Revised Swiss Collectives Investment Scheme Act

Swiss Collective Investments Scheme Act

11 Dec 2012 Revised Swiss Collectives Investment Scheme Act

The entry into force of the Alternative Investment Fund Managers Directive on July 2011 (“AIFMD”) resulted in new obligations for EU and non-EU fund managers. The management of funds falling under the scope of the AIFMD cannot be delegated to non-EU managers if they are not subject to equivalent prudential supervision set forth by the directive. In order to guarantee Swiss fund managers access to the EU market, the Swiss Federal Council adopted, on 2 March 2012, a draft-law to revise the Swiss Collective Investments Scheme Act (“CISA”) and level it with the AIFMD. The draft-law was examined by the two chambers of the Swiss Parliament during the summer and autumn session 2012 and on the 18 September 2012 the final text was approved (“R-CISA”). The R-CISA will enter into force on or after 1st February 2013. Fund managers managing assets falling under the scope of the AIFMD must make a request to FINMA for the grant of the necessary license at their earliest opportunity. While the R-CISA sets forth a two years grandfathering window, one should focus on the AIFMD deadline – mid-2013 (or mid-2014 due to the grand-fathering period).

The R-CISA adapts Swiss legislation to EU standards with respect to the (i) management,
(ii) custody and (iii) distribution of collective investment schemes. It also reinforces investors’ protection and contemplates the enhancement of the competitiveness of the Swiss fund market. Below you will find a summary of the most significant amendments on the matter.


All fund managers must be licensed or registered

R-CISA provides that all fund managers managing Swiss or foreign collective funds will be subject to prudential supervision by FINMA, whether by way of a licensing process.
While all fund managers of Swiss collective investment schemes are already licensed, managers of foreign/offshore funds will need to apply for a license or a registration in case of exemption

Short deadlines
The Fund manager will have to notify FINMA of its activity within six months after the entry into force of the R-CISA and a two years grand-fathering clause is available to comply with all legal requirements; e.g. to file for, and possibly obtain, a regulatory license.
It is also important to note that the AIFMD must be transposed by the Member States by mid-2013, with a one year grand-fathering period; thus, fund managers managing EU alternative funds must obtain the license from FINMA by the end of July 2014. In this context, FINMA has advised that it is suitable to file for a license before June 2012. As this indicated date has already passed, fund managers should contact a legal adviser at their earliest opportunity in order to accelerate the process.

Exemption for “Small” Fund Managers
Fund managers managing assets that do not exceed a total of CHF 100 million, including assets financed by leverage, will not be subject R-CISA.
Also, an exemption will be provided for fund managers managing funds that do not exceed CHF 500 million, do not use leverage and do not reimburse investors for a period of five years starting from the date of the initial investment.
The draft ordinance of collective investment schemes (which was published mid-December 2012) seems to confirm that neither a licensing nor a registration will be required for small fund managers. We contemplate that the so called exemption will be aligned with section 3 AIFMD.

Investment advisors
The obligation (and possibility) to obtain an authorization only applies to the asset managers of collective investment schemes. Mere investment advisors are not subject to this obligation. The delimitation between these two types of activities is not always clear. FINMA will focus on the cash-flow relating to the fees and on who makes and executes the investment decisions.

Higher regulatory duties standards
FINMA has already stated that it will not treat applications which do not fulfill the required conditions at the moment of filing. The conditions to be fulfilled concern especially own funds, prevention of conflict of interests, personal skills and liability in case of delegation.
Based on the draft ordinance, fund managers of foreign collective investment schemes should have a minimum released capital of CHF 500,000 and own funds equal to at least a quarter of its fixed costs, as per the last financial year accounts.
The R-CISA imposes organizational conditions in order to prevent conflict of interests. For instance, the Board must not be involved in operational tasks which fall under the competence of the Direction. The accumulation of positions is strictly forbidden. The holder of the authorization must adopt internal directives to set out his organization. All internal directives must be approved by FINMA.
Board members and persons in charge of the everyday operation must offer a guarantee of irreproachable conduct, have a good reputation and have high qualifications.


Obligation to use a custodian
Close-ended funds like Investment Companies with Fixed Capital (“SICAF”) must appoint a custodian bank. On the other hand, Limited Partnerships for Collective Investments (“SCPC“), as they are open to qualified investors, may opt-out of appointing a custodian. They can use the services of a depositary and a paying agent.
As for the open-ended funds, contractual Investment Funds will need to appoint a custodian bank and Investment Companies with Variable Capital (“SICAV”) may appoint a supervised prime broker only if they are open to qualified investors.

Custodians’ requirements
Custodians may only delegate the assets of a collective fund provided the delegated party is subject to a recognized prudential supervision authority. When subscribing in a fund, the custodian must draw the investors’ attention to the risks of such delegation.
According to R-CISA, the custodian will be held liable for damages caused in case of delegation unless it proves that it took the care required under the circumstances in regards to the choice, the instructions and the supervision of the third party.

Guarantee of proper business conduct
The Custodian must employ qualified personnel and dispose of appropriate organization. Furthermore, they should adopt specific rules of conduct and internal directives to prevent conflict of interests.


Distribution of Foreign Collective Funds
The R-CISA provides new rules on the distribution of foreign collective funds. All persons who distribute foreign collective funds in or from Switzerland are required to have a distributors’ license. Also, foreign collective funds will only be distributed in or from Switzerland to qualified investors or retail investors, provided the fund has appointed a Swiss representative. The task of the Swiss representative will be to examine if the foreign collective investment is subject to equivalent obligations to those laid down in the R-CISA. As the draft R-CISA stands, Cayman fund should not be eligible for distribution.

Redefining “Distribution”
The R-CISA replaces the term “public advertising”
i.e. all advertising which targets the public (as opposed to qualified investors) by the term “distribution”. The term distribution refers to all forms of offering or advertising of a collective investment fund. The R-CISA provides for different legal consequences if foreign collective investment funds are distributed to qualified investors or retail investors.
The following will not be construed as distribution:
• subscription of a collective investment scheme at an investor’s own initiative; or
• subscription of a collective investment scheme by a regulated financial intermediary or an insurance company; or
• subscription of a collective investment scheme by an independent asset managers, provided they are subject to anti-money laundering supervision and adhere to the code of conduct of an industry association; or
• Information on prices, indexes, NAV or taxes by a supervised financial intermediary; or
• Proposal to participate in an employee benefit plan.

Moreover, the list of qualified investors has been modified. Wealthy individuals will not be automatically considered as qualified investors. They will need to prove that they have sufficient knowledge and technique in financial matters, or enough wealth.
Also, individuals who are under an asset management agreement with a bank or an asset manager will not be considered automatically as a qualified investor but must sign a statement accepting to be considered as such.
The R-CISA gives the opportunity to the Swiss Federal Council to define other categories of qualified investors. FINMA may decide not to apply totally or partially the scope of the R-CISA to collective investment fund, if they relate only on qualified investors and the scope of the R- CISA is not compromised.

Data provided to investors
All information and documents provided to the investors either qualified or retail, while subscribing in a collective fund, must be recorded in writing and minutes should be kept.

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This newsletter is for information purposes only. It does not constitute professional advice or an opinion. Please contact Mr. Dominique Lecocq on for any questions.

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