New Swiss regulations on marketing of alternatives
Interview with Daniel Häfele, Acolin Fund Services – Whereas previously regulation was targeted at public marketing of financial products to retail clients, the laws now cover the distribution of all collective investments (CIS) in Switzerland, including AIFs such as hedge funds, private equity funds, as well as UCITS and other retail products.
In this note we are not judging the legal situation but rather the commercial effects on distribution and marketing activities.
Distribution to qualified investors now covered by regulation
Non-Swiss domiciled fund providers need to check first whether their activities in Switzerland can be classified as “distribution” as defined in CISA article 3.
Regulated financial intermediaries
The law does not cover offering and marketing of funds exclusively to Regulated Financial Institutions (RFI) as listed in CISA article 10 paragraph 3a+b (banks, securities dealers, fund management companies, insurance companies). Additionally, self-directed investments, or those based on a discretionary management mandate, are out of the scope of the law.
However, the requirements set out in article 3, paragraph 4 of CISO demand that any information distributed to RFIs must not be seen by any other qualified or non-qualified investors. So we expect that the majority of RFIs will ask to be treated as qualified investors as specified below.
According to the new law, qualified investors will be defined as follows:
• Regulated financial intermediaries;
• Public corporations, pension funds and private companies with a professional treasury;
• Wealthy individuals who opt in;
• Investors who have signed a discretionary investment management agreement with a regulated financial intermediary or an independent asset manager provided that they have not requested in writing to be treated as non-qualified investors (optingout).
NEW: Obligation to appoint a representative and a paying agent
What was termed “Private Placement” before is now mostly considered “distribution to qualified investors”. The revised CISA now demands that all CIS offered to qualified and non-qualified investors in Switzerland have to meet the following preconditions:
• Appoint a representative and a paying agent;
• Sign a distribution agreement with the representative, which precisely defines the nature of your distribution activities, and to whom Swiss law is applicable;
• Proof that you have authorisation to distribute CIS in your country of origin;
• Adding the representative and the paying agent to all Swiss fund documents (including KIIDs) available in a Swiss official language;
• Country of origin has signed a cooperation agreement with Switzerland.
A transition period of two years has been set to implement the new distribution requirements (1st March 2015).
More stringent requirements
The requirements concerning the legal representative’s organisation have increased and will possibly be tightened by FINMA’s guidelines, which are yet to be published.
If managers are currently distributing CIS to non-qualified investors in Switzerland and their representative is a bank, we recommend that they contact them soon to find out whether they will remain in this line of business (transition period 1 year). If a new representative is needed, we at Acolin Fund Services AG are happy to open up discussions.
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