This news service recently spoke to the Geneva-based private bank about its work with external asset managers, the new regulatory regime taking shape in Switzerland, how the firm works with EAMs and the trends it sees unfolding.
Switzerland’s external asset management business, facing the challenge of getting in regulatory shape in time to meet new rules by 2023, is a key client segment for banks such as Lombard Odier.
FINMA, the Alpine state’s main financial watchdog, has argued that to some extent regulations will actually boost the sector in the long run. The prospect of fresh laws has highlighted EAMs’ status as an industry in its own right. Around 2,100 EAMs and several hundred trustees have registered under the new rules, and the varied sector is becoming more prominent.
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 – the Financial Services Act (FinSA) and the Financial Institutions Act (FinIA). The acts, which came into force at the start of 2020, 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.
Until now, EAMs were only subject to anti-money laundering rules, so the new regulatory landscape is a game-changer for many firms, putting them under pressure to specialise and partner with other organisations to manage costs.
The days have gone when a banker could “leave a bank on a Tuesday and start an EAM on a Wednesday,” Philipp Fischer, founding partner of Oberson Abels SA, a law firm, told this publication in a recent call alongside Lombard Odier. There is now a gap of several months between when people leave banks and work in EAMs – in some cases, they join existing wealth managers for a while before starting their own business, he said.
“There should be some [EAM] consolidation but it has not yet really picked up but should do so this year, both as regards combinations of businesses and as regards the launch of shared services platforms,” Fischer continued.
Lombard Odier is one of several banks in Switzerland and Liechtenstein that serve the sector. It is an important and strategic business line for Lombard Odier, Laurent Pellet, limited partner and global head of external asset managers, told this news service in the same interview.
“EAMs want the solid balance sheet of a bank [to lean on],” Pellet said. About 70 people at Lombard Odier work in the intermediaries business, a segment covering EAMs and multi-family offices, among others.
Pellet and Fischer talked about EAMs needing help with adapting to the digitalisation of work processes, including those needed to handle regulations, or manage varied investments and client reporting tasks, and outsource non-core functions so that they can make most of their specialised skills.
“These firms need to ask what sort of business model they need to have in order to survive,” Fischer said. Those EAMs that cover a wide range of investment strategies and geographical zones (as regards clients and custodian banks) are more complex – they may require more scale to be viable than a more focused, specialist firm, Fischer said.
On digitalisation, for example, new solutions are increasingly necessary for efficient client onboarding, reporting, risk management, monitoring investment suitability, and other functions. This requires investment, and these offerings also need to sit in one place, Pellet said.