Proposed Partial Revision of the Swiss Federal Act on Collective Investment Schemes (CISA) – 
Major Impacts on Asset Managers and Distribution

On 2 March 2012 the Swiss Federal Council passed its report on the proposed partial revision of the Swiss Federal Act on Collective Investment Schemes (CISA). The primary aim of such revision is to align Swiss legislation with international standards, amongst others to safeguard compatibility with the EU AIFM-Directive, in particular with regard to asset management, custody and distribution. The proposed new legislation will have a major impact not only for asset managers of collective investment schemes but also for fund distributors in general as well as the distribution and foreign collective investment schemes in and from Switzerland.

Impact on Asset Managers and Distribution in a Nutshell:

• Asset manager of domestic and foreign collective investment schemes shall require an authorization by the FINMA.
• Existing asset managers of foreign collective investment schemes will have to report to the FINMA within six months and to file an application for authorization within two years from the effective date of the new legislation.
• The qualification of an investor as being “qualified” mainly matters for the assessment whether or not the documentation (prospectus etc.) of a foreign collective investment scheme shall require an authorization by the FINMA. High net worth individuals shall no longer be automatically considered as “qualified” but, subject to certain conditions, shall have the possibility for an opting-in.
• Any directly or indirectly charged charges and costs of a collective investment scheme and their application must be disclosed to investors. This also applies to any distribution fees in form of commissions, courtages and other valuable consideration (transparency instead of ban).

FINMA-Authorization for Asset Managers of Collective Investment Schemes

So far, only asset managers of Swiss domestic collective investment schemes were subject to FINMA-authorization. For asset managers of foreign collective investment schemes such authorization was optional. The new proposed legislation now provides for a compulsory authorization requirement for the latter in order to comply with international standards. Existing asset managers of foreign collective investment schemes will have to report to the FINMA within six months and to file an application for authorization within two years from the effective date of the new legislation which is proposed to enter into force as of beginning of 2013.

“Distribution” as new Key Term of the CISA

The current key term “public marketing” (defined as any marketing which is directed to the public) of the CISA shall be replaced by the term “distribution”, a criterion relevant for determination whether or not a FINMA-authorization is required, on one hand on the level of distributors of collective investment schemes in general, and on the other hand on the level of the product (documentation) in case of foreign collective investment schemes (Swiss collective investment schemes are per se subject to authorization).

“Distribution” is defined as any offering (“push”), irrespective of whether public or private, or marketing (which is per se considered as distribution); in other words, distribution by way of private placement (quantitative or qualitative) without authorization, as a rule, is no longer an option. However, the new legislation entails a possibility for an opting-in for high net worth individuals to qualify as “qualified investor” (subject to conditions that shall be governed by way of an ordinance), but whether or not an investor is considered as “qualified” will only matter in context with the distribution of foreign collective investment schemes (but not any other distribution; see below).

Not considered as “distribution” are – inter alia – acquisitions of collective investment schemes: (i) exclusively on the initiative of the investor (“pull”); (ii) in the framework of a written asset management agreement with a supervised financial intermediary (such as banks, securities dealers, fund management companies and central banks); and (iii) in the framework of a written asset management agreement with an independent asset manager, provided, however, that (1) the latter is subject (as a financial intermediary) to the Swiss Anti-Money Laundering Act, (2) subject to FINMA acknowledged rules of conduct of an industry organisation, and (3) the asset management agreement is compliant with the FINMA acknowledged minimal standards of such industry organisation. It has to be noted that the proposed text only implies an acquisition by an asset manager for its customer and it appears that distribution to such asset managers does not qualify as an exception from the term “distribution”.

“Distribution” of Foreign Collective Investment Schemes

For “distribution” of foreign collective investment schemes in or from Switzerland the following new rules shall apply:

• “Distribution” exclusively to “qualified investors”, which are financial intermediaries (such as banks, securities dealers, fund management companies and central banks) and high net worth individuals in case of a permitted opting-in (see above), does not trigger an authorization requirement for the collective investment scheme in Switzerland (prospectus etc.), but requires that: (i) there is an agreement on collaboration and information exchange between the FINMA and the relevant foreign supervisory authority in place; and (ii) the fund management company or fund company has appointed a Swiss representative.
• Any other “distribution” is subject to FINMA authorization, on the level of the distributor as well as on the level of the foreign collective investment scheme.

Swiss representatives of foreign collective investment schemes as well as distributors which have not yet been subject to the CISA need to report to FINMA within six months of the effective date of the new legislation (proposed is 2013). If affected by the new rules, authorization applications need to be filed within two years.

Transparency with Respect to Charges and Costs

The FINMA authorized person or entity as well as its delegates need to disclose any charges and costs directly or indirectly charged to the investors as well as their application. Such disclosure must be in a complete, true and comprehensive manner. This also applies to any distribution fees in form of commissions, courtages and other valuable consideration. This new legislation corresponds with the regulations for insurance brokers under the revised Swiss Federal Act on Insurance Contracts. It is worth to mention that a “conventional” asset manager is generally neither subject to a FINMA-authorization nor a delegate of an authorized person or entity. However, in the light of the most recent Swiss case law it is assumed that distribution fees and trail fees are qualified as retrocessions (“kick-backs”) which need to be disclosed to the customer in order for a contractual waiver of a customer to such benefits be valid.