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A New Regulatory Order For Switzerland's Trusts Sector - What We Know

Tom Burroughes

8 July 2019

The regulatory world is changing in Switzerland. The Swiss are mindful of how their neighbours in the European Union have been playing a rough game (arguably counterproductively so) over cross-border financial services recently. This, and other issues, means that its regulatory regime must be up to date, rigorous but not oppressive.

As explained here recently, providing cross-border financial services by non-Swiss financial service providers to institutional, professional, or retail clients in Switzerland, as well as creating financial instruments for the Swiss market, will be regulated by the new Swiss Financial Services Act (FinSA). The act is expected to kick in on 1 January 2020. This is only one feature of what’s going on. The trusts and family offices sector in the Alpine state awaits a change to the regulation of these entities. As this publication knows from having attended conferences in the country, this is a big topic because trusts are recognised in Switzerland under international conventions. (Switzerland is not, as readers know, a Common Law jurisdiction.)

Swiss financial services groups have created a working group, the Swiss Supervisory Organisation of Wealth Managers and Trustees, that is dealing with legislators and regulators. This news service recently interviewed David Wiilson, 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.

Please give a general outline of SOWT and why it was formed, when, by whom, and its supporting groups and key individuals.
SOWT is an association which was formed and registered in the Canton of Bern on 6 January, 2016, by a common interest group composed of representatives of the following leading associations in the financial sector: OAR-G (Organisme d’autorégulation des Gérants de Patrimoine), ASG (Association Suisse des Gérants de fortune), STEP (Society of Trust and Estate Practitioners) and SATC (Swiss Association of Trust Companies).

The intent was and remains to merge OARG and ASG into a supervisory body under the authority of FINMA, in accordance with the new law to be enforced on 1 January 2020, relating to the surveillance of financial intermediaries: the Financial Institutions Act (FINLA) (Loi sur les Etablissements Financiers of 15 June 2018 – LEFin). This new, merged body is called SO-FIT - Supervisory Organisation for Financial Intermediaries & Trustees. Although modifications with the Register of Commerce are not yet completed, it was decided to adopt this new name and brand on all advertisement documentation – see http://so-fit.ch.

The persons involved and leading the project are:

-- for OAR-G : Franz de Planta, Philippe Cornebise, Jean -Christophe Oberson, Eric Wagner, Fabio Pellanda and Stiliano Ordolli;
-- for ASG : Serge Pavoncello, Marc Hauser, Patrick Dorner and Alexandre Rabian;
-- for STEP Federation: David Wallace Wilson and Catherine Motamedi; and
-- for SATC : Alexandre von Heeren.

What is SO-FIT’s mission?
SO-FIT embeds the project of building a comprehensive supervisory organisation that is open to financial intermediaries and trustees in Switzerland. Supported by the Association of Swiss Asset Managers (SAAM), L’Organisme d’Autorégulation des Gérants de Patrimoine (OAR-G), the Swiss Association of Trust Companies (SATC) and Society of Trust and Estate Practitioners (STEP), SO-FIT combines many years of expertise and experience in the investment management and trust business and aims at having a nationwide presence and offerings its services in German, French, Italian and English.

Its core values consist in a commitment to a high level of professionalism, while holding the financial intermediaries and trustees it supervises in high esteem; a cooperation with its affiliates based on dialogue, advice and support, all of which are to be pursued with a long-term horizon; delivering quality, integrity, transparency and continuity as hallmarks of its services and commitment; and listening to and connecting people.

Explain what the new regulatory regime in Switzerland is, which entities and organisations will be affected, the purpose of the regulatory changes, and the timeline for the rollout of the new system.
In short, the new regulatory regime affecting financial intermediaries and the services they provide essentially aims at increasing protection for consumers and reinforcing the rules governing the provision of financial services in Switzerland, by:

-- various obligations of disclosure and information on the financial services and products financial organisations intend to offer, the said rules being contained in the new Financial Services Act (FINSA) (Loi sur les Services Financiers of June 15, 2018 – LSFin); and

-- in accordance with the FINLA, a reinforcement of the structure of organisations offering financial services and/or acting as financial intermediaries (notably: minimum share capital of SFr100’000, proper internal organisation and proven professional capacity of directors of such organisations) and the supervision of said organisations by FINMA, via supervisory organisations to be created, thus moving the auto-regulation system presently in force in Switzerland for financial intermediaries (exclusively focused on anti-money laundering provisions) to a more global system of supervision by the Swiss Financial Markets Authority.  

The adoption of those new sets of rules was essentially driven by the intention of the Swiss Legislator to bring the country up to the European MiFID standards (Markets in Financial Instruments Directive (2004/39/EC), applicable across the European Union since November 2007).

The organisations that will be submitted to the new obligations under FINLA are those offering financial advice and/or products, with the notable exception of insurance companies bound by the Insurance Surveillance Act (Loi sur la Surveillance des Assurances – LSA). Those which will be submitted to the FINSA are those who professionally run an activity as asset managers, fund managers, trustees and instruments traders. Obviously, some organisations will be bound by both laws, while other (trustees notably, who usually do not offer financial and investment advice and services).

FINLA and FINSA will enter into force on 1 January 2020. From that date on, the rules of FINSA will fully apply and those of FINLA will apply to any new organisation created after that date. As for the organisations already created, they will need to announce that they intend to apply for registration under a supervisory body approved by FINMA, by or before 30 June 2020, and will need to comply with the organisational rules set forth in the FINLA by or before 31 December 2022.

The supervisory bodies, amongst which SO-FIT (being the largest incidentally), are presently preparing their submission for authorisation to FINMA. The deadline for filing their submissions has been set for 31 March 2020, and FINMA will need to confirm approval before 30 June 2020.

What does SOWT SO-FIT hope to be the main consequences of this new regulatory regime in terms of Switzerland's competitiveness as a financial centre, revenues, new business, differentiation from other financial centres, etc?
The financial sector in Switzerland needed to move quickly to the level playing field standards set forth within the MiFID regulation. The FINLA and the FINSA were intended for that purpose.

SO-FIT believes that the reinforcement of the protection of consumers, together with new and increased guaranties of financial solidity, knowledgeability and professionalism of organisations offering financial services or otherwise acting as financial intermediaries, will help maintain the solid reputation of the Swiss financial industry.

While there is a risk of consolidation amongst the actors concerned, this will also create new opportunities to welcome clients seeking larger advisory firms and solidly implemented organisations.

Switzerland has been known for the quality of its services and its reputation remains. But there is no doubt that the reinforcement of the rules protecting consumers and guaranties of the solidity of its financial service providers is a must in a world of increased competition and globalisation.


Why is this regulatory change taking place and why is it necessary? Why has this change not happened before, given all the issues in financial services over the past decade?
Up to now, the system governing the financial industry (to the exception of banks and insurances submitted to the Insurance Surveillance Act, which were already bound by strict rules of organisation and, to a certain extent, protection of the consumers) was that of auto-regulation, exclusively centred on anti-money laundering regulations. As a consequence, there was a rather large disparity of offering in the industry and the consumer definitely had no guarantee of solidity, effectiveness or organisation and mitigation of risks.

The increasing complexity of financial instruments, the globalisation trend and the increasing amount of wealth created around the world, which all led to an increasing offer of services in the industry, rendered the changes compulsory. And this is not to mention the adoption back in 2004 of the first set of MiFID regulations, which Switzerland needed to raise its standards up to.

One of the reasons for Switzerland taking a fair amount of time in adopting the FINLA and FINSA probably resides in the almost immediate announcement after the MiFID regulations entered into force to revise them; it was most probably wise and prudent to await the new MiFID II set of rules to align Swiss standards to it. In addition, a number of rules intended for the protection of clients of banks and insurance companies were progressively enforced over the last decade, which indirectly also protected the clients of the financial intermediaries working alongside the banks for the same clients.

Does this regime only apply to Switzerland?
The FINLA and FINSA are indeed territorial only. However, some rules will naturally extend to international groups when one of the organisations it owns is based in Switzerland.

This said, given that the FINLA and the FINSA are essentially driven by euro-compatible standards, the level playing field is given.

Who is the head of SOWT?
No decision has yet been made. The leading organisations that will merge in the process (OAR-G and ASG) are presently more concerned by ensuring that the supervisory body under construction will meet FINMA’s requirements and that they will be able to offer their actual members a solid and competitive organisation to be affiliated to and supervised by.

In five years’ time, for example, what does SOWT SO-FIT hope the Swiss wealth industry looks like?
As indicated before, Switzerland’s reputation in terms of effectiveness, solidity and expertise in the financial industry remains, and the FINLA and FINSA will allow the demonstration that its leading position is well deserved.

The enormous advantage of taking the necessary time to adopt proper rules to govern the financial industry is that the said rules meet the purpose of protecting consumers, while not paralysing the system by heavy administrative burdens. This should overall increase the competitiveness of Switzerland in the financial services field and allow us to serve more clients.

Within the Swiss industry, these developments are discussed but they aren’t very visible overseas, with Brexit distracting attention. How do you hope the changes will gain more public awareness?
It is not so uncommon that those concerned by the adoption of new regulations would tend to wait for those rules to be in force before they make any move. On the other hand, at present, the candidates for the supervisory bodies are working on setting up their organisation before they more actively promote their services and offering as such.

Equally, those clients who will be offered this new extended protection probably do not feel that they are not already well protected; hence their lack of interest for the time being.

This being said, SO-FIT’s strategy definitely comprises a strong communication plan, which will be rolled out in the last quarter of 2019 and, of course, throughout 2020. Others will follow, and there is no doubt that in the future Swiss financial services will have a high level of professionalism, its structures will be solid, with the additional benefit of people preferring the Swiss financial industry to others in the world.

Switzerland’s financial sector links with the UK are likely to be even more important after Brexit. Can you talk about how the regulatory changes play into that?
They may or may not be more important. The fact of the matter is that, for the time being, no-one really knows how Brexit will turn out and how much of the European legislation will fall out of the UK’s reach. MiFID is one of them, although it seems very unlikely that the UK would suppress any part of the consumers’ protection it has been offering up to now within the European Union.

This said, it may rather well be that the UK will be seen as less stable and less of a welcoming financial centre, in light of its recent fall out of the European Union. On the contrary, Switzerland has always been out of the European Union, while showing a strong ability and success at negotiating with its European partners and adopting, when necessary, EU-compatible rules.

Are there other points you want to make?
It should be stressed that FINMA has announced its wish to see ideally three supervisory bodies set up in order to ensure a healthy competitiveness in the market, while streamlining the offering.

To date, in addition to SO-FIT, three candidates have announced their intention to apply for authorization as a regulatory body : OSFIN (to be born out of POLYREG – PolyReg Association Générale d'Autorégulation), FINcontrol (to be born out of VQF – The Financial Services Standards Association VQF) and OSIF (to be born out of ARIF – Association Romande des Intermédiaires Financiers).

SO-FIT’s leaders strongly believe that their decision to merge OAR-G and ASG and, in the process, partner with the two leading organisations of trustees, will show how important it is to put together the best of knowledge and experience, rather than pursuing the same target in isolation. There is no doubt that this association will demonstrate the virtue of two leading organisations challenging themselves in order to bring the best of the industry into the new supervisory body to be created under the name of SO-FIT.

The constitution of a supervisory body is an incredibly stimulating project to run, but it poses a number of constraints and requirements to tackle. The biggest one probably comes from the necessity for the organisation applying for supervisory body authorisation to continue offering its members the services rendered up to now as an auto-regulation organisation, during the three-year transition period.

There is no doubt that by putting their work forces and financial means together, ASG and OAR-G are best placed to overcome the difficulties that lay ahead. More so, by bringing into their organisation the expertise of STEP and SATC, SO-FIT will also be best placed to address the needs of trustees in the new framework.