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Regulatory changes in the Swiss market

12/01/2021

New rules for cross-border financial services into the Swiss market. Asset Managers, along with other Financial Service Providers (FSPs), may have to review the way they distribute their funds in Switzerland as a new regulatory framework has entered into force.

This article sheds light on a handful of changes relevant for the provision of foreign funds in Switzerland. Even if the end of the transition period is set to December 31, 2021, shorter deadlines exist and should be looked at very carefully.

Main changes in requirements for the collective investment scheme promotion in Switzerland:
Replacement of the term “distribution”:

With the entry into force in Switzerland of the Financial Services Act (FinSA*), the current notion of “distribution” has been abolished. While the purchase and sale of fund shares is deemed to be a financial service within the scope of the FinSA, marketing of funds can be classified as offer. Each of these cases trigger their own requirements:

  • Offer

The offering of foreign investment funds in Switzerland may trigger certain obligations, depending on the type of investor that is targeted. The obligations are related to the product and may include the duty to appoint a Swiss representative and paying agent, the registration of the foreign fund with FINMA as well as reporting or publication obligations. An offer may under certain circumstances qualify as a financial service.

  • Financial Service at the point of sale

FSPs – (including foreign asset managers promoting their funds into Switzerland) - need to determine if they provide a financial service as per the definition of the FinSA. If this is the case, then the FSP needs to determine the client segment to which the service is provided in order to understand if this triggers further obligations for the FSP. 

Suggested methodology:

- Do you provide any of the financial services (definition as per FinSA) below?

    • Acquisition or disposal of financial instruments (Note: this includes the purchase and sale of shares of investment funds).

    • Receipt and transmission of orders in relation to financial instruments.

    • Administration of financial instruments (portfolio management).

    • Provision of personal recommendations on transactions with financial instruments (investment advice).

    • Granting of loans to finance transactions with financial instruments.

- If the answer is yes, the following obligations are usually triggered:

  • Client segmentation.

  • Code of conduct.

  • Organizational rules.

  • Registration to the client advisor register:

                          -        Service provided to Retail Clients and Professional Clients that are not “per se” Professional Clients (i.e. high-net-worth retail clients that have opted out to become Professional clients) => yes, registration is required.

                          -         Service provided to Professional / Institutional Clients only and prudential supervision of the FSP in its home state => no registration required.

  • Affiliation with an ombudsman:

                          -        Service provided to Retail Clients Professional Clients that are not “per se” Professional Clients (i.e. high-net-worth retail clients that have opted out to become Professional clients) => yes, affiliation is required.

                    -     Service provided to “per se” Professional / Institutional Clients => no registration is required.

                    -     Service is provided to Professional Clients that are not “per se” Professional Clients (i.e. high-net-worth retail clients that have opted out to become Professional clients).

Bear in mind: Certain clients may opt in or opt out from a client segment to benefit from higher or lower protection. This will impact that status of the client segment.

Family Offices could fall into any of the client segments (Retail, Professional, Institutional), depending if they have a professional treasury or not and if they are authorized by the FINMA. It is the FSP obligation to ensure compliance with local regulation.

New classification of investors:

FSPs shall assign the persons to whom they provide financial services to a specific segment until December 31, 2021 at the latest. Each client enters by default into one of the categories provided by law, namely: Retail Clients, Professional Clients, Institutional Clients.

Affiliation to an Ombudsman:

Whenever applicable, all FSP - Swiss and foreign active in Switzerland -  have to affiliate to an ombudsman by 24 December 2020. FSP serving solely “per se” professional clients or institutional clients are exempt from the affiliation including including the period from 26 December 2020 to 31 January 2021. Various Ombudsman offices are already recognized by Swiss authorities.

Registration of client advisors to a client advisor register:

Individuals who contact clients and offer financial services must register with the client advisor register except if they are exempt (e.g. Swiss banks, foreign FSPs prudentially supervised with an offering to professional “per se” and institutional clients only).
This change allows in principle a foreign FSP to distribute the fund to any client, including Non-Qualified Investors but only as long as the fund is approved by FINMA and as long as a Swiss Representative & Paying Agent is appointed.

Simplification in the offering to Qualified Investors but obligation to appoint a Swiss Representative (REP)  and Paying Agent (PA) persists for Retail Clients and High Net Worth Individuals (HNWI):

A foreign investment fund offered to Retail Clients under FinSA needs to appoint a Swiss REP and PA. A foreign investment fund, without FINMA registration, marketed exclusively to Professional, Institutional and Retail Clients with a long-term investment management or investment advisory agreement does not have to appoint a Swiss REP and PA.

A foreign investment fund can only be distributed to High Net Worth Individuals (HNWI) if it has appointed a Swiss REP and PA even if the NHWI has opted out to be regarded as Professional Client.

Funds authorized by FINMA: Legal documents can be filed and published in English:

Registered funds approved by FINMA are required to file, through Swiss REP, their legal documents such as the prospectus, the Key Investor Information Documents, etc.. As FINMA is now able to accept the documents in English, there is no need to translate them into a Swiss official language anymore.

Foreign ETFs: Listings can be limited to share classes offered to Non-Qualified Investors:

* AMAS: Asset Management Association Switzerland
Source: SGSS, December 2021

Getting to know SGSS ZURICH

Societe Generale, Paris, Zurich Branch (SGSS Zurich) is a legal representative and paying agent of foreign collective investment funds in Switzerland which are distributed to Qualified Investors and Non-Qualified investors in or from Switzerland. Our representation services include, among others, the application and the maintenance of FINMA authorisation of UCITS funds, including the negotiation and the execution of distribution agreements and the monitoring of distributors. We offer our clients professional expertise in the European and Swiss funds industry. SGSS Switzerland acts currently as a Representative & Paying agent for more than 900 vehicles distributed in Switzerland, of which over 400 are subject to FINMA reporting.

We invite you to contact us for any queries you may have in relation to foreign investment funds offering.

* The Swiss Financial Services Act (FinSA) and the Financial Institution Act (FinIA)

Director-Deputy Head Societe Generale Securities Services Switzerland
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