FinSA and FinIA: new authorization and supervision regime for independent asset managers and trustees

FinSA and FinIA: new authorization and supervision regime for independent asset managers and trustees

In essence, the Council of States confirmed that independent asset managers (IAMs) and trustees shall be subject to FINMA authorization and prudential supervision. It also  specified the main features of this new regime.

This newsletter outlines (i) the new authorization and supervision regime, (ii) the main authorization requirements to be met by IAMs and trustees and (iii) which financial services providers the new regime will apply to.

What are the features of this new authorization and supervision regime?

Both the Federal Council’s draft and the version approved by the Council of States provide that IAMs and trustees will require authorization in order to exercise their activities. Since the final version of these drafts has not yet been accepted or voted on in parliament, the exact date that the new regime will enter into force is still unknown. However, the course of 2018 appears to be a possible time frame.

The Federal Council’s draft FinIA foresaw that one or more supervisory bodies would be in charge of issuing such authorization and exercising supervision.

The Council of States, however, amended the draft in this respect and decided that FINMA would be in charge of issuing authorizations and supervising these market participants. Their on-going supervision, however, would be assigned to one or more supervisory bodies, which in turn would be subject to FINMA’s authorization and supervision. These bodies would act upon the clear directives of FINMA and would ensure that these market participants comply with authorization requirements.

As regards sanctions, FINMA would be responsible for their issuance upon receiving information about a possible violation from the competent supervisory body. FINMA would therefore also be responsible for withdrawing authorizations where required.

What are the authorization requirements?

The version of the draft FinIA that has been supplemented by the Council of States is more precise with respect to the authorization requirements for IAMs and trustees. However, the details of these requirements will only become known following publication of the relevant ordinances of the Federal Council.

At this stage of the legislative process, the requirements can be summarized as follows:

  • The management of IAMs and trustees must consist of at least two qualified individuals; an organisation with only one director can be authorized provided that business continuity is guaranteed.
  • A manager is deemed qualified if he/she has proper training and sufficient professional experience.
  • The IAMs and trustees must demonstrate that they ensure irreproachable business conduct.
  • The IAMs and trustees must ensure appropriate risk management and effective internal control. These tasks can be outsourced if necessary. If they are kept in-house, the persons in charge of these tasks may not themselves be involved in the activities that they supervise.
  • The minimum share capital of an IAM or trustee is CHF 100,000 and must be paid-up in cash.
  • The IAMs and trustees must have appropriate guarantees or professional liability insurance.
  • Their equity capital must cover at least 25% of the fixed costs.
  • Finally, they must join a mediation body.

Who does this new authorization and supervision regime apply to?

Pursuant to the drafts approved by the Council of States, this new authorization and supervision regime applies to:

  • Asset managers, « i.e. any person who, based on a mandate, may dispose of assets on behalf of clients on a professional basis» (section 16 draft FinIA). In other words, this would apply to IAMs who have entered into a discretionary management agreement with their clients. Although this definition will have to be specified further in the ordinances of the Federal Council, it could also encompass those financial services providers, who, despite having signed an advisory agreement, hold a power of attorney for their clients’ accounts. Therefore, only those investment advisors who do not hold any power of attorney for their clients’ accounts would not fall under the authorization and supervision obligations.

    However, these advisors will nonetheless need to register with a registry of client advisors and comply with the conduct rules of the FinSA, in particular the duty to classify clients, the duty of information and the duty to verify the suitability and appropriateness of financial services and instruments.

  • Trustees; the law refers specifically to the Hague Convention on Trusts by mentioning that a trustee is essentially any person administering the separate estate of a trust for beneficiaries on a professional basis.

Further legislative process

The Commission of the National Council has indicated that it shall begin its analysis of the two draft laws in its session of 20 and 21 February 2017.Accordingly, the National Council will begin debating the two Acts in its spring 2017 session at the earliest.

These laws can thus be expected to enter into force at the earliest in 2018.

IAMs and trustees should therefore start anticipating these changes and consider beginning implementation of these draft laws within their company in advance.