With the introduction of FINIG, independent asset managers of individual client assets are now subject to FINMA supervision. This means that they must undergo a licensing procedure and comply with the rules of conduct under the FinSA.
Until now, there was no comprehensive legal regulation for independent asset managers (IAMs), in particular they were not subject to prudential supervision.
This will change with the introduction of the new financial market regulation. The FIDLEG aims at the cross-sectoral regulation of financial products and services as well as their operation and now also regulates prospectus law. Accordingly, the FIDLEG is particularly concerned with the level of coordination, i.e. the relationship between IAMs and clients. The FINIG aims to standardise the essential licensing rules for financial service providers.
The two laws now also apply to IAMs (and trustees, who are equivalent to IAMs), which previously did not require a licence. This is a significant change for IAMs, which previously did not require a licence. Managers of pension fund assets who were previously authorised by the OAK BV are now also subject to FINMA supervision. Investment managers for collective investment schemes, which were previously regulated by the CISA, will in future be covered by FINIG. The following article is intended to provide an overview of the newly established authorisation procedure for IAMs.
For the purposes of Art. 17 FINIG, an MLCA is defined as a person who, on the basis of a mandate, may dispose of clients‘ assets on a professional basis in the name and for the account of clients.
An MLCA carries out its activities on a professional basis within the meaning of Art. 19 FINIV if it:
- generates gross proceeds of more than CHF 50,000 per calendar year;
- it enters into business relationships with more than 20 contracting parties per calendar year which are not limited to a one-off activity, or it maintains at least 20 such relationships per calendar year;
- or an unlimited power of disposal over third-party assets is associated with it, which at any time exceed CHF 5,000,000;
The UVV manages individual portfolios – in contrast to the trustee, who manages or disposes of special assets for a specific purpose. He may also provide additional services, e.g. investment advice, portfolio analyses and the offering of financial instruments. If one of the above-mentioned thresholds is exceeded, authorisation is required.
Authorisation and supervision
Pursuant to Art. 5 para. 1 FINIG, IORPs now require authorisation from FINMA, with ongoing supervision of IORPs being exercised by supervisory organisations, which in turn will be both authorised and supervised by FINMA.
The supervisory organisations will also ensure the monitoring of compliance with the provisions under the Anti-Money Laundering Act. This has so far been carried out by the self-regulatory organisations (SROs).
Differentiation of the licensing requirements
IAMs are particularly affected by the new legal situation, as they are subject to a comprehensive licensing requirement, are thus subject to prudential supervision and must therefore comply with the stricter conduct of business requirements of the FIDLEG.
The FIDLEG distinguishes between general licensing requirements, which apply to all financial institutions subject to the FIDLEG, and specific additional conditions for the respective category of financial institution.
General licensing requirements
A UVV must meet the following conditions cumulatively in order to obtain a licence:
Pursuant to Art. 9 para. 1 FINIG, a financial institution must establish appropriate corporate governance rules and have an organisational structure that ensures it can meet its legal obligations.
Under Art. 9 para. 2 FINIG, the financial institution must also establish effective controls and identify, measure and monitor individual risks, including legal and reputational risks. According to Art. 10 FINIG, the management of a financial institution must be carried out in Switzerland. For this purpose, the managing persons must be domiciled in a place from which they can actually exercise the management.
(b) Personnel and guarantees
Art. 11 para. 1 and para. 2 FINIG stipulate that the managing directors of a financial institution must enjoy a good reputation, offer a guarantee of irreproachable business activity and have the qualifications required for their activity.
(c) Ombudsman’s office
Financial institutions must join an ombudsman’s office within the meaning of Art. 16 FINIG at the latest when they commence their activities. In principle, an ombudsman institution is obliged to accept an IOU if it fulfils its affiliation requirements. In principle, the ombudsman’s office is there to settle differences between a financial institution and the client amicably, whereby the parties‘ statements before the ombudsman’s office may not be used in any other proceedings. An IUA is obliged to inform its clients of the possibility of a mediation procedure before the ombudsman’s office.
Specific licensing requirements for UVVs
In addition to the general licensing requirements set out above, the following specific licensing requirements apply to an UVV:
(a) Qualified management
The UVV must have at least two qualified managing directors. Pursuant to Art. 20 para. 3 FINIG and Art. 25 para. 1 lit. a. and b FINIV, a qualified managing director is one who has received at least 40 hours of appropriate training and has at least five years of professional experience in asset management. In addition, it is required that managing directors regularly attend further training and, in the event of their incapacity or death, make arrangements so that business operations can be continued in an orderly manner.
In principle, there is no separation of personnel for senior management, supervision and control (board of directors) and executive management. However, this may be required by FINMA for gross revenues of CHF 5 million p.a. or more and at least ten full-time positions, and if the nature and scope of the activities so require.
(b) Risk management and internal control
An IORP must organise itself as a sole trader, trading company or in the form of a cooperative. According to FINIG, the general partnership, limited partnership, joint-stock company and limited liability company are considered trading companies. With regard to organisation, under Art. 21 para. 1 FINIG UVVs are required to have an appropriately equipped risk management system and effective internal controls. Among other things, these must ensure compliance with legal and corporate regulations.
The tasks of risk management and internal control can either be assumed by a qualified management person or qualified employee or delegated to a qualified external body. According to Art. 21 para. 3 FINIG, particular care must be taken to ensure that these persons are not involved in activities they are supposed to supervise.
An independent body for risk management and internal control is mandatory for companies with more than five full-time employees and gross revenues of CHF 2 million.
(c) Minimum capital and collateral
The legislator requires UVVs to have a minimum capital of CHF 100,000 paid up in cash at all times. Own funds of 25% of the fixed costs of the last annual accounts up to a maximum of 10 million must always be available. Personnel expenses, operating expenses, depreciation on fixed assets for value adjustments, provisions and losses are considered fixed costs.
Licensing procedure and application
An UVV requires authorisation from FINMA. For this purpose, a formal licence application must be submitted requesting the granting of a licence to act as an asset manager. As part of the licensing procedure, FINMA checks whether the asset manager applying for a licence meets the aforementioned legal requirements. Pursuant to Art. 7 para. 1 FINIG, anyone who fulfils the general and specific licensing requirements is entitled to a licence.
The following documents and attachments must be submitted with the application:
- the organisation, in particular
- corporate governance and control; and
- the risk management;
- the place of management;
- the guarantee
- the duties and any delegation thereof; and
- the minimum capital and collateral
- the own funds;
- the ombudsman’s office
- the supervisory organisation (AO) and the auditing company.
The UVV must demonstrate in the licence application that the general and specific licensing requirements for UVVs are met and that it will be able to comply with the regulatory requirements, in particular the duties of conduct under the FIDLEG, even after the licence has been granted.
FINMA normally provides guidance documents that explain and thus facilitate the procedure for licence submissions. This is not currently provided for UVVs. FINMA provides for a formalised, electronic submission procedure for UVVs.
In parallel with the preparation of the licence application, a licence auditor must be mandated to review the licence application and draw up an independent audit report for FINMA’s attention. In particular, this report should comment on the fulfilment of the licensing requirement.
Electronic authorisation process
The electronic authorisation process involves the following three steps:
(a) Notification to FINMA
UVVs that are now subject to a licensing requirement must notify FINMA via the above-mentioned electronic application platform within six months of the entry into force of the FINIG. Within three years of the entry into force of the FINIG, a licence application must be submitted to FINMA, which can be prepared and submitted in formalised form directly on FINMA’s electronic application platform.
(b) Confirmation of supervisory organisation
The final licence application can only be submitted to FINMA if the IORP has joined a supervisory organisation. For this purpose, an application must be submitted to a supervisory organisation. In order to avoid duplication, the information already recorded in FINMA’s electronic tool can also be made available to the supervisory organisation.
(c) Application submission
The UVV must enclose the confirmation of affiliation to a supervisory organisation with the licence application to FINMA. As soon as the confirmation from the supervisory organisation has been received, the licence application can be uploaded to FINMA via the electronic platform. Electronic submission of the application does not preclude the possibility that additional information may be requested from the application centre or that further details must be provided. It is the responsibility of the applicant to provide the complete facts and evidence of the licensing requirements.
Prudential supervision by FINMA and AO
FINIG subjects UVVs to prudential supervision, which is carried out by FINMA in cooperation with the supervisory organisation. As already explained, no authorisation is granted without membership of a supervisory organisation. FINMA leaves it to the supervisory organisations to audit and supervise the EIAs. In order to be able to comply with their supervision, the supervisory organisations will define a risk assessment system as well as minimum requirements for the supervisory concept.
While the authorisation procedure for an IUA is handled directly by FINMA, the supervisory organisations form an intermediate level of supervision. The frequency and intensity of the review by the supervisory authority depends on the risk profile of the activity and the organisation of the IOU, whereby it is prescribed that a review by the supervisory authority must be carried out at least every 4 years. In the years in which no audit takes place, UVVs must report to their supervisory organisations on the conformity of their business activities with the law.
With the entry into force of the FINIG, UVVs are now subject to supervision and therefore require a licence from FINMA. In order to obtain a licence, they must join a supervisory organisation. This means that the tasks of authorisation, ongoing supervision and enforcement for UVVs are divided between two bodies.
FINMA is responsible for licensing the UVVs and for all supervisory measures (enforcement). Ongoing supervision will be provided by one or more supervisory organisations authorised and supervised by FINMA, which will also check compliance with the provisions of the GwG.
Despite the possibility of formalised and electronic submission, the licence applications and related application enclosures are challenging. CapstoneLaw supports and advises UVVs in submitting applications and setting up sustainable corporate governance. It is important to arrange an appointment with FINMA at an early stage in order to be able to present the authorisation project in advance. This allows FINMA to be involved in the process at an early stage and to receive initial information on the project and its feasibility in terms of licensability.