How does the FinSA change fund distribution in Switzerland?
From distributor to client adviser: How does the FinSA change fund distribution in Switzerland?
Mr. Alder, a year ago you gave a first interview on the topic of “From distributor to client adviser: How does the FinSA change fund distribution in Switzerland” (link to the interview in German of April 3, 2019). Where do we stand today?
The new Financial Services Act (FinSA), the new Financial Institutions Act (FinIA), the revised Collective Investment Schemes Act (CISA) and the related ordinances entered into force on 1 January 2020. The new legislation provides for a new approach to regulation of fund distribution at the point of sale. While FINMA approval for distributors and the obligation to conclude a distribution agreement are no longer required by law, new requirements must be met according to FinSA at the point of sale. However, this is not yet possible at present, which leads to a certain degree of legal uncertainty.
Why is compliance with the new requirements at the point of sale not possible yet?
The new legislation not only regulates the offering of or advertising for but also the acquisition or sale of funds. This includes any activity aimed directly at specific clients and specifically aimed at the acquisition or sale of a fund. If such a financial service exists, the financial service providers or their client advisers must comply with the following requirements, among others: 1) registration of client advisers in the client adviser register (unless an exemption applies); 2) proof that client advisers have the necessary knowledge to perform their activities and 3) affiliation of the financial service provider with an ombudsman’s office. The ordinance to the FinSA with the detailed regulation on these requirements was not adopted by the Federal Council until November 2019. The regulator therefore did not have enough time to approve a client adviser register and an ombudsman’s office as early as 1 January 2020. The approval of an ombudsman’s office or client adviser register is now expected in April 2020 or the second quarter of 2020.
Has a regulatory gap at the point of sale been created by the removal of the old obligations and the lack of possibility to comply with the new requirements?
No, because the legislator has provided for this gap to be filled to a certain extent. For example, the ordinance adopted in November 2019 contains various transition periods which ensure that the requirements under the old CISA will continue to be met as long as the new requirements cannot yet be met. For example, existing distribution agreements will remain in place as long as there is no ombudsman‘s office or client adviser register and as long as financial service providers do not comply with the new rules of conduct under FinSA.
Tell us more about the client adviser register, who must be registered?
In principle, every client adviser of a financial services provider must be entered in the client adviser register if a financial service is provided. The legislator only grants exceptions to client advisers of financial institutions supervised by FINMA, such as banks and client advisers of foreign financial service providers subject to prudential supervision abroad (provided they provide their services in Switzerland exclusively to institutional and professional clients). We therefore assume that the majority of client advisers of foreign financial service providers operating in Switzerland on a cross border basis do not need to be entered in the client adviser register.
Does this mean that client advisers of financial service providers subject to prudential supervision abroad now have no obligation in Switzerland?
No, this is not the case. Rather, all financial service providers that provide a financial service in Switzerland – regardless of whether they are required to be entered in a client adviser register – must join an ombudsman’s office and ensure that their client advisers active in Switzerland have sufficient knowledge of the FinSA rules of conduct as well as the expertise required for their activities.
What are the requirements for proving the necessary knowledge (expertise and knowledge of the FinSA rules of conduct)?
According to our current state of knowledge, it should be possible to provide proof of specialist knowledge of the fund financial product by means of recognised diplomas or an employer’s confirmation of experience in fund distribution. Proof of knowledge of the FinSA rules of conduct should be provided by means of a written confirmation of completion of the relevant further training (internal or external course, e-learning, online course, etc.).
How does FIFS support its clients in meeting the new requirements?
In addition to our activities as legal representative of foreign funds, we also offer our clients support in complying with the new requirements at the point of sale. This includes supporting clients in connecting to an ombudsman‘s office and in being entered in a client adviser register. FIFS takes care of the entire affiliation process with the ombudsman’s office and advises its clients on whether or not they need to register their client advisers in the client adviser register. In addition, we assume that our training on compliance with the rules of conduct applicable at the point of sale, which we offer to our clients, will be recognised by the client adviser register as proof of knowledge of the rules of Conduct.
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Law studies at the University of St. Gallen (lic.iur. HSG 1999) and postgraduate studies at the University of Cape Town UCT (LL.M. 2005). Several years working experience in the Swiss representative business (2005 – 2008) and as Deputy Managing Director of a Swiss fund management company (2008 – 2014). Legal & Compliance officer at FIRST INDEPENDENT FUND SERVICES LTD since 2014, Member of the Management since 1 January 2017 and CEO since 1 January 2019.
Law studies at the University of St. Gallen (lic.iur. HSG 1999) and postgraduate studies at the University of Cape Town UCT (LL.M. 2005). Several years working experience in the Swiss representative business (2005 – 2008) and as Deputy Managing Director of a Swiss fund management company (2008 – 2014). Legal & Compliance officer at FIRST INDEPENDENT FUND SERVICES LTD since 2014, Member of the Management since 1 January 2017 and CEO since 1 January 2019.
