From January 1, 2020. The Swiss Financial Institutions Act (FinIA) and the Swiss Financial Services Act (FinSA) entered into force, updating the regulatory regime for trustees working in Switzerland. This means that all independent portfolio managers (PMs) and trustees subject to supervision under FinIA will have to be supervised by a Supervised organisations (SO) authorised by FINMA and get licensed by FINMA before they can be able to carry out their activities as financial intermediaries in Switzerland.
The new regime is intended to strengthen the overall reputation and competitiveness of Switzerland as a financial centre, at the same time improving the quality, integrity and accountability of the Swiss trust industry. A particularly important point of innovation is the inclusion of trustees in the concept of “financial institutions.”
How it was before and what changes?
Previously known as asset managers, portfolio managers were required to comply with anti-money laundering (AML) regulations and be affiliated with a self-regulatory organization (SRO) in order to oversee compliance with AML requirements and industry standards. However, they operated without a license and no supervision from the Swiss Financial Market Authority (FINMA).
However, according to the new ammendments, asset managers that fall within the scope of FinIA activities will be subject to regulatory oversight must be authorized to carry out their activities in addition to meeting the structural, organizational, business and audit requirements. It's only after obtaining such a license that the asset managers will be able to register with the Commercial Register and get off the ground.
How the new law defines portfolio manager and trustee
A portfolio manager is a person mandated to manage assets on a commercial basis in the name of and on behalf of clients, and may dispose of clients' assets in any other manner (Art. 17 FinIA). Portfolio managers manage individual portfolios.
Thus, according to the law, the asset manager is based on two criteria:
(i) the power of disposal over assets of clients and
(ii) the commercial nature.
The authority to dispose of the assets must result from a corresponding order of the customer. This refers to a management mandate granted to the financial service provider.
The second criteria is commerciality according to FinIA is fulfilled if a financial service provider either:
- Has a gross income of more than CHF 50'000 per year;
- Maintains a business relationship with more than 20 contracting parties per year or 20 contracting parties which are not limited to a single activity; or
- Possesses power of disposal over third-party assets of more than CHF 5 million.
Any financial services provider who meets the two criteria (power of disposal over client assets as well as professionalism), qualifies in principle as an asset manager pursuant to Art. 17 para. 1 FinIA and is therefore considered a financial institution.
Asset managers are also considered as managers of collective assets. They manage the assets of collective investment schemes or occupational pension schemes below the defined thresholds (see Art. 24 para. 2 FinIA) and are deemed to be portfolio managers.
Initially business activities as trustees were not previously regulated, apart from the AMLA provisions which had to be observed.
A trustee is a person who on a commercial basis manages or disposes of a separate fund for the benefit of a beneficiary or for a specified purpose based on a restricted grant given namely in the instrument creating a trust. All this should be in accordance with the Hague Convention of 1 July 1985 on the Law Applicable to Trusts and Their Recognition. The trustee manages the separate fund, and ensures its value is maintained and employed in a restricted manner.
The second relevant criterion, the professionalism, is basically the same as that for the asset manager only if, with regard to Business volume the threshold values according to FinIA are achieved. The amount of assets under management, do not constitute third-party property under civil law.
According to the the Hague Trust Convention, foreign trusts are legally recognized in Switzerland.
Other deadlines and obligations:
- Financial institutions must affiliate to an ombudsman's office within six months of the Federal Department of Finance recognizing or establishing for them an ombudsman`s office in accordance with Article 84 FinSA.
- During one year after approval of SO by FINMA, PMs and trustees starting activity during 2020 to affiliate with SO and file a licensing application with FINMA according to Article 74(3) FinIA. They can continue to operate until a decision is reached regarding their authorisation—provided that they are affiliated to an SRO, as defined in Article 24 AMLA, and are supervised by this SRO in relation to compliance with the relevant requirements.
How to get authorisation?
FINMA has opened a new online instrument to fulfil the authorisation requirements. Supervised institutions and their audit firms as well as supervisory organisations can use the web-based survey and application platform (EHP) to submit encrypted supervisory data and authorisation applications to FINMA electronically.
The FINMA portal is the central entry point for using the survey and application platform. To access the FINMA portal, users from the institutions must first register. After registering successfully, users can log in to the FINMA portal with two-factor authentication. The institutions must provide FINMA with the name of at least one authorisation coordinator before they can use the platform. This person may authorize other people from the institution to use EHP.
User guides are available to view on the FINMA’s website.
The new legal framework for financial institutions represents a new legislative age for trustees working in Switzerland and thus creates new steps of authorization in the field of regulation and administration. The good news is that that these procedures will lead to new opportunities that will take the Swiss trust industry to a whole new level.