Cross-border distribution of collective investment schemes
The expected entry into force of the Financial Services Act (FIDLEG) and the Financial Institutions Act (FINIG) in January 2020 will impact the whole financial industry in Switzerland, including the cross-border distribution of collective investment schemes. While many changes under FIDLEG / FINIG lead to more restrictions and obligations for the market players, the new acts bring certain significant relaxations in the area of investment funds.
Today’s regime: Swiss representative, paying agent and licensed distributor
The current Swiss regulatory framework for cross-border distribution of investment funds is provided in the Collective Investment Schemes Act (CISA). The rules vary depending on the investors targeted:
- Retail investors: If retail investors are targeted, the foreign collective investment scheme needs to be approved by the Swiss Financial Market Supervisory Authority (FINMA) prior to distribution. This includes, among others, a review of documents such as the offering prospectus, the articles of association or the fund contract by FINMA. Additionally, the foreign fund management company as well as the depository must be subject to equivalent regulation and an agreement on cooperation has to be in place between FINMA and the relevant foreign supervisory authority. Moreover, a Swiss representative and paying agent have to be appointed. In addition to the requirements applicable to the foreign entity, any Swiss distributors have to be authorized by FINMA.
- Qualified investors: Relaxations apply if distribution is foreseen towards qualified investors, such as companies or entities under public law with professional treasury as well as supervised financial intermediaries (see below (iii)). Foreign collective investment schemes which are distributed to qualified investors only do not require approval by FINMA, but must appoint a Swiss representative and paying agent for the distribution of units in / into Switzerland. Additionally, distributors in Switzerland must obtain an authorization from FINMA.
- Regulated qualified investors: Distribution of collective investment schemes to regulated qualified investors (i.e. regulated financial intermediaries) is not considered as distribution and therefore not subject to the CISA. Accordingly, none of the above requirements mentioned under (i) and (ii) apply.
FIDLEG / FINIG future regime
Future regime under FIDLEG / FINIG: Abolishment of distributor license, but…
Even though the term “distribution” has been introduced quite recently in the CISA, it will already be replaced in the FIDLEG /FINIG by the terms “offer” respectively “public offer”. While this amendment in terminology is not expected to have a material impact in general, it implies that also no distributor license will be available or rather needed anymore. Instead, FIDLEG introduces a register of advisors where distributors need to sign up for. The entry in the register is not connected with any authorization whatsoever.
Future regime under FIDLEG / FINIG: No Swiss representative and paying agent required for cross-border offering of collective investment schemes to qualified investors. Depending on the type of clients targeted, the current cross-border regime will undergo a number of changes:
- Retail investors: The regulatory framework for the offering of foreign collective investment schemes to retail investors basically remains unchanged: The offering of foreign funds will still require that such funds have been approved by FINMA and that a Swiss representative and paying agent are appointed.
- “Opting out” professional investors: Even if wealthy retail clients (or private investment structures established for them) declared that they wish to be treated as professional investors (“opting out”), offering to such investors will still require the appointment of a Swiss representative and paying agent. However, for this client category, no prior approval of the foreign collective investment scheme by FINMA will be required.
- Qualified investors: For offerings of foreign collective investment schemes to qualified investors, as of 1 January 2020, no Swiss representative and paying agent will be required anymore.
- Regulated qualified investors: The offering of foreign collective investment schemes to regulated qualified investors remains outside the scope of the regulation.
FIDLEG / FINIG offer new opportunities
Overall, especially in the collective investment schemes business, FIDLEG / FINIG mean a step towards a more open, liberal and international financial market. The abolishment of the requirements to have a Swiss representative and paying agent for offerings to qualified investors will render the Swiss market more attractive for foreign funds to be offered to Swiss investors. For the latter, this means a broader scope of offerings, more competition among the foreign funds and therefore, potentially, better investment opportunities.
The same holds true for the fact that for distribution in Switzerland no license is required anymore, but only an entry in the register of advisors. To sum up, the new regulatory regime of FIDLEG / FINIG in connection with CISA introduces an appropriate level of investor protection, without putting unnecessary burdens on the financial intermediaries – therewith offering new opportunities for all parties involved.