Revised SFAMA Guidelines on Transparency and Distribution

On July 1, 2014 the revised transparency guidelines as well as the revised distribution guidelines adopted by the Swiss Funds & Asset Management Association (“SFAMA”) entered into force. Both guidelines were recognized by the Swiss Financial Market Supervisory Authority (“FINMA”) as minimum standards for the funds industry. The reworking of the two guidelines became necessary following the partial revision of the Swiss Collective Investment Schemes Act (“CISA”) in 2013.

1.   SFAMA Transparency Guidelines

Pursuant to the revised art. 20 (1) (c) CISA, financial intermediaries holding a FINMA license and their agents are required to transparently render account of and adequately inform on the collective investment schemes (“CIS”) they manage, promote and / or whose assets they hold in custody. They are required to disclose all fees and costs directly or indirectly charged to the fund assets as well as how such charges are utilized. FINMA licensees and their agents must further accurately inform the investors on all fees paid and other financial benefits granted while distributing CIS. On May 22, 2014 SFAMA released the revised transparency guidelines (“Transparency Guidelines”) which FINMA acknowledged as minimum standards for the funds industry.

The Transparency Guidelines apply to all FINMA licensees and their agents and to Swiss as well as to foreign CIS; they apply irrespective of investment funds being distributed to CISA-qualified or non-qualified investors.

According to the guidelines, all fees and costs charged to the CIS and their anticipated amount must be adequately disclosed in the fund documents. The fees and costs actually charged must be disclosed in the (semi-) annual report. As regards the utilization of such income, the fund documents must inform whether fees may be paid to third parties and state the type of services performed by them. An identification of the service providers is however not requested. Subject to specific conditions being met, the Transparency Guidelines confer to existing and former investors the right to enquire about fees and costs.

In principle, costs and fees not being charged to the fund must not be disclosed except for the following:

• “Retrocessions” need to be made transparent to the public by the payer and the recipient. The Transparency Guidelines define retrocessions as “payments and other soft commissions paid by fund management companies, SICAVs and SIVAFs and their agents for distribution activities in respect of fund units”. Consequently, “retrocessions” are distribution fees in the broadest sense regardless of whether they are charged to the investors / fund assets or paid out of management or distribution fees.
• Rebates, i.e. “payments by fund management companies, SICAVs and SIVAFs and their agents directly to investors from a fee or cost charged to the fund with the purpose of reducing the said fee or cost to a contractually agreed amount”. Usually, asset managers pay rebates to investors to reduce management fees. Rebates are permitted if:
  • they are not charged to the fund;
  • they are paid based on objective criteria;
  • all investors meeting such objective criteria are treated equally; and
  • they are transparently disclosed in the fund documents.

The provisions on rebates and particularly the introduction of a most-favorable principle for all investors satisfying the criteria for rebate payments are certainly the more “innovative” elements of the guideline.

The Transparency Guidelines entered into force on July 1, 2014. In order to fulfill the new disclosure requirements, the fund documents will have to be adapted. The respective deadline for Swiss CIS is March 1, 2015 and the deadline for foreign CIS is June 1, 2015.

2.   SFAMA Distribution Guidelines

As the Transparency Guidelines, SFAMA had to edit its distribution guidelines (the “Distribution Guidelines”) following the revision of the CISA back in 2013. They were recognized by FINMA as minimum standards for the funds industry simultaneously with the Transparency Guidelines and entered into force on July 1, 2014.

The Distribution Guidelines aim at “ensuring high quality standards on the Swiss market for collective investment schemes” distributed in Switzerland “with regard to the information and advice provided to investors”. They are applicable to so called “fund providers”, i.e. Swiss fund management companies, SICAVs, SICAFs and representatives of foreign CIS. The guidelines require the fund providers to contractually oblige their distributors to live up to certain standards when selling fund units either directly or via electronic communication means. Such standards shall basically assure that the fund distributor preserves the interests of the (potential) investors. For that purpose, the fund providers must enter with the distributors into model distribution agreement issued by SFAMA.

The fund providers are further obligated to carefully select and control the distribution agents. The Distribution Guidelines together with the Transparency Guidelines and the Swiss Bankers Association’s guidelines on the duty to keep documentary records pursuant to art. 24 (8) CISA  constitute the set of self-regulatory standards intended for increasing investor protection at the point of sale of fund units.