Compliance
EXCLUSIVE: Regulatory Overhaul Will Turbocharge EAM Sector - FINMA
The Swiss Financial Market Supervisory Authority speaks to WealthBriefing about the rule changes that are coming for the country's external asset management sector.
New regulations on Swiss external asset managers will be a global
badge of quality, putting this large and varied sector on the
same footing as international peers, FINMA, the Swiss watchdog, has
told WealthBriefing.
Around 2,100 EAMs have registered under the new rules, and the
varied sector is becoming more prominent.
“We want to make sure there’s an adequate standard set of rules
for EAMs and that we have high standards that are comparable with
other asset management centres,” Kenneth Ukoh, head of portfolio
managers and trustees at FINMA, told this news service in a call.
“This will enhance the reputation and competitiveness of the
Swiss market,” he said.
In fact, when almost 400 trustees are added to the EAM numbers,
and falling under the new regulatory net, this is a
significant population of financial players that FINMA has to
oversee.
Swiss EAMs have often been built by breakaway teams of bankers
seeking independence, closeness to clients and freedom from
bureaucracy. Even so, with pressures across the world to regulate
financial services more closely after the turmoil of 2008-09,
Switzerland-based EAMs have come under the spotlight.
Switzerland, while not an EU member state, is home to many
managers serving clients in the EU and in other jurisdictions.
Some EAMs focus on serving expat Americans, or other foreign
nationals; there are EAMs specialising in debt, private markets,
sustainable investment, high-tech, healthcare and specialist
equities. Sizes vary in terms of AuM, staff and resources. Some
EAMs run IT and operations in-house, others are outsourcing these
functions. Industry figures say a number of players are already
getting in shape for the new regime.
A new regime to license these institutions, and to require
standards of reporting and disclosure, has been introduced by a
number of Swiss federal acts – Financial Services Act (FinSA) and
the Financial Institutions Act (FinIA). The acts came into force
at the start of 2020, and they are being implemented over the
next couple of years, with FinSA taking full effect by the start
of 2022. FinSA contains the code of conduct setting out how
financial service providers must comply vis-à-vis their clients,
in some ways mirroring the European Union’s MiFID II regime.
FinIA standardises the authorisation rules for certain financial
institutions. EAMs and trustees must apply for a licence from
FINMA by the end of 2022.
“The strengthening of client protection means this puts EAMs on a
level playing field with other market participants Thomas
Hirschi,” head of FINMA’s asset management division, said. “We
also needed these acts to be comparable internationally. It
should strengthen the reputation of the financial services sector
and indirectly increase competitiveness.”
The conduct of business aspect of the new requirements for EAMs
is particularly important as a number of recent cases in the
financial services sector in Switzerland have centred around
areas such as client suitability, the provision of cross-border
services, anti-money laundering and market conduct, he said.
“This closes a gap,” Hirschi continued.
“This is a big market, a very heterogeneous market. We want the
FINMA authorisation to be seen as the necessary high entry
level,” he said. “There’s a long transition period for all the
players and we don't expect all of them to apply for and get a
licence. Their readiness comes up a lot in our interaction with
these players and others. We also require information from them
on how they intend to implement FinSA.”
This news service has already tracked regulatory and other
developments in the space (see
here and
here). And WealthBriefing is also saluting
outstanding practitioners with
an awards programme.
Costs count
“Cost is a very sensitive topic for this population [of EAMs].
Some will face challenges in having an adequate control framework
in place. They need to prioritise their approach in showing they
have a sustainable business going forward,” Ukoh said.
A common theme arising from the various pieces of legislation is
that EAMs need to spend on technology and processes to ensure
that their reporting and other requirements are up to
scratch.
Asked how the Swiss regime compared with the EU’s MiFID II
regime, Hirschi replied: “There is an important philosophical
difference in how the EU makes its rules. Ours is
principles-based, while the EU is more rules-based.”