The main purpose of the proposed revision of the Collective Investment Schemes Act (CISA) is to adjust the Swiss regulatory framework to current international standards, especially the UCITS- and AIFM-Directive, in order to enable Swiss based assets managers to access the European market. The draft legislation provides for a general authorization and supervision requirement for all Swiss based asset managers; it defines the scope of tasks of an asset manager, services which may be performed additionally and the possibility of delegation. SICAFs are required to appoint a regulated custodian bank; these banks will have to implement appropriate organizational structures. The concept of public advertisement will be replaced by the concept of distribution, which includes any offering of and advertising for a collective investment scheme; any kind of distribution will be subject to the authorization of the FINMA. Foreign collective investment schemeswill always be obliged to appoint a Swiss representative, who will have to ensure the compliance of the fund’s foreign management with the provisions of the CISA; the catalogue of persons that are regarded as qualified investors is being modified.
By Simon Schären/Stefan Luginbühl (Reference: CapLaw-2012-32)
1) Introduction
On 2 March 2012, the Federal Finance Department (EFD) has published the official draft of the revised Collective Investment Schemes Act (CISA), which will now be treated in Swiss Federal Parliament. The new law may enter into force in 2013.
The main purpose of the revision is to adjust the Swiss regulatory framework to the current international regulatory standard, especially with respect to EU Directive 2009|65|EC relating to Undertakings for Collective Investment in Transferable Securities (UCITS-Directive) and EU Directive on Alternative Investment Fund Managers (AIFM-Directive). The draft legislation provides for modifications and amendments of the CISA with respect to the regulation of asset managers, custodians as well as the distribution of collective investment schemes. The main purpose of the proposed revision is to enable Swiss based asset managers to be granted access to the European market and therefore ensure a regulatory standard which is sufficient from a European regulatory perspective as provided for by the AIFM-Directive. In addition to the proposed revision of the CISA, further details will be contained in the Collective Investment Schemes Ordinance (CISO), which is yet to be revised.
2) Asset Management
Currently, external asset managers of collective investment schemes are only subject to licensing and supervision by the Swiss Financial Markets Supervisory Authority (FINMA) if they manage interests in Swiss domiciled collective investment schemes; however, they may opt for a voluntary supervision by FINMA.
The draft legislation provides for a general authorization and supervision requirement with respect to all Swiss based asset managers regardless of whether they manage a Swiss or a foreign collective investment scheme. Exceptions are possible for certain asset managers, as long as they comply with the purpose of the bill (article 18 (3) Draft-CISA).
The Draft-CISA defines the scope of tasks of an asset manager (portfolio and/or risk management) and limits the scope of services which may additionally be performed (article 18a Draft-CISA). Delegation of such tasks shall be permissible if appropriate and to qualified service providers only (article 18b (1) and (2) Draft-CISA). Investment decisions may only be delegated to institutions that are subject to prudential supervision. Furthermore, in case of any delegation abroad the Draft-CISA provides that FINMA and the relevant foreign supervisory authorities have entered into a cooperation and exchange of information agreement (article 18 (b) (3) Draft-CISA).
3) Custody
To date, CISA requires closed-ended collective investment schemes to appoint a custodian and a paying agent which are not subject to prudential supervision. The Draft- CISA obliges also closed-ended investment companies with fixed capital (SICAF) to appoint regulated custodian banks (article 114 Draft-CISA). This duty shall however not apply to limited partnerships for collective investments which are also closed ended as they exclusively address qualified investors.
According to article 72 (1) Draft-CISA, custodian banks will have to implement appropriate organizational structures regarding their custody activities; the Draft-CISA authorizes the Federal Council to stipulate additional requirements (article 73 (1) (e) Draft-CISA), allowing flexible adaptions to the constantly evolving international standards. In addition, the draft CISA increases the extent of liability of custodian banks delegating their tasks to third parties and now allows delegation of safekeeping functions to prudentially supervised depositaries only.
4) Distribution
To date, several registration and authorization duties are linked to the concept of public advertisement which has now been made irrelevant by the current revision of the CISA as it is being replaced with the concept of distribution, which includes any offering of and advertising for a CIS, regardless of it being public or private. Every kind of distribution is subject to the authorization of FINMA. The purchase on one’s own initiative (reverse solicitation) or within a written asset management agreement with a regulated financial intermediary or independent asset manager is not deemed as distribution in the sense of the CISA. The publication of prices, quotations, net asset values or tax data as well as the offering of employee investment plans (Mitarbeiterbeteiligungsplänen) are not considered as distribution either (article 3 Draft-CISA).
The specific provisions of the revised CISA directly distinguish between qualified and non-qualified investors, setting different standards for investor information and protection in view of distribution. This would result in a segmentation of investors as envisaged by FINMA under the existing law. However, the Draft-CISA still permits the distribution of structured products to qualified investors pursuant to article 10 (3) CISA without having to publish a simplified prospectus in the sense of article 5 CISA.
To date, foreign collective investment schemes exclusively directed at qualified investors are not regulated. Pursuant to the Draft-CISA, foreign collective investment schemes will always be obliged to appoint a Swiss representative (article 123 (1) (b) Draft-CISA) so that qualified investors may rely on a point of contact in Switzerland as it is currently the case with respect to retail collective investment schemes. The proposed Draft-CISA further obliges a representative to ensure that a foreign fund’s asset management and custody correspond to the provisions of the CISA in terms of organization and investor rights (article 124 (3) (a) Draft-CISA). This would justify the investment scheme’s relevant documents not being subject to authorization as it is the case for collective investment schemes addressing non-qualified investors.
Finally, the Draft-CISA proposes to modify the current catalogue of persons that have the capacity of qualified investors as set out in article 10 (3) CISA. According to article 10 (3) (f) CISA, a qualified investor is, among other types of qualified investors, a person that has concluded a written discretionary management agreement with a regulated financial intermediary, if the latter is governed by the Swiss Federal Act on Money Laundering (AMLA) or similar rules recognized by FINMA. The Draft-CISA now proposes to eliminate said category from the catalogue of qualified investors listed in article 10 (3) CISA. As well, high net worth individuals do have to opt in to be deemed as qualified investors (article 10 (3bis) Draft-CISA).