A lot of new regulatory activity is taking place in Switzerland and the country is overhauling how it oversees funds, along with sectors such as trusts and family offices. Such activity had been somewhat overshadowed by developments in other countries.

A new regulatory regime has started this year in Switzerland for funds, kicking in at the same time as the Alpine state starts to regulate trusts in a new way. 

Funds being promoted in Switzerland will face several revised regulation requirements from 1 January. The regulations implemented by The Swiss Financial Market Supervisory Authority (FINMA), introduce three new concepts along with several other updates to aspects of fund governance in the territory. 

Switzerland is shaking up rules on a number of fronts affecting trusts, funds and family offices; this reflects how that the country is trying to defend its offshore centre position. Factors such as Brexit, the demise of Swiss bank secrecy and negative interest rates are forcing Switzerland to make itself more appealing as a place to park money. It also benefits from its standing as a politically stable country, especially at a time when some centres such as Hong Kong have been upset by protests and others have been hit by money laundering scandals.

“The revised regulations introduce some important updates, of which fund managers and providers need to be aware if they want their funds to continue to be available within the Swiss market. While the revisions themselves may not necessarily bring in wholescale changes to the way in which funds operate, they are wide-ranging in scope. The new concepts will require fund managers to understand some new definitions and to reposition the way in which their funds are marketed and how they communicate with investors,” Martin Neason, head of global funds registration at FE fundinfo, said.

The new regulations will introduce three new specific concepts: ‘offer’: relating to any proposal to acquire financial instruments containing sufficient information on the offer and instrument and usually aiming to draw attention to and to dispose of a particular financial instrument; ‘advertising’: any communication directed to investors which is aimed at drawing attention to particular financial services or financial instruments, and ‘provision of financial services’: the acquisition or disposal of financial instruments, receipt and transmission of orders, discretionary portfolio management and investment advice, granting of loans to finance transactions with financial instruments.

The revised requirements also include updates to the following areas:

-- Advertising: any disclaimer included within a document or website which relates to a financial instrument, must have the wording: “This is an advertising document”, or: “This website may contain advertising,” respectively.
-- Translations: it will no longer be necessary to translate a fund’s prospectus, memorandum and articles/instruments of incorporation financial reports and key information documents. This will be immediate for new registrations and come into effect for existing registrations from the next prospectus update.
-- Basic Information Sheet (BIS): BIS will now be required for funds in Switzerland, which needs to be provided to private clients before an investment is made. BIS can however be replaced with the provision of a PRIIPs KID [packaged retail & insurance investment products - key investment document] .
-- Provision of Financial Services: Funds (‘financial service provider’) need to be registered with the Ombudsman’s Office and their personnel have to be registered on an authorised Client Adviser Register. While the fund does not have to be authorised by FINMA, they will have to be affiliated with the Ombudsman and Client Adviser Register by 30 June 2020, or six months after the introduction of the Ombudsman and Register.
-- Client Categorisation: the regulations introduce three types of client categorisation; institutional, professional and private. Depending on which category a fund is targeting, it may no longer be necessary to appoint both a Swiss rep and paying agent.
-- Exchange traded funds: Can be registered with only the share classes that are actively offered in Switzerland listed at a Swiss stock exchange.
-- Distribution Agreements: Will not be required for compliance, but may still be expected in certain areas of the market.

Trusts
As reported in December last year, a new regulatory system for the trusts industry in Switzerland takes effect. As of 1 January, the new Swiss regime took full effect. Final versions of the Financial Services and Financial Institutions Ordinances (FinSO and FinIO) together with the Financial Services Act and the Financial Institutions Act, were brought into law by the Swiss Federal Council in November this year.

Rules require trustees acting on a professional basis in Switzerland to obtain a licence to carry out their activities. Professional basis is defined by the enacting ordinances according to two criteria: gross turnover (i.e. exceeding SFr50,000 ($51,630) per year) and number of business relationships (i.e. more than 20 contracting parties).

Certain exemptions are in place, including for private trust companies, and those requiring a licence will be allowed a two-year transitional period to enable them to meet the new compliance demands made by the regulations. Prudential supervision of trustees and managers will be performed by new entities set up by the Swiss Financial Market Supervisory Authority (FINMA).

Swiss financial services groups created a working group, the Swiss Supervisory Organisation of Wealth Managers and Trustees, which is dealing with legislators and regulators. Earlier last year, this news service interviewed David Wilson, who is partner and attorney at law, a trust and estate practitioner, as well as a leading figure in the Society of Trust and Estate Practitioners. He is in regular contact with policymakers in Bern and the Swiss industry, and talks about SOWT, the new rules, and what practitioners must prepare for.