Challenges 2022 for Swiss Asset Managers: fund documentation
2022 will be a busy year for wealth managers in Switzerland. With the introduction of the Financial Services Act (LSFin) and the Financial Institutions Act (LSFin) and the respective revision of the Collective Investment Schemes Act (LPCC), the Swiss fund and asset management is facing a tsunami of regulatory change impacting the entire industry. value chain.
To begin with, one of the main challenges this year is the evolution of the fund’s documentation.
- What is the legal context of these changes?
- What type of document needs to be updated?
- What type of document should I create?
1. Legal context for the new fund documentation requirements
Until December 31, 2019, the Collective Investment Schemes Act (LPCC) regulated the products (i.e. collective investments), the participants, as well as the rules of conduct applicable to licensees.
The simultaneous entry into force of the LSFin and the LSFin reshaped the Swiss financial landscape, in particular by refocusing the scope of the CISA on the product and on its initial objective: to provide the legal basis for collective investments in Switzerland.
In this respect, the activities previously described in the LPCC are now covered by a new legislative nomenclature with practical impacts on the framework in which funds and asset managers operate. The notion of “distribution” has been removed and replaced by the term “offer”, implying new requirements. The terms “financial services” and “advertising” have also been incorporated. It should be noted that while the concept of distribution has disappeared, the economic reality, namely the sale of Swiss and foreign collective investments in Switzerland, remains relevant.
This paradigm shift from “distribution” to “offer” and the new organizational and due diligence requirements associated with it have a significant impact on the entire fund distribution chain and, of course , on the associated documentation.
2. Fund documentation update
The LSFin now details the obligations relating to the documentation and publication of the offer of financial instruments.
At the same time, the Asset Management Association Switzerland (AMAS, formerly Swiss Funds & Asset Management Association, SFAMA) as the professional organization representing the Swiss wealth management industry, has adapted its self-regulation (code of conduct and model documents ). The Swiss Financial Market Supervisory Authority (FINMA) recognized in September 2021 that adapted AMAS self-regulation constitutes a minimum standard.
The FinSA has standardized the requirements relating to the prospectus by laying down the principle that a prospectus is required each time an offer to the public for the acquisition of securities is made or an application for the admission of securities to trading on a trading platform is made. The law also provides for derogations if, for example, the offer is addressed to less than 500 investors.
The various prospectus models proposed by the AMAS following the entry into force of the FinSA have been recognized as containing the minimum requirements. AMAS has asked FINMA to extend the initial deadline from December 31, 2021 to June 30, 2022 for the mandatory use of revised prospectuses.
B Distribution Agreement
In order to integrate the new requirements imposed by LSFin/LSFin, AMAS self-regulation has adapted its distribution contract model. Following the new measures, this contract is no longer considered a prerequisite for distribution in Switzerland by FINMA.
However, the AMAS Code of Conduct stipulates that if third parties are commissioned to sell collective investments in Switzerland, they must agree on the tasks to be delegated in writing or in any other form that can be proven by text. The agreement must correspond to the standard in force in Switzerland or to an internationally recognized standard. In particular, the funding bodies must appropriately define the activities common to both parties, their respective responsibilities and competences.
VS Marketing fund document
Marketing material relating to investment funds must also be updated (eg updated regulatory references) and take into account the new rules introduced by FinSA.
An advertisement must now be clearly marked as such, mentioning the prospectus and the key information document (KID) of the financial instruments concerned, as well as the place where they can be obtained.
Advertising and other information on financial instruments intended for investors must comply with the indications of the prospectus and the KID.
3. Creation of new fund documentation
In addition to the prospectus, the FinSA also requires the establishment of a KID for certain financial instruments intended for private clients, including collective investment schemes. The purpose of the KID is to allow the investor to make a well-founded decision and to compare several investments with each other. However, it is important to point out that the Swiss KID differs from the European PRIIPS KID, for example the designation of a target group and a market or the description of the risks and benefits.
The transitional period of the KID for complex financial instruments has also been extended from January 1, 2022 to December 31, 2022 by the Federal Council.
To navigate through these developments, it is therefore essential to understand what is meant by the “offer” of financial instruments, to deduce the underlying obligations and their impact on your organization. The offer of a collective investment also presupposes that the investor has detailed information enabling him to accept the offer, ie to subscribe to the collective investment. This information must be aligned with the information contained in the KID and the prospectus. The delegation of tasks must be limited and respect the regulatory framework. We’ll expand on these requirements in more detail in the next article in our series – stay tuned.
Many thanks to Clara Morhange for her valuable contribution to this article.