New FINMA ordinances in force since 1 January 2021
In the course of the entry into force of the new financial market legislation, i.e. the Financial Services Act with Ordinance (FIDLEG, FIDLEV) and the Financial Institutions Act with Ordinance (FINIG, FINIV) on 1 January last year, the Collective Investment Schemes Act (KAG) and the Collective Investment Schemes Ordinance (KKV) were also partially revised. At that time, FINMA’s Collective Investment Schemes Ordinance (KKV-FINMA) remained unaffected by the revision, in particular because its revision was dependent on the entry into force of FINMA’s Financial Institutions Ordinance (FINIV-FINMA). Both FINMA ordinances, the new FINIV-FINMA and the revised KKV-FINMA, entered into force on 1 January 2021.
In the following, we present the most important innovations and changes.
General / Structure
In enacting FINIV-FINMA, the Swiss Financial Market Supervisory Authority FINMA has exercised the authority granted to it in various provisions of the FINIG and FINIV to regulate certain detailed issues in greater detail. FINIV-FINMA consists of 27 articles and is divided into 7 chapters. In addition, provisions of five other ordinances are adapted in the annex, including the provisions of the KKV-FINMA.
Chapter 1: Asset managers and trustees
Chapter 1 of FINIV-FINMA regulates details of the professional liability insurance that may be required for an asset manager or trustee if they do not have adequate collateral (FINIG 22/1). The requirements for professional indemnity insurance to count towards own funds are as follows. They must be complied with at all times (FINIV-FINMA 1):
- The insurance institution must be supervised in accordance with the Insurance Supervision Act;
- The term is at least one year;
- The notice period is at least 90 days;
- For policies with a claims-made or claims-paid principle, the subsequent liability is at least 5 years;
- The professional liability risks associated with the business model must be covered.
- In principle, financial losses caused by actions typical of the profession – including gross negligence – must be covered. The focus here is primarily on investment errors or breaches of duty by employees (FINIV-FINMA 2). If there is a deductible, it must be deducted when counting the insurance towards the own funds (FINIV-FINMA 3). If the policy is terminated or changed (FINIV-FINMA 4), there is also a reporting obligation to FINMA.
Chapter 2: Managers of collective assets (VKV)
The first section deals with the calculation of the thresholds of CHF 100 million and CHF 500 million, which may not be exceeded for a manager of collective assets to qualify as a (simple) asset manager within the meaning of FINIG 17 et seq. and thus be subject to supervision under the more lenient regime (FINIG 24/2). If a manager of collective assets has (sub)delegated portfolio management to third parties, these assets must be included in the calculation of the thresholds. If the manager of collective assets manages a collective investment scheme that contains units in funds also managed by the manager, the corresponding assets only have to be counted once (FINIV-FINMA 5/1 and 5/2). FINIV-FINMA 6 and 7 contain detailed valuation rules for collective investment schemes and pension assets with regard to the determination of threshold values. It should be mentioned that the commitment II approach must be used to calculate leverage (FINIV-FINMA 6/2).
Section 2 (FINIV-FINMA 8 to 14) contains detailed provisions on the requirements for risk management and the internal control system (ICS) of a manager of collective assets. The provisions largely correspond to the previously applicable rules for managers of collective assets (under the former designation „asset managers of collective investment schemes“) and have been transferred from the CISO-FINMA to FINIV-FINMA. Paragraph 3 of FINIV-FINMA 8 is new, according to which the board of directors must take into account the risk-bearing capacity of the manager of collective assets when determining the risk appetite. FINIV-FINMA 10 („Assessment of the risks of a collective investment scheme“) is also new, with the duty of the manager of collective investment schemes to assess and document the liquidity and other material risks at regular intervals under various scenarios. If the net fund assets do not exceed CHF 25 million, the inclusion of scenarios can be waived. FINIV-FINMA 13/1 now explicitly requires the further development of risk management procedures and systems. For SICAVs, CISO-FINMA 67 (for details on the CISO-FINMA, see below) states that FINIV-FINMA 8 to 14 apply mutatis mutandis to risk management and risk control.
Section 3 deals with the requirements regarding professional liability insurance for managers of collective assets. Here too, such insurance is only required if the capital requirements cannot be met in full (FINIV 44/2). This complex of topics was taken over from the old version of the CISO-FINMA, but with some changes. The insurance requirements correspond to those for asset managers and trustees (FINIV-FINMA 15/1). The insurance coverage amounts to at least 2% (previously at least 0.7%) for an individual claim and at least 3% (previously at least 0.9%) for all claims in a year, in each case of the collective assets managed by the manager of collective assets (FINIV-FINMA 15/2). A recalculation of the protection must be calculated annually on the basis of the annual financial statements or when new mandates are taken on (FINIV-FINMA 15/3). The risks to be covered correspond materially to those for asset managers/trustees (FINIV-FINMA 16; cf. above). A notification obligation in the event of termination or changes to the policy has also been added by analogy (FINIV-FINMA 17).
Chapter 3: Fund management companies
With regard to fund management companies, it is stated that the provisions of FINIV-FINMA 8 to 14 concerning risk management and the internal control system (ICS) apply mutatis mutandis. In risk management, the fund management company may take into account the corresponding measures of the manager of collective assets as part of its risk-based assessment (FINIV-FINMA 18).
Chapter 4: Supervisory audit and audit of accounts for managers of collective assets and fund management companies
FINIV-FINMA 19 states that a division must be made between supervisory and financial audits. For the audit of accounts, reference is made to OR 728-731a (FINIV-FINMA 20). The supervisory audit comprises the audit of compliance with the regulatory provisions applicable to institutions (FINIG provisions), including collective investment schemes (FINIV-FINMA 21). FINIV-FINMA 22 contains requirements for audit reports.
Chapter 5: Proof of capital adequacy of investment firms
Securities firms that do not themselves maintain accounts for the settlement of securities trading must provide FINMA with quarterly proof of adequate own funds and half-yearly proof of own funds on a consolidated basis (FINIV-FINMA 23).
Chapter 6: Form of service
Financial institutions will be required to submit documents in connection with FINMA licence and amendment applications in electronic form and to use FINMA’s templates for this purpose. However, FINMA may grant exemptions from electronic delivery (FINIV-FINMA 24).
Chapter 7: Final provisions
FINIV-FINMA 26 („Transitional Provision“) should be mentioned here in particular, according to which financial institutions that are already authorised when FINIV-FINMA enters into force must comply with the requirements of FINIV-FINMA within one year, i.e. by the end of 2021. Conversely, this means that financial institutions that are only authorised in the course of 2021 must comply with the requirements from the outset.
No changes to the product regulations
There are no changes in the first title of the CISO-FINMA, which contains product-specific detailed provisions on securities lending, repurchase agreements, derivatives, collateral management and master-feeder structures.
Duties for representatives (KKV-FINMA 66, 66a and 66b)
Under the heading „Obligations for representatives of foreign collective investment schemes“, on the other hand, the first chapter of Title 2 („Institutions“) has been completely rewritten.
KKV-FINMA 66 specifies the disclosure obligations of the representative with regard to fund prices or net asset value as well as any changes to the fund documents. In analogy to the (unchanged) provisions for Swiss funds in KKV-FINMA 106, the representative of foreign funds must publish the issue and redemption prices and, if applicable, the net asset value with the reference „excluding commissions“ in the publication media named in the prospectus. The publication is made with each issue and redemption of units, but at least twice a month (KKV-FINMA 66/1), unless the right of redemption at any time within the meaning of KKV 109/3 has been restricted; in this case, the publication is made at least monthly (KKV-FINMA 66/2). However, the reference to KKV109/3, which is only applicable to Swiss funds, makes little sense here and is likely to serve interpretation purposes at best.
Finally, KKV-FINMA 66/3 requires that investor notices regarding changes to fund documents be published in Switzerland at the same time as they are published in the home country of the foreign fund.
KKV-FINMA 66a and 66b specify various reporting obligations of the representative to FINMA, namely in the following cases:
- Merger, liquidation or change of legal form of foreign funds/sub-funds;
- Non-launch or non-inclusion or cessation of the offer (formerly „distribution“);
- Deferral of redemption of units or resolution of a gating;
- Withdrawal of approval or other measures against the fund by a foreign supervisory authority;
- Termination or amendment of the professional indemnity insurance of the Representative.
It should be remembered that the duties of the representative naturally only apply to those foreign funds for which a representative must be appointed at all under KAG 120/1, 2/d and 4. Moreover, the product-specific publication and notification requirements do not apply to foreign funds that are offered exclusively to qualified investors (KKV 133/5), which also includes funds under KAG 120/4, i.e. funds that are offered to investors who have become qualified investors by means of a so-called „opt-out“ declaration under FIDLEG 5/1.
The former Article 66 „Organisational requirements for the delegation of tasks“ was deleted without replacement. Since 1 January 2020, the requirements for the delegation of tasks by licensees can now be found in various provisions of FINIG/FINIV, namely FINIG 14, 27, 35 and 68/2 as well as FINIV 15-17, 40 and 56. In addition, FIDLEG 23 („Involvement of third parties“) and 24 („Service provider chain“) apply to all types of financial service providers, whether licensees or not.
Amendment of provisions due to their transfer to FINIV-FINMA (CISO-FINMA 67 to 76)
The former Articles 68-71 („Risk management and risk control“) and 73-76 („Asset managers of collective investment schemes“) are institution-specific and were transferred to FINIV-FINMA without major material changes; see the comments above. The only provisions remaining in the KKV-FINMA are those specifically geared to SICAVs.
Provisions concerning real estate funds
KKV-FINMA 86 specifies that buildings in progress and (new) building land must be listed in the statement of assets at market value.
However, Article 107 concerning the simplified prospectus for real estate funds was deleted without replacement. After the transitional period ending on 31.12.2021 (FIDLEV 110/a), only the basic information sheet pursuant to FIDLEG 58 et seq. will be available for public real estate funds.
- Art. 110: Deletion of paragraph 2 concerning the interim audit of the licensees;
- Art. 111: new paragraph 1bis according to which the audit of the management of collective investment schemes and compliance with the provisions not relating to the annual financial statements is the subject of the supervisory audit (and not the audit of the accounts) at the fund management company;
- Form of delivery (Art. 116a): In analogy to the provision of FINIV-FINMA 24 (cf. above), applications for approval and authorisation of collective investment schemes, prospectuses and basic information sheets, notifications of amendments as well as annual and semi-annual reports must also be submitted to FINMA in electronic form. Again, FINMA’s templates are to be used for this purpose, and again FINMA may grant exceptions.
- Article 118 was also deleted with the transitional provisions to the last version of the KKV-FINMA, which entered into force on 1 January 2015, already expiring in 2016/2017.
With the planned Swiss L-QIF, there is the possibility that fund products aimed exclusively at qualified investors, particularly in the area of illiquid or semi-liquid investment strategies such as private equity, venture capital, infrastructure, real estate and private debt, will increasingly be launched in Switzerland in the future. This should lead to an increased part of the value chain of fund services remaining in Switzerland in the future and thus sustainably strengthen Switzerland as a fund location.
However, the existing disadvantages of Swiss collective investment schemes in connection with the lack of harmonised access to the EU market and the Swiss withholding tax will not be eliminated by the introduction of the L-QIF.