Distribution to investors in Switzerland

By Luis Pedro and Lisa Weihser, Oligo Swiss Fund Services

Published: 14 June 2019

Switzerland is an attractive market for foreign investment funds with very specific, yet easy to fulfil, requirements for distribution. Switzerland is not part of the EU, and distribution  legislation is different. To ensure that all regulatory requirements, including representation, paying agent and regulators authorization are met, choosing a reliable Swiss representative is essential. Once funds have been authorized for Swiss public distribution, fund managers and fund distributors will expand the scope of potential investors through access to big Swiss distribution platforms, including those from well-established banks.

Switzerland is an attrative market for foreign funds ranking fourth among the largest asset management locations in Europe. The total volume of assets entrusted by investors in Switzerland amounted to CHF 1,129.3 billion (as of 23 April 2019).[1] At the end of February 2019, the total volume was CHF 1,121.5 billion, which represents an increase of CHF 7.8 billion or 0.7% in only two months.[2]

THE SWISS REGULATORY FRAMEWORK TODAY

Switzerland is not part of the EU and is hence not subject to the AIFMD rules.[3] The distribution of foreign funds in Switzerland is regulated by a specific set of rules, where the function of the Swiss representative plays a central role. The Collective Investment Schemes Act (CISA) came into full force on 1 March 2015. The modifications introduced by the CISA require that all foreign funds distributed to Swiss investors have a Swiss representative.[4]

Under the CISA, Swiss investors are segmented into three groups:

Qualified Investors

Non-Qualified Investors

Regulated

Unregulated

 

  • Banks
  • Security dealers
  • Regulated fund management companies
  • Insurance institutions
  • Other regulated companies

 

  • Pension funds with professional treasury management
  • Family Offices
  • UHNWI  (subject to conditions)
  • Independent wealth managers
  • Companies with professional treasury management
  • Investors other than Qualified Investors

 

 

Requirements

 

Requirements

 

Requirements

None

  • Appoint a Swiss representative
  • Appoint a Swiss paying agent

 

 

  • Appoint a Swiss representative
  • Appoint a Swiss paying agent
  • Obtain an authorization for public offering by FINMA
  • Publish legal documents on a recognized electronic platform[5]
  • Translate fund documents to a Swiss official language

THE 2020 UPCOMING REGULATORY HIGHLIGHTS

The Swiss Federal Financial Services Act (FinSA) and the Swiss Federal Financial Institutions Act (FinIA) are expected to enter into force in 2020. They were drafted as a response to the 2009 financial crisis and with the purpose of meeting international standards, most importantly the recognition of the so-called “equivalence” under the “third-country rules” under MiFID II.[6] Through the legislative proposal, Switzerland envisages the harmonization of its financial markets regulation with MiFID II in order to facilitate cross-border activity to enhance the Swiss financial center’s competitiveness, while taking due account of the desire for enhanced  client protection.

FinSA redefines the client categories as follows:

Professional Clients

Private clients

  • Independent wealth managers
  • Regulated insurance institutions
  • Banks
  • Pension funds and companies with a professional treasury management
  • Security dealers
  • Regulated fund management companies
  • Other regulated companies
  • HNWI who opt out of the private client category
  • Family offices without a professional treasury management which opt out of the private client category
  • Individuals and HNWI
  • Family offices without a professional treasury management
  • All non-Professional Clients

 

Requirements

 

Requirements

 

Requirements

  • Register the fund advisors
  • Register the fund promoters
  • Appoint a Swiss representative
  • Appoint a Swiss paying agent
  • Register the fund promoters
  • Appoint a Swiss representative
  • Appoint a Swiss paying agent
  • Obtain an authorization for public offering by FINMA
  • Publish legal documents on a recognized electronic platform[7]
  • Translate KIIDs into a Swiss official language

 

Professional investors under FinSA will be considered regulated qualified investors and some private investors, with financial assets exceeding CHF 500,000, that have sufficient knowledge about the risks of investments as a result of their personal training and experience in the financial sector, may “opt-out” and be considered Professional Clients.[8]  

THE NEW REGISTER OF FUND ADVISORS

Within six months of FinSA/FinIA taking effect, fund promoters of those financial service providers, not subject to supervision in Switzerland in accordance with Art. 3 FINMASA[9] and client advisors of foreign financial service providers, will be required to sign up to a client advisors’ registry (Art. 22 FinSA). This body will verify that advisors have sufficient expertise and knowledge of the FinSA rules of conduct, that they have no entry due to criminal offences against assets under the Swiss Penal Code and no ban on activity or profession imposed by FINMA, that they are properly insured and that they are affiliated with an ombudsman's office.

For more information about the register, the website of www.regiswiss.ch can be consulted.

PROFESSIONAL OR PUBLIC OFFERING

Profressional or Public Offering

With the updated regulation in 2020, foreign funds only being offered to most Professional Clients will no longer be required to appoint a Swiss representative and a Swiss paying agent. However, they will not be able to be offered to private clients. To avoid undesired publication to private clients, any communication with Swiss investors, including mailing lists and website content, requires strict monitoring. HNWI and family offices will require special care to understand whether they opt-out of the private client category (and require a paying agent and representative) or if they are to be considered private clients (and require a full authorization for public offering). Fund platforms of major banks and large pension funds typically prefer funds authorized by FINMA for public offering.

Public Offering

A foreign fund authorised for public distribution will gain access to big Swiss distribution platforms, thus accessing a broad scope of potential investors. In addition to the requirement of appointing a Swiss representative and a paying agent, an authorization from FINMA is required.[10] Due to the regulatory fees, the cost of a Swiss representative and a Swiss paying agent, foreign funds authorized for public offering face higher initial and recurring costs. These funds also have the most complete registration in Switzerland; they comply with all the points that institutional investors like insurance companies, banks and pension funds may require. They can be offered to professional and private clients alike, reach a broader scope of potential investors and are exempt from the obligation of checking the status of each investor. UCITS and Hong Kong mutual funds have a fast-track approval for distribution to private clients. FINMA has cooperation and information exchange agreements with the supervisory authorities in 17 countries.[11]

Setup For Public Offering In Switzerland

Once a fund manager takes the decision to approach the Swiss market, the first step is generally to appoint a Swiss representative, which will discuss with the fund manager about aspects which are specific to the type of the fund. A list of Swiss paying agents will be provided for the client to choose from. An onboarding process follows, which typically takes a few weeks, during which the representative executes due diligence work on the fund, a representation contract is established, and the fund’s legal and marketing documents are amended for distribution in Switzerland. This also entails filing of the documents with FINMA and requesting that the fund be authorised for public distribution in one of the Swiss official languages.

In line with the EU regulation on PRIIPs[12], the publication of a KIID is compulsory if a financial instrument is offered to private clients. From 2020, if a financial instrument is offered publicly, only the KIIDs will need to be translated into a Swiss official language and published. Other fund documents will no longer need translation.

CHOOSING A SWISS REPRESENTATIVE

The role of the Swiss representative is to ensure that the funds’ distribution activities comply with Swiss laws. In addition to the legal and procedural expertise, Swiss representatives can:

  • Help fund managers who wish to distribute to private clients find the best professional translation service provider;
  • Update the funds on regulatory changes and help adapting to them;
  • Help gaining access to big Swiss distribution platforms, including the ones from well-established banks;
  • Help building relations between funds, Swiss-based distributors and investors;
  • Organise cap intro events and conferences to connect funds with investors;
  • Act as a global distributor to organise retrocessions for placement agents in Switzerland;
  • Help choosing a suitable Swiss legal Counsel when required;
  • Assist the fund with cross-border registration in multiple countries within and beyond Europe;
  • Publish fund information and documents on electronic platforms dedicated to Swiss investors;

This makes the Swiss representative an ongoing point of reference, source of business, and long-term partner for a fund’s distribution activity in Switzerland.

For any question concerning funds representation and distribution in Switzerland, please feel free to contact Oligo Swiss Fund Services (a regulated Swiss representative for funds addressed to both professional and private Swiss investors) at info@oligofunds.ch.

 

[1] Swiss Fund Data – Swiss Fund Market Statistics, 20 August 2018.

[2] Ibidem.

[3] Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/2010 Text with EEA relevance (hereinafter: AIFMD).

[4] Federal Act on Collective Investment Schemes of 23 June 2006 (hereinafter: CISA), Art. 120(4).

[5] ETF UCITS funds are also required to be listed on a Swiss stock exchange (e.g., SIX, BX Swiss).

[6] Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments amending Council Directives 85/611/EEC and 93/6/EEC and Directive 2000/12/EC of the European Parliament and of the Council and repealing Council Directive 93/22/EEC.

[7] ETF UCITS funds are also required to be listed on a Swiss stock exchange (e.g., SIX, BX Swiss).

[8] Draft Federal Act on Financial Services (status as at June 2018), Art. 5.

[9] Federal Act of 22 June 2007 on Federal Financial Market Supervision; Financial Market Supervision Act.

[10] CISA, Art. 120(1).

[11] FINMA agreements in accordance with Art. 120 para. 2 let. e CISA, December 2nd 2016: Austria, Belgium, Denmark, Estonia, France, Germany, Guernsey, Hong Kong, Ireland, Jersey, Liechtenstein, Luxemburg, Malta, Netherlands, Norway, Sweden, United Kingdom.

[12] Regulation (EU) No 1286/2014 of the European Parliament and of the Council of 26 November 2014 on key information documents for packaged retail and insurance-based investment products (PRIIPs).