investors (as defined below para. B.II.5). This is an important difference from the previous regime under which the marketing of foreign collective investment schemes exclusively to qualified investors did not trigger any regulatory requirement. Distributors of collective investment schemes, which became subject to the CISA as a result of this change, were obliged to notify FINMA of their activities by 31 August 2013. They then had to adapt their structure to become eligible and apply for a distributor's license by 28 February 2015.

In addition, under the revised CISA, a foreign financial intermediary may distribute foreign investment schemes (exclusively to qualified investors) in Switzerland on a cross-border basis if certain conditions are fulfilled. The foreign distributor must hold a license in its home jurisdiction allowing the distribution of collective investment schemes. Furthermore, it must be a party to a written distribution agreement subject to Swiss law with a Swiss representative of foreign collective investment schemes (see below para. B.II.4).

Persons who distribute foreign collective investment schemes, that are exclusively available to qualified investors,1 from Switzerland abroad do not fall within the scope of application of the CISA. Accordingly, they do not need to obtain a distributor's license from FINMA. Furthermore, any party licensed by FINMA as a bank, securities trader, insurance company, fund management company, asset manager of collective investment schemes or as a Swiss representative of foreign collective investment schemes pursuant to the CISA, is exempted from the obligation to (additionally) obtain a FINMA distributor's license. Finally, certain agents of insurance companies are excluded from the scope of the license obligation for distributors of collective investment schemes.

3. Distribution of Foreign Collective Investment Schemes to Non-Qualified Investors

Under both the current and the previous law, an approval of the foreign collective investment scheme by FINMA is/was required for distribution to non-qualified investors.

Further to the previously existing conditions for approval, the current law now further requires that the asset manager and the custodian of a foreign collective investment scheme be subject to supervision for the purpose of investor protection in their home state. The rules applicable to the custodian must be equivalent to those of the CISA. Finally, a cooperation agreement providing for information exchange between FINMA and the regulator of the home state of the collective investment schemes must be in place. Foreign collective investment schemes approved by FINMA for distribution in Switzerland to non-qualified investors under the old rules needed to adapt to the new requirements by 28 February 2014.

The requirement to appoint a Swiss representative and paying agent, as foreseen under the previous version of CISA, as a condition for approval by FINMA has been maintained.

4. Distribution of Foreign Collective Investment Schemes to Qualified Investors

In contrast to the previous rules, the current version of the CISA includes a requirement to appoint a representative and a paying agent in Switzerland also for the distribution of foreign collective investment schemes to qualified investors (as defined below para. B.II.5). This duty was previously only imposed for the distribution of foreign collective investment schemes to non-qualified investors. Foreign collective investment schemes distributed exclusively to qualified investors had to comply with the new regulatory requirements by 28 February 2015.

The initial draft of the revised CISA had originally foreseen very extensive requirements also for foreign collective investment schemes distributed only to qualified investors. In fact, the originally proposed wording foresaw almost the same demanding conditions to be as for an approval by FINMA for distribution to non-qualified investors.

Ensuring compliance with these rules would have been the responsibility of the Swiss representative. Because of the resistance encountered during the consultation period, the legislator substantially reduced both the requirements towards the collective investment schemes themselves and the duties of the Swiss representative.

The main duties of the Swiss Representative of foreign collective investment schemes distributed exclusively to qualified investors under the revised legislation now include (i) ensuring that the prospectus contains specific wording for investors in Switzerland ("Swiss Finish"), (ii) ascertaining that the names of the collective investment schemes it represents are not confusing or deceitful and (iii) maintaining the fund documentation available for the investors at its premises.

If a distributor is active in Switzerland, the Swiss representative must enter into a written distribution agreement governed by Swiss law and setting out, in particular, the regulatory obligations of the parties.

Publication and notification requirements applicable to collective investment schemes distributed to non-qualified investors do not apply to representatives of foreign collective investment schemes distributed exclusively to qualified investors.

5. Qualified Investors

The following are deemed to be qualified investors pursuant to the current version of the CISA:

  • regulated financial intermediaries (such as banks, securities dealers, fund management companies, asset managers of collective investment schemes and central banks) as well as regulated insurance companies;
  • public entities and pension funds with professional treasury; and
  • enterprises with professional treasury.
  • investors who have entered into a discretionary asset management agreement with a regulated financial intermediary (as described above) or with an independent asset manager complying with certain minimal standards, unless they have declared in writing that they do not want to be considered as qualified ("opt-out"); and
  • high net worth individuals to the extent that they fulfil certain criteria (i.e. (i) assets of at least CHF 500'000 and professional market knowledge comparable to the institutional qualified investors listed in the CISA; or (ii) assets of at least CHF 5 million) and have requested in writing to be treated as qualified investors ("opt-in").

Also, pursuant to the FINMA-Circular 2013/09 on the distribution of collective investment schemes, independent asset managers complying with certain minimal standards as set out above, may be treated as if they were qualified investors.

Accordingly and in contrast to the previous regulatory regime, it is important to note that under the revised CISA high net worth individuals are no longer automatically considered to be qualified investors, but have the option to request in writing to be treated as such under the above conditions. According to the transitional provisions of the revised CISA, high net worth individuals were deemed to be qualified investors until 31 May 2015, even if they did not meet the new requirements. Past this date, only high net worth individuals who have "opted-in" are now able to invest in collective investment schemes which are reserved for qualified investors,- even if their financial situation fulfils the criteria above.

Furthermore, under the revised CISA, clients who have entered into a discretionary asset management agreement with a regulated (or, under certain conditions, unregulated) asset manager continue to be considered as qualified investors. However, they now have the opportunity to "opt-out" of this status by means of a written declaration and, thus, enjoy the higher level of protection of nonqualified investors. According to the CISO, such clients must be informed of the option to waive their qualified investor's status.

6. Disclosure Rules

The revised CISA has also introduced an explicit duty of the licensees to inform investors in a transparent, appropriate and comprehensive manner about any kind of remuneration received for the distribution of collective investment schemes. Such duty to provide information is set out in detail in the Guidelines on Duties Regarding the Charging and Use of Fees and Costs (Transparency Guidelines) issued by the Swiss Funds & Asset Management Association in their revised version dated 22 May 2014 which entered into force on 1 July 2014.

7. Record-keeping

Finally, CISA now provides for a new duty of record-keeping applicable to all licensees as well as any third parties engaged in distribution activities. Records must be kept of any individual recommendation to a client to buy units or shares in one or more collective investment schemes. Further details pertaining to this obligation have been set-out in the Swiss Bankers' Association Guidelines on the duty to keep documentary records according to Section 24(3) CISA.

To read this article in full, please click here.

Originally published by Juris News - Investment Management, volume 3, 2015.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.