Revised regulation targets asset management quality
While Switzerland is not a member of the European Union, it obtains access to the internal market by adapting its policies and regulation to meet EU standards. As the Alternative Investment Fund Managers Directive is to be implemented in EU member states by July next year, a revision of the Swiss regulatory framework, the Collective Investment Schemes Act (CISA), is currently being debated and due to come into effect on 1 January, 2013.
In addition, a new financial services law – mooted for years but never enacted – is also expected to be introduced in the next couple of years, and will affect all financial intermediaries.
According to Daniel Haefele (pictured), chief executive of Zurich-based independent fund distribution provider Acolin Fund Services, the new legislation is set to have a major impact on both traditional and alternative fund managers.
“Alternative asset managers seeking light-touch regulation will choose other domiciles in the future,” he says. “Switzerland will become one of the most stringently-regulated financial centres in the world. The new regime is a clear commitment to the premium quality for which Swiss products are known globally. Under CISA there will be no difference between regulation here and that in European markets like the UK.”
He believes the impact on fund distribution could be substantial. Under the draft legislation, all foreign funds distributed in Switzerland, whether to the public or professional investors, will have to appoint a representative.
It’s still not clear how the new measures will be applied by the Swiss Financial Markets Authority, the industry regulator. “Parliament is expected to pass the act only in June, after which the government and FINMA will publish the Collective Investment Schemes Ordinance,” Haefele says.
“However, the proposed new financial services law to be introduced over the next two years will regulate everybody in the Swiss financial service industry. The majority of asset managers based here will be too small to keep up with the demanding regulation.”
Under the new law, FINMA will require firms to demonstrate “appropriate organisation and adequate capital”. Many independent Swiss asset managers have six employees or fewer, and may have problems meeting the new rules.
Haefele believes the changes will affect Acolin’s revenue streams, if only in the short term, but the impact will likely be mixed. “On one hand it will mean fewer fund managers distributing to Switzerland,” he says. “Those who distribute cross-border into Switzerland with no dedicated sales force may choose to retreat completely. Some fund providers are already doing that today.
“We may lose some smaller clients that can’t afford the cost of regulation, which will likely be between CHF100,000 and CHF150,000 a year. On the other hand, bigger fund management companies may use our services to reduce costs. Our average size of client is therefore likely to increase.”
Seven new asset management companies recently joined the Acolin platform. “We’re at 160 funds right now, and that number is constantly growing,” Haefele says. “We save the fund providers a lot of time, effort and money, which they can invest into their sales activities.”
On top of the regulatory issues, the major distributors are reducing their range of fund providers. “We’re now seeing a move toward guided architecture rather than open architecture,” Haefele says.
“Our distribution management services offer access to distributor platforms, and our sales support opens the doors to potential clients. For a portfolio manager who is serious about the Swiss market, we can still create tremendous business opportunities.”
Daniel Haefele is chief executive of Zurich-based independent fund distribution provider Acolin Fund Services
Please click here to download a copy of the Hedgeweek Special Report – Switzerland Hedge Fund Services 2012
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