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2022 challenges for Swiss Asset Managers: fund documentation

A photographic portrait of Silvia Devulder

5 minute read 15 Mar 2022

Related topics

Wealth and asset management

Financial services

Managed services

Year 2022 marks the end of the transitional period for new Swiss requirements explored in this series.

In brief

Asset managers in Switzerland face a tsunami of regulatory changes with impact across the whole value chain
To start with, one of the main challenges to be implemented are the changes to the fund documentation

2022 will be a busy year for the asset managers in Switzerland. With the introduction of Financial Services Act (FinSA) and the Financial Institutions Act (FinIA) and the respective revision of the Collective Investment Schemes Act (CISA), the Swiss fund and asset management industry faces a tsunami of regulatory changes with impact across the whole value chain.

Finsa impacts along the value chain graphics

To start with, one of the main challenges to be implemented this year are the changes to the fund documentation

What is the legal background to these changes?
What type of document needs to be updated?
What type of document needs to be created?

1. Legal background to the new fund documentation requirements

Until 31 December 2019, the Collective Investment Schemes Act (CISA) regulated products (i.e., collective investments), participants, as well as the rules of conduct applicable to licensees.

The simultaneous entry into force of FinSA and FinIA has reshaped the Swiss financial landscape, in particular by refocusing the scope of the CISA on the product and on its original purpose: to provide the legal basis for collective investment schemes in Switzerland.

In this regard, the activities previously described in the CISA are now covered by a new legislative nomenclature with practical impacts on the framework in which the funds and asset managers operate. The concept of "distribution" has been abolished and replaced by the term "offer", implying new requirements. The terms "financial services" and "advertising" have also been integrated. It should be noted that while the notion of distribution has disappeared, the economic reality, namely the sale of Swiss and foreign collective investment schemes in Switzerland, remains relevant.

This paradigm shift from "distribution" to "offering" along with the new related organizational and due diligence requirements have a significant impact on the entire fund distribution chain and, of course, on the related documentation.

2. Update of the fund documentation

FinSA now details the obligations relating to the documentation and publication of the offer of financial instruments.

At the same time, as the professional organization representing the Swiss asset management industry, the Asset Management Association Switzerland (AMAS, formerly Swiss Funds & Asset Management Association, SFAMA) has adapted its self-regulation (Code of Conduct and model documents). The Swiss Financial Market Supervisory Authority (FINMA) recognized in September 2021 that the adapted AMAS self-regulation constitutes a minimum standard.

FinSA has standardized the requirements for a prospectus by laying down the principle that a prospectus is required whenever an offer is made to the public for the acquisition of securities or an application is made for the admission of securities to trading on a trading platform. The law also provides for exemptions if, for example, the offer is addressed to fewer than 500 investors.

The different models of prospectus proposed by AMAS following the entry into force of FinSA have been recognized as containing the minimum requirements. AMAS has requested FINMA to extend the initial deadline of 31 December 2021 to 30 June 2022 for the mandatory use of the revised prospectuses.
In order to include the new requirements imposed by FinSA/FinIA, AMAS self-regulation has adapted its model distribution contract. As a result of the new measures, this contract is no longer considered a prerequisite for distribution in Switzerland by FINMA.

However, the AMAS Code of Conduct states that if third parties are appointed to sell collective investment schemes in Switzerland, they must agree on the tasks to be delegated in writing or in any other form that can be proven by text. The agreement must correspond to the standard in force in Switzerland or to an internationally recognized standard. In particular, the fund institutions must define in an appropriate manner the activities common to both parties, their respective responsibilities and competences.
Marketing material relating to investment funds should also be updated (e.g., updated regulatory references) and take into account the new rules introduced by FinSA.

An advertisement must now be clearly marked as such, mentioning the prospectus and Key Information Document (KID) of the financial instruments in question, as well as the place where they can be obtained.

Advertising and other information on financial instruments for investors must be in accordance with the indications in the prospectus and KID.

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3. Creation of new fund documentation

In addition to the prospectus, FinSA also requires that a KID be prepared for certain financial instruments intended for private clients, including collective investment schemes. The purpose of the KID is to enable the investor to make a well-founded decision and to compare several investments with each other. However, it is important to highlight that the Swiss KID differs from the European PRIIPS KID, e.g. the designation of a target group and market or the description of risks and benefits.

The transitional period for the KID for complex financial instruments has also been extended from 1 January 2022 to 31 December 2022 by the Federal Council.

To navigate through these developments, it is therefore essential to understand what is meant by "offer" of financial instruments, deriving the underlying obligations and their impacts on your organization. The offer of a collective investment also assumes that the investor has detailed information enabling them to accept the offer, i.e. to subscribe to the collective investment. This information must be aligned with the information contained in the KID and the prospectus. The delegation of tasks must be delimited and respect the regulatory framework. We will further elaborate on these requirements in the next article of our series – stay tuned.

Many thanks to Clara Morhange for her valuable contribution to this article.

Summary

With just over 2 years since the entry into force of FinSA and FinIA, market players are coming to the end of their efforts. Notwithstanding the extended deadlines for the implementation of the new regulatory framework, the various key players will have to quickly consider the practical implications of these changes. The new concepts of "offer" and "financial services" appear to be fundamental: the scope of the new measures depends on their integration within the business model and their documentation.

About this article

A photographic portrait of Silvia Devulder

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Limited, each of which is a separate legal entity. Ernst & Young Limited is a Swiss company with registered seats in Switzerland providing services to clients in Switzerland.