The introduction of the Financial Services Act (FinSA) on 1 January 2020 has brought along significant changes in the law on collective investment schemes. The rules for the offering and distribution of foreign collective investment schemes in Switzerland have been amended.
A financial service and an offer are two concepts independent of one another under FinSA[1]. Depending on which questions are to be answered, it is necessary to verify whether a specific activity is deemed to be a financial service or an offer.
To some extent, advertising is a "preliminary stage" of the offer and only has isolated requirements directly attached to it[2]. In order to distinguish between an offer and an advertising, one can start from the reference made to the financial instrument offered: the more precise and detailed the reference, the more likely it is that it is an offer.
This article aims to show which new regulations apply in this context to the marketing of foreign funds in Switzerland.
Qualified investors
First thing is to assess whether the foreign funds in Switzerland are offered exclusively to qualified investors. The Collective Investment Schemes Act (“CISA”) generally refers to the FinSA for the definition of qualified investors[3]. Pursuant to the FinSA, qualified investors are the professional and institutional clients[4]:
· Supervised financial institutions such as banks, fund management companies, managers of collective assets and insurance companies;
· Occupational pension schemes and companies with professional treasury operations;
· Large companies; and
· High-net-worth individuals with opting-out.
When offering foreign funds to qualified investors, it is no longer necessary to appoint a Swiss representative or Swiss paying agent[5], which is a significant facilitation compared to the previously applicable provisions. By contrast, when foreign funds are offered to retail clients, everything remains largely the same.
Offer pursuant to the FinSA
With FinSA, the term distribution in the CISA was replaced by the term offer. An offer is made when Swiss clients are invited to acquire a foreign fund and the information provided is specific enough for an investor to make an investment decision based thereon[6].If such an offer is made, the foreign fund will be subject to Swiss law[7].
As before, authorisation from FINMA is required before a foreign collective investment scheme can be offered in Switzerland to non-qualified investors[8]. Even under the new law, such offer still generally requires a prospectus, which must be published at the latest at the start of the public offering. If funds are offered to retail clients, a key information document (KID) must now be produced in addition to the prospectus[9].The KID must be published no later than the beginning of the public offer[10].
Foreign funds which are offered exclusively to qualified investors do not trigger any publishing requirements for prospectuses or KIDs[11].As an additional facilitation, such funds no longer need to appoint are presentative or paying agent in Switzerland[12].
Incase funds are offered to both qualified investors and retail clients, the obligation to obtain a distributor license from FINMA in advance no longer applies. This constitutes another significant facilitation for foreign funds under the new law[13].
Advertising pursuant to the FinSA
The mere advertising of foreign funds must be distinguished from the offering of such funds. An advert differs from an offer in that it is not specific enough to enable the investor to make an investment decision based thereon. The distinction is important because advertising activities, which do not constitute an offer, are subject to fewer regulatory obligations[14].Thus, the FinSA is much more flexible than the old CISA, where any form of advertising was considered a form of distribution and triggered corresponding restrictions.
However, the following regulatory requirements must be observed under the new law when advertising foreign funds in Switzerland:
· Obligation for the fund to obtain authorisation in the case of advertising to non-qualified investors;
· Possible obligation under the FinSA to register client advisers in a Swiss register of advisers;
· Possible obligation to comply with the duties of conduct and the organisational obligations pursuant to the FinSA.
Under FinSA reverse solicitation does not constitute an offer or advertisement and is therefore not covered by regulatory provisions[15].
Offer of and advertising
In Switzerland, offering and advertising foreign funds may qualify as a financial service under the FinSA and entail corresponding obligations. This includes, among other things, any activity that is specifically aimed at the acquisition or disposal of a financial instrument[16].This is always the case with an offer of foreign funds.
In contrast, a distinction must be made in the case of mere advertising: If it is customarily intended to draw attention to a certain financial instrument and to sell it, it qualifies as a financial service[17].Mere general advertising is not enough.
On the basis of the rule in Article 127a of the Collective Investment Schemes Ordinance (“CISO”), advertising for foreign collective investment schemes already triggers the corresponding special statutory obligations according to article 120 CISA. Further, the FinSA merely requires that advertising must be clearly indicated as such[18].
Entry into a Swiss register of advisers
There are various consequences associated with the qualification of an activity as a financial service. For example, client advisers of a financial service provider may have to register with a Swiss register of advisers[19].
Duties of conduct pursuant to the FinSA
If the offer or the advertising of a foreign fund in Switzerland constitutes also a financial service, the foreign fund providers must comply with certain obligations under the FinSA. As with regard to the registration obligations, foreign fund providers must carefully check whether their activities in Switzerland constitute a financial service in accordance with the FinSA. Here are some example:
- a fund management company which manages exclusively its own funds (including portfolio management) and does not itself "distribute" these as part of a financial service is not a financial service provider within the meaning of the FinSA. However, the product-specific code of conduct and organisational rules remaining under Article 20 CISA continue to apply to fund management companies. They apply to all persons who manage or represent collective investment schemes or hold the assets of these schemes in safekeeping, as well as their agents.
- If, however, in addition to conducting fund business, a fund management company also provides further services, such as, in particular, individual investment advice, asset management for third parties or pure fund distribution, these activities constitute a financial service and the requirements under the FinSA apply.
- Accordingly, FinIA and CISA institutions are only deemed to be financial service providers if they are actually active at the point of sale. This also applies in particular to representatives of foreign funds[20].
Conclusion
The new regulations make fund distribution easier. For example, the distributor's license and the obligation to appoint a representative and a paying agent will no longer apply when offering foreign funds to qualified investors [21] but the introduction of new concepts, like the “offering” of “financial services”, can be challenging, especially for foreign actors, to fully understand the new regulations. It is therefore important to have a competent point of contact in Switzerland who can provide comprehensive advice on how to comply with the new regulations in order to offer and advertise investment funds in Switzerland.
This article is for information purposes only. It does not constitute professional advice or an opinion. Please contact us on info@lecocqassociate.com for any questions. You can read here more about our structuring and licensing of fund management companies.
[1] Article 3 letter c and article 3 letter g FinSA.
[2] SFAMA, FAQ about FinSa/FinIA, 23December 2019, p. 2.
[3] Article 10 para 3 CISA.
[4] Article 4 FinSA ;all retail investors according to FinSA are non-qualified investors according to CISA. The following two exemptions exist: (i) Retail clients under discretionary mandate or advisory agreement are qualified investors according to art. 10 para. 3ter CISA.
A professional client that made an opting-in to be considered as a retail client(art. 5 para. 5 FinSA) will stay a qualified investor (art. 10 para 3 CISA for all professional clients pursuant art. 4 para. 3-5 FinSA regardless of any opting-in).
[5] Apart from offering foreign funds to high-net-worth individuals.
[6] Article 3 para 5 of the Financial Services Ordinance (FinSO).
[7] Article 2 para 1 FinSO.
[8] Article 120 CISA.
[9] Article 58 FinSA.
[10] Article 66 FinSA.
[11] Article 120 para 4CISA; Exception of offers made to high-net-worth individuals who wish to be considered qualified investors (so-called opting out), which still trigger such requirements
[12] Stefan Grieder, Marketing of foreign funds in Switzerland, November 2020.
[13] Stefan Grieder, Marketing of foreign funds in Switzerland, November 2020.
[14] Stefan Grieder, Marketing of foreign funds in Switzerland, November 2020.
[15]Idem.
[16] Article 3 let. c para 1 FinSA.
[17] Article 3 para 5 let b FinSO.
[18] Article 68 FinSa; Article 8 para 6 FinSA.
[19] Article 28 ff FinSA.
[20] SFAMA, FAQ about FinSa/FinIA, 23December 2019, p. 4 and 5.
[21] Except for high-net-worth individuals with opting out.
