Citywire - For Professional Investors

Register free for our breaking news email alerts with analysis and cutting edge commentary from our award winning team. Registration only takes a minute.

How advisers can survive regulations: legal experts give their brief

How advisers can survive regulations: legal experts give their brief

Independent advisers need to act now ahead of FinSA and FinIA, according to Alexandre de Boccard and Cindy Ung from law firm Ochsner & Associés, in collaboration with Blue Horizons Partners. They give their verdict on the challenges ahead. 

A new wave of financial services regulations in Switzerland marks a paradigm shift for everyone working in the industry, particularly portfolio managers. Under the proposed new regulatory framework, portfolio managers and trustees will find themselves subject to a much stricter set of authorisation, organisation and supervision rules.

Although the proposed regulations are only at draft stage and the details of the actual ordinances remain unknown as of yet, some Swiss companies have already started to reorganise themselves ahead of the upcoming changes.

The acts in question

The Swiss Federal Chambers are currently reviewing the two frameworks that will shake up the industry: the Federal Act on Financial Services (FinSA) and the Federal Act on Financial Institutions (FinIA).

FinSA seeks to protect clients of financial service providers and to establish comparable conditions for the provision of financial services – essentially seeking to level the playing field. FinIA, meanwhile, dictates the requirements for acting as a financial institution.

As it stands, independent asset managers (called ‘portfolio managers’ under the proposed regulation) are subject to the Anti-Money Laundering Act. They can be affiliated either to a self-regulatory organisation or directly to the Swiss Financial Market Supervisory Activity for AML supervision purposes.

According to the Swiss Code of Obligations, Swiss companies should also put in place internal control systems. This allows the verification of a company’s compliance with the current laws and regulations as well as internal directives and procedures.

However, aside from AML requirements, Swiss portfolio managers are currently not subjected to prudential supervision, with the exception of asset managers of collective investment schemes.

With portfolio managers soon to be subjected to so-called prudential supervision for the first time in Switzerland, the upcoming regulations will necessitate major changes in terms of internal organisation.

The new rules

First, FinIA requires that portfolio managers be authorised by the competent supervisory authority.

Second, FinSA contains a list of duties that portfolio managers will need to comply with, including internal organization measures. A compliance function and a risk management function will be essential. It can also be anticipated that outsourcing specific functions to specialised companies will be allowed, provided that specific requirements are met. However, it appears one-man-show operations should not be feasible any more.

The portfolio manager must also prepare internal procedures to prevent conflicts of interest that could arise through the provision of financial services.

In terms of experience, the proposed regulation contains specific requirements. Portfolio managers must ensure their employees have the necessary skills, knowledge and experience to perform their activities. The portfolio manager has similar duties in regards to third parties appointed for the provision of financial services. Portfolio managers must also ensure third parties have the required authorisations and registrations, as well as carefully instructing and supervising the appointed persons.

Cross-border implications

In addition to these requirements, employees who will advise clients will need to be formally registered. Specific requirements apply in order to be registered in terms of knowledge and ongoing training.

Such requirements will also apply to foreign companies, and these requirements (including the duty to be registered) will apply regardless of the clients advisers’ place of residence or work.

Such cross-border rules will impact foreign companies offering portfolio management services and also other types of financial services companies active in Switzerland.

The date of enforcement of these acts has not been set yet. This proposed regulation is not expected to be effective before 2017, more probably 2018, with a transitional period.

That said, companies offering financial services in Switzerland need to start thinking now about how to organise themselves in order to comply with the proposed Swiss regulatory framework.

It’s also safe to assume that mergers among portfolio management companies will increase as a result of this new wave of regulations and associated costs.


This article originally appeared in the November 2016 edition of Citywire Switzerland magazine.

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.