The Swiss financial market, renowned for its robust regulatory environment and attractiveness to global investors, presents unique challenges and opportunities for foreign collective investment schemes. This article seeks to demystify the legal intricacies involved in advertising these schemes to Swiss investors, focusing particularly on the stringent requirements set forth by the Swiss Financial Market Supervisory Authority FINMA.
By Jürg Frick / Benjamin Leisinger (Reference: CapLaw-2024-21)
1) Introduction
From a Swiss regulatory point of view, the advertising of foreign, i.e. non-Swiss, collective investment schemes or funds to investors in Switzerland needs to be looked at under at least two different aspects: first, it must be assessed whether the fund as such is eligible for advertising or distribution in Switzerland, and second, the advertising or distribution activity itself must be understood and assessed whether it is subject to regulation in Switzerland or not. In both cases, it is relevant to understand to what kind of investors the respective fund shall be marketed and offered in Switzerland, e.g. to retail investors or only to qualified investors.
The eligibility criteria for foreign funds to be distributable in Switzerland are set out in the Swiss Collective Investment Schemes Act (CISA). Questions arise as to whether a fund must be approved by the Swiss Financial Market Supervisory Authority FINMA (FINMA) and whether it must appoint a Swiss representative and a Swiss paying agent.
Advertising or distribution activities could fall under the scope of the Swiss Financial Services Act (FinSA). Since FinSA is still relatively new and the Swiss Federal Supreme Court has not yet had to decide whether or not advertising or distribution activities automatically qualify as a financial service under FinSA, Swiss legal scholars continue to debate the exact scope of FinSA.
The purpose of this article is to discuss certain eligibility criteria for foreign funds to be distributed to investors in Switzerland, including, inter alia, FINMA approval requirements.
2) FINMA Approval for Foreign Collective Investment Schemes
Under article 120 CISA, foreign collective investment schemes must obtain FINMA approval before being offered to non-qualified investors in Switzerland. The criteria for approval, as per article 120 (2) CISA, are multi-faceted, demanding comprehensive compliance in areas including investor protection, organizational structure, and investment policy.
3) Key Approval Criteria
The approval process entails ensuring that: a) the scheme and associated entities are under adequate public supervision to protect investors; b) the regulatory framework governing these entities aligns with Swiss standards; c) the scheme’s name is clear and non-deceptive; d) a Swiss representative and paying agent are appointed; and e) there exists an agreement for cooperation and information exchange between FINMA and the relevant foreign authorities.
4) Challenges for Non-UCITS and Crypto Funds
In practice, obtaining approval for non-UCITS foreign collective investment schemes can be exceptionally challenging. To date, FINMA has shown considerable restraint, approving only a limited number of such funds, including a solitary crypto fund, exclusively for qualified investors.
5) Regulations for Qualified Investors
Foreign collective investment schemes targeting qualified investors under article 5 (1) of the Financial Services Act (FinSA) face relatively lenient requirements. They are exempt from FINMA approval but must still ensure non-deceptive naming and appoint a Swiss representative and paying agent.
6) Exemptions for Genuine Qualified Investors
Offers made exclusively to “genuine” qualified investors, excluding those defined under article 5 (1) FinSA, can proceed without authorization or the need for a representative and paying agent. This offers a streamlined pathway for certain foreign funds targeting a sophisticated investor segment.
7) Restrictions on Unlicensed Foreign Funds
Foreign funds not approved for offering to non-qualified Swiss investors must adhere to strict limitations. They can only be offered to professional clients, as defined in article 4 (3) FinSA, and private clients meeting specific criteria under article 10 (3ter) CISA. These clients must be under the management or advisement of a qualified financial intermediary and must not opt out of being treated as qualified investors.
Under article 127a of the Swiss Collective Investment Schemes Ordinance, mere advertisement (without an offer) triggers the same duties as an offer. Accordingly, unlicensed foreign funds can only be advertised to “genuine” qualified investors, excluding those defined under article 5 (1) FinSA, without approval or the need for a representative and paying agent.
8) Requirements in Other Cases
In cases involving opt-out retail investors, a Swiss representative and paying agent are mandatory. For offerings to retail investors, obtaining FINMA approval becomes a necessity.
9) Reverse Solicitation
It’s crucial to note that “true” reverse solicitation, which involves execution-only purchases without any prior marketing of the fund to such investor, is not considered an offer under Swiss law and is therefore permissible.
10) Conclusion
Navigating the advertisement and offering of foreign collective investment schemes in Switzerland requires a nuanced understanding of the regulatory framework. While the pathway for non-UCITS and certain other funds is fraught with challenges, there remains scope for targeted offerings to qualified investors under specific conditions. It’s imperative for fund managers and advertisers to meticulously adhere to these regulations to successfully access the sophisticated Swiss investment market.
Jürg Frick (juerg.frick@homburger.ch)
Benjamin Leisinger (benjamin.leisinger@homburger.ch)