Who hasn’t made a thought about the attractiveness of the Swiss Fund market and, more particularly, how to successfully enter it? Thanks to our different locations and professions, several discussions have been carried out with a kaleidoscope of market players in London, Zurich and Luxembourg over the recent months. Each one of us has, to a different extent and depth, been confronted with a similar question by our network “How do I successfully enter the Swiss fund market”.
This is why we have decided to:
- Combine our diversified experiences and approaches on fund distribution,
- Leverage on our personal background and
- write together this article with the genuine hope that our “melting pot” will produce a useful and appreciable result by our audience.
We would like to invite you all, to add your own personal views and experiences to this story so that we can all get a more valuable insight into this matter. Let’s then see together how Switzerland can be approached distribution-wise.
The fastest way of entering a Swiss Fund market is through a private placement. However, the drawbacks are that only a very limited number of investors can be approached, i.e. regulated banks and insurances, and that one should really pay attention not to do anything which might be regarded as distribution activity by the Swiss financial regulator.
If you are intending to tackle a broader scope of investors, then you might go for the option to distribute to qualified investors. In this case some further groups of investors like companies and retirement benefit institutions with professional treasury operations and HNWI’s, would broaden the scope of potential investors. Of course this comes with further obligations; a Swiss Representative as well as a Paying Agent in Switzerland have to be appointed. In addition, a distributor agreement has to be concluded between the Swiss Representative and a Distributor before he is actually allowed to legally start marketing the product(s).
The last option is to go for distribution to non-qualified investors (i.e. public distribution) by applicable Swiss law. This would allow selling products to the whole range of potential investors in Switzerland, but is the most time consuming way to enter the Swiss market. The additional requirements contain, among others, the translation of fund documents into an official Swiss language and the fund product has to be approved, which process can easily take about two months after the request for authorisation has been sent to FINMA (i.e. UCITS Funds).
The three constellations just described are summarised in the flow chart below:
As anticipated above, Swiss regulation makes it mandatory to appoint a Swiss representative and a Swiss paying agent for funds distributed to investors in Switzerland, both Retail and Qualified Investors:
- Distribution of a fund to Retail Investors is subject to prior authorisation from FINMA.
- Distribution to institutional investors in principle requires the appointment of a Swiss legal representative and a Swiss paying agent, which has to be a bank.
The Representative’s roles, as established in the CISA (Swiss Collective Investment Scheme Act) and the CISO (Collective Investment Schemes Ordinance), are to:
- Make the fund documents available to investors in Switzerland and the Swiss authorities;
- Supervise the distribution of the funds, including but not limited to due diligence information on Swiss distributors (KYC) and fund management companies;
- Handling any complaints from investors, or the Swiss authorities, and bearing legal liability in the event of legal violations of the products represented (such as miss-selling).
Representatives are authorised by FINMA and audited by a FINMA approved auditing company.
The Swiss representative has the sole responsibility towards FINMA (the Swiss authorities) for naming a Swiss distributor. According to the SFAMA guidelines on the distribution of collective investment schemes, the representative has to ensure that distributors are duly authorised by the National Regulator and can ensure proper business practice.
The Distribution Agreements are based on the model Distribution Agreement of the SFAMA; they are adapted to each fund management company’s specific needs. The Agreements for distribution in Switzerland are negotiated by the representative on behalf of the fund management company.
Main distribution platforms include Credit Suisse Fund Lab, UBS, Swisscanto, Bank Julius Baer...
Even though Switzerland is not part to the European Union, with no ensuing obligation to implement AIFM directive per se, Swiss authorities realised on time that it was mandatory to amend the regulatory framework and align it to the provisions of the AIFM directive in order to maintain certainty and competitiveness of the Swiss market for funds. The extensive work carried out in this respect determined the revision of the CISA and a consequent set of new rules to cater for the scenarios introduced by the AIFM directive, as briefly described above. One of the most important changes lies in the replacement of the concept of public offering with the one of distribution. At a very high level, any advertisement or offer of funds, which is not solely and exclusively directed to regulated financial intermediaries, will be deemed to be distribution, hence regulated (be it public or not).
This set of new rules has stressed, once again, the importance played by the representative in the Swiss market and its duties as a pivotal entity in the architecture of Swiss fund distribution, says Alex Kozacenko from FundPoint GmbH. It is worth mentioning that the representative, as a FINMA regulated entity and in light of the new regulation, needs to show that appropriate and regular checks are done on continues basis of all company business activities, via its risk management procedures (Ordinance in force since 1 March 2013 AS 2013 607). For example, the representative, as part of the risk management procedure, will have to observe the evolution of the net asset value of the various share classes of the different products. FundPoint GmbH, can assist in this process, by applying relevant daily checks on fund pricing information and report any such inconsistencies. FundPoint GmbH can also assist the company with dissemination of the legal fund documents (factsheets, KII, prospectus) and prices via its data dissemination service.
We hope this stop in Switzerland was useful and added to your existing knowledge about this market. We also hope we made you comfortable that we are the right companions for your journey to successful fund distribution, whatever the country or the weather. Stay tuned to learn more about our next stop and please get in touch with Attilio Veneziano, your usual contact at Veneziano and Partners if you have any queries or suggestions!
Attilio, Alex and Luca