On 15 June 2018, the Swiss parliament adopted the Swiss Financial Services Act (FinSA) and the Swiss Financial Institutions Act (FinIA). On 24 October 2018, the Swiss Federal Council opened a consultation process regarding the three ordinances implementing these acts, the Financial Services Ordinance (FinSO), the Financial Institutions Ordinance (FinIO) and the Supervisory Organisation Ordinance (SOO), which will last until 6 February 2019. The two acts are expected to enter into force together with the ordinances on 1 January 2020 and will introduce an entirely new regulatory framework governing the Swiss financial markets. This briefing focuses on the impact of the FinSA and the FinIA on the offering of foreign collective investment schemes into Switzerland. These rules entail major revisions resulting in a significant easing of the regulatory burden for distributing foreign collective investment schemes.
FinSA and FinIA also affect Regulation of Collective Investment Schemes
The FinSA and the FinIA amend the regulatory framework for collective investment schemes set out in the Collective Investment Schemes Act (CISA). The purpose of these amendments is to create a level playing field for the provision of financial services and financial products. These changes will impact Swiss collective investment schemes, their asset managers and the distributors of collective investment schemes and will introduce a new regime for the offering of foreign collective investment schemes to qualified investors in Switzerland.
The following changes to the CISA are of interest: First, the existing distribution regime for foreign collective investment schemes will be replaced by a new regime which simplifies the offering of foreign collective investment schemes to qualified investors in Switzerland. Second, the regulatory requirements will no longer be triggered by the "distribution" of foreign collective investment schemes but by an "offering" which is defined more narrowly. Third, the distributor license will be abolished and persons offering investment schemes will not be subject to a specific licensing requirement. Instead, a person offering collective investment schemes will qualify as a financial services provider pursuant to the FinSA and, hence, must comply with the rules of conduct under the FinSA. Finally, the criteria for qualified investors will be broadened to include large companies, regardless of whether they have professional treasury operations or not, as well as private investment vehicles created for high-net-worth individuals provided they have professional treasury operations.
Simplifications for Offering Foreign Collective Investment Schemes to Qualified Investors in Switzerland
The revised CISA will introduce a new regime for the offering of collective investment schemes to qualified investors which will replace the existing distribution regime for foreign collective investment schemes.
This new regime will substantially decrease the compliance burden for offering foreign collective investment schemes to qualified investors. Under the revised CISA, it will be possible to offer foreign collective investment schemes to all qualified investors (except for high-net-worth individuals who have elected to be treated as a professional client/ qualified investor) without appointing a Swiss representative and a Swiss paying agent. This substantially extends the range of qualified investors to whom a collective investment scheme may be offered without retaining a Swiss representative and a Swiss paying agent to cover not only regulated Swiss financial institutions, but also, among others, occupational pension funds, companies with a professional treasury and public entities with a professional treasury.
However, this new regime will not go so far as to include high-net-worth individuals who have opted to be treated as qualified investors. If they are approached as part of the offering, it will still remain necessary to appoint a Swiss representative and a paying agent.
From "Distribution" to "Offering"
Moreover, the new regime will be based on the "offering" of foreign collective investment schemes: a term which is defined more narrowly than distribution.
Today, the regulatory requirements are triggered by any form of distribution of collective investment schemes, which is broadly defined to include any form of offering or advertising with just a few limited exemptions. Under the new regime, the decisive factor is whether a foreign collective investment scheme is "offered" in Switzerland. The FinSA defines an offer as any invitation to acquire a financial instrument that contains sufficient information on the conditions of the offering and the terms of the financial instrument. Under the new regime, any offer will trigger the application of the Swiss rules on the offering of foreign collective investment schemes in Switzerland. However, based on the consultation report, the definition of an "offering" will be more limited than the current understanding of "distribution". Generic advertising (including pre-marketing activities) for foreign funds and other collective investment products in print and electronic publications and in connection with roadshows will in many cases not contain the information required by law to constitute an offering. If, however, specific collective investment schemes are presented to potential investors at marketing events such as roadshows and the investors have the opportunity to acquire the collective investment schemes by simply accepting an offer at the event or thereafter, this activity, as a whole, will be deemed to be an offer and will trigger the respective regulatory consequences. As a result, drawing a line between the advertising and offering of collective investment schemes will require a case-bycase assessment.
In addition, the geographical scope of the new regime will also be more limited since in only covers offerings in Switzerland and no longer applies to offerings from Switzerland. This will allow Swiss distributors to offer foreign collective investment funds to clients abroad even from Switzerland without needing to comply with the Swiss regulatory framework.
At the same time, certain exemptions, which exist under the current law, will no longer be explicitly excluded from the definition of an offering under the FinSA. However, most of them will continue to apply as a practical matter under the new rules. For example, although the exception allowing for investors having an investment management or an investment advisory mandate will be dropped, retail clients who have entered into an investment management or an advisory agreement on a long-term basis with a regulated financial institution will be deemed to be qualified investors in the sense of the revised CISA to whom foreign collective investment schemes can be offered without the requirement of the collective investment scheme of having to appoint a paying agent and a Swiss representative.
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