5 minute read 10 May 2022
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2022 challenges for Swiss Asset Managers: New code of conduct rules

Silvia Devulder
By Silvia Devulder

Partner, Head Legal Romandie in Financial Services | EY Switzerland

Focusing on Legal Derivatives & Capital Markets topics, including the IBOR transition. Speaking five languages, playing tennis and enjoying family time with my boys.

5 minute read 10 May 2022
Related topics Wealth and asset management Law Financial Services
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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
  • One of the main challenges is to live the new code of conduct rules and organisation measures

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 now governs the provision of financial services and imposes new rules of behavior for financial services providers. Only product-specific rules remain under the revised CISA, even if the prospectus requirements and the duty to issue a key information document (KID) are essentially regulated by the FinSA.

The Association of Asset Managers Switzerland (AMAS) has published a revised version of its self-regulation in light of the revised CISA, FinSA and FinIA. This self-regulation includes a new Code of Conduct, revised guidelines and revised model distribution agreement. The Swiss Financial Market Supervisory Authority (FINMA) recognized the AMAS self-regulation as a minimum standard in September 2021 and its provisions are applicable since 1st January 2022.

With the multiplication of new regulations, self-regulation and guidelines, the compliance is not without challenges for the Swiss asset management industry. This article will help you to understand:

  • What is covered by these multiple code of conduct rules and to whom do these rules apply
  • What organizational measures you will have to put in place to comply with them

Scope of various code of conduct rules

a. FinSA Code of Conduct

FinSA establishes a Code of Conduct and rules of behavior applicable to all financial service providers including client advisers, producers and providers of financial instruments. As per FinIA, these actors need to be authorized to perform their services in Switzerland.

These rules vary according to the financial service offered (portfolio management, investment advice, order execution) and the classification of the client. Financial service providers, including (where applicable) asset managers, had until December 31, 2021 to comply with the following obligations:

  • Duty to provide information: provide sufficient information on the financial service providers itself, financial instruments, the risks and costs associated, or also make available the appropriate documentation to investors
  • Appropriateness and suitability of financial services: when investment advice or portfolio management services are provided, financial services providers shall perform an appropriateness or suitability review
  • Documentation and rendering account: document and render account to client in an appropriate manner
  • Transparency and care in client orders: principles of good faith, equal treatment and best execution when handling client orders must be respected

b. AMAS Code of Conduct

The AMAS Code of Conduct (applicable since 1st January 2022) contains detailed rules of conduct based on Art. 20 CISA and is applicable to fund management companies, managers of collective asset, representatives of foreign collective investment schemes, persons exempt from the duty to obtain authorizations and agents (“Fund Institutions”). It applies irrespective of whether or not a given financial institution is a "financial services provider" under FinSA.

In practice, the new Code of Conduct will be indirectly imposed on foreign institutions, e.g. to foreign funds by their Swiss representatives. Indeed, as it is fully applicable to the Swiss representative, it is applicable by extension to the foreign management company that distributes its funds in Switzerland through this representative.

Article 20 CISA establishes following obligations on the asset managers:

  • Duty of loyalty: implies acting independently and exclusively in the interests of the investors
  • Due diligence: means implementing organizational measures that are necessary for irreproachable business conduct
  • Duty of information: requires rendering account of the collective investment schemes which they manage and represent

Organizational measures

a. FinSA

As per FinSA, financial services providers must put in place appropriate organizational measures with regard to:

  • General organization

    Financial service providers have to ensure that their staff possess the necessary skills, knowledge and experience to perform their work, this is also applicable when they delegate their tasks. 

  • Conflicts of interest

    It is now mandatory to have appropriate measures in place to prevent, handle and follow conflicts of interest that could arise through the provision of financial services or any disadvantages for clients as a result of conflicts of interest. In this regard, when financial services providers accept compensation from third parties, they must have warned and obtain a prior consent from the client to retain such compensation or pass the full amount of the remuneration on to the clients. Therefore, they must also take measures to prevent staff from misusing for own-account transactions any information made available to them only by virtue of their function. 

b. AMAS

As per the new AMAS Code of conduct, Funds Institutions shall take different organizational measures depending on the duty:

  • Duty of loyalty

    As per the new AMAS Code of Conduct, Fund Institutions have to ensure equal treatment principle by taking the necessary organizational measures to prevent certain investors and/or groups of investors from being favored at the expense of others.

    In accordance with their size and structure, organizational measure must be also put in place to identify, prevent, eliminate, and monitor conflicts of interest.

    In addition, Fund Institutions need to combine these measures with effective policies: allocations (equal treatment), best execution policy, commission sharing agreement, conflicts of interest, exercise of members' and creditors' rights, principles for deciding whether to participate in investor protection procedures.

  • Due diligence

    First of all, Fund Institutions must issue internal regulations and have an appropriate operating organization to ensure compliance with their statutory duties. Therefore, when delegating their tasks, they must take the necessary measures to ensure the correct instruction of their agents, as well as the proper supervision and monitoring of the execution of such delegation. It must be agreed in writing, or another form that allows for proof by means of text, which specific tasks are delegated and also the related interfaces, responsibilities, authorities, and liability must be agreed in an appropriate manner.

    Finally, Fund Institutions shall have appropriate risk management and effective controls: organization of structures and processes, internal control system, and responsibilities.

  • Duty of disclosure

    Investors should be provided with appropriate information about the fund and the Fund Institution (e.g. regarding conflicts of interest, all fees and incidental costs, investment policy and strategy, risk factors, use of derivatives or structured products, or any significant changes in personnel or organization). 

    Therefore, the wording of fund documents should be transparent in relation to the risk and complexity of the investment. It should be consistent with the disclosure policy and reflect an objective picture of the performance of the collective investment schemes. In addition, when involved in the calculation (and publication) of performance data, Fund Institutions must comply with internationally recognized standards regarding the calculation method used, the period displayed and the selection of appropriate benchmarks.

Conclusion

Just over four months after the entry into force of the adapted AMAS self-regulation and the latest FinSA measures, Swiss and foreign market participants dealing with collective investment schemes in Switzerland are in the process of adapting their documentation and experiencing the newly implemented organizational measures, policies and internal controls. The first lessons learned from this exercise will continue to shape the Swiss asset management industry and market practices emerging on the back of this important change. 

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

The Code of Conduct is the cornerstone of AMAS' self-regulation as it defines the rules of conduct applicable to fund business. It constitutes a minimum standard that has an impact on domestic and foreign fund industry participants. The ultimate objective is to align the general obligations applicable to funds with those applicable at the point of sale under FinSA. For asset managers, this set of rules may have multiple impacts at the operational level.

About this article

Silvia Devulder
By Silvia Devulder

Partner, Head Legal Romandie in Financial Services | EY Switzerland

Focusing on Legal Derivatives & Capital Markets topics, including the IBOR transition. Speaking five languages, playing tennis and enjoying family time with my boys.

Related topics Wealth and asset management Law Financial Services
Upvote