Asset Managers

As financial intermediaries, they were (and are still) obliged to comply with the Anti-Money Laundering Act and for this purpose either had to report to FINMA or join a self-regulatory organisation (SRO).

If asset managers employ collective investment schemes in their investment activities, they had to join an industry organisation whose rules of conduct have been recognised by FINMA as minimum standards on the basis of the FINMA Circular 2009/1 (Guidelines on asset management). Otherwise, they would have required a licence as distributors of collective investment schemes.

Consequently, there was no state prudential supervision for pure portfolio management activities.

Yes, anyone who conducts asset management on a professional basis is deemed to be a financial institution pursuant to Art. 2 para. 1 let. a FinIA. Asset managers require a licence from FINMA (Art. 5 para. 1 FinIA; cf.: “FINMA licence“).

Pursuant to Art. 3 FinIA, an independent economic activity carried out for ongoing profit is a professional activity.

For asset managers (unlike managers of collective or pension assets, irrespective of whether the de-minimis-limits are reached or not), this definition is supplemented by the requirements of Art. 19 FinIO. Asset managers are therefore professionally active if they:

• generate gross proceeds of more than CHF 50’000 per calendar year; or
• establish business relations per calendar year with more than 20 contracting parties that are not limited to a single activity or maintain at least 20 such relations per calendar year; or
• have unlimited control over third-party assets exceeding CHF 5 million at any time.

The exceptions are listed in Art. 2 para. 2 FinIA and further specified in Art. 3 ff. FinIO. In particular, asset managers who manage assets within the framework of a legally regulated mandate, of persons with whom they have economic or family ties or within the framework of employee participation plans are excluded.

The FinIA distinguishes between asset managers (Art. 17 f. FinIA) and managers of collective assets (Art. 24 f. FinIA).

An “asset manager” is a person who, on the basis of individual mandates, professionally manages client assets. Managers of investment fund assets are considered “asset managers” in the sense of Art. 17 FinIA if the investment funds are marketed to qualified investors only and if such assets do not exceed CHF 100 million (open-end funds) or CHF 500 million (closed-end funds without financial instruments with leverage effect). Otherwise, they are considered “managers of collective assets” pursuant to Art. 24 f. FinIA.

Managers of pension fund assets are deemed “asset managers” in the sense of Art. 17 f. FinIA if such assets do not exceed CHF 100 million and if (in the mandatory space) not more than 20% of the assets of an individual occupational pension scheme are managed. Asset managers of occupational pension schemes exceeding such thresholds are again considered “managers of collective assets” (Art. 24 f. FinSA).

“Asset managers” are more lightly regulated than “managers of collective assets”.

Cf.: “How are the periodic supervisory audits of financial institutions carried out under the FinIA?” and “At what intervals do the supervisory audits take place?“

Asset managers perform portfolio management which is a financial service pursuant to Art. 3 para. 3 let. c FinSA. Consequently, they must comply with the obligations relating to client segmentation, the rules of conduct and the organisational requirements in accordance with FinSA. They are further obliged to issue documents and to join an ombudsman’s office.

In principle, the regulatory framework according to FinSA&FinIA is the same for all asset managers pursuant to art. 17 f. FinSA. In some cases, however, a distinction is made according to size: financial service providers must ensure compliance with FinSA&FinIA by issuing internal regulations, establishing an appropriate operational organisation and implementing appropriate corporate governance principles (Art. 21 FinSA and Art. 9 para. 1 FinIA). Accordingly, FINMA will require larger asset managers to comply with more detailed internal regulations and place higher demands on their business organisation.

Further, the laws provide for the following differentiations:

• The larger the asset manager and the riskier its activity, the higher the requirements in terms of content and personnel for risk management, compliance and internal control (Art. 9 para. 2 and Art. 21 FinIA).
• In principle, the FinIA does not require asset managers to provide for an administrative council supervising and controlling the operational management. Pursuant to Art. 23 para. 3 FinIO, FINMA may, however, require such organisational set-up and a personal separation of the two levels if the nature and scope of its activities so require and if the financial service provider has ten or more full-time employees or annual gross revenues of more than CHF 5 million.
• The operational management of an asset manager must in principle consist of at least two qualified persons. Management may be limited to one qualified person only if it can be demonstrated that the proper continuation of the business is nevertheless ensured (Art. 20 paras. 1 and 2 FinIA).
• In the case of smaller asset managers, a functional separation between risk management/internal control and profit-oriented activities can be dispensed with (Art. 26 para. 2 FinIO; cf.: “What requirements must asset managers meet with regard to risk management and internal control?“)

Pursuant to Art. 19 FinIA, an asset manager may, in addition to managing individual portfolios, also provide investment advisory and portfolio analysis services and offer financial instruments. Art. 24 FinIO contains more specific provisions and further stipulates that asset managers must take measures to avoid breaking off contact with clients and thus counteract the emergence of dormant client relationships (Art. 24 para. 4 FinIO).

The list of tasks permitted for an asset manager pursuant to Art. 19 FinIA is not exhaustive. However, if additional services are offered, this circumstance must be taken into account within the framework of supervision if this increases the asset manager’s risk profile (Art. 24 para. 5 FinIO).

Yes, cf. Art. 14 FinIA and Art. 15 ff. FinIO and: “What are the most important general licensing requirements of the FinIO?”.

The delegation options are particularly important for smaller asset managers.

The licensing requirements for asset managers can be found under the general provisions in Art. 7 f. FinIA; cf.: “Licensing requirements“. In addition, Art. 17 f. FinIA lists special licensing requirements for asset managers and trustees.

An asset manager may be organised as a sole proprietorship, commercial enterprise (i.e. limited partnership, commercial partnership, company limited by shares, limited liability company) or cooperative; in all cases, entry in the commercial register is mandatory (Art. 18 FinIA).

The minimum capital must amount to CHF 100,000 and must be paid in cash (Art. 22 FinIA). Further details can be found in Art. 27 FinIO. Furthermore, Art. 23 f. FinIA provides for an equity requirement of at least 25% of the fixed costs of the last annual financial statements up to CHF 10 million. Art. 28 f. FinIO regulates which positions count against the equity and minimal capital.

If minimum equity requirements are met, an asset manager is not obliged to provide additional collateral to mitigate business risks (Art. 22 para. 2 FinIA in conjunction with Art. 31 para. 1 FinIO); the asset manager’s equity then serves as sufficient collateral in addition to the minimum capital. Instead of providing equity, an asset manager may take out professional liability insurance that covers the risks of its business model. FINMA issues further implementing provisions (Art. 22 para. 2 FinIA in conjunction with 31 para. 3 FinIO).

If certain thresholds are exceeded, FINMA may require, pursuant to Art. 23 para. 3 FinIO, that an asset manager designate a body for ultimate direction, supervision and control, the majority of whose members not to belong to the operational management (cf.: “Are asset managers treated differently according to their size?“)

The management must consist of at least two qualified persons (Art. 20 para. 1 FinIA). One qualified person is sufficient if it is proven that the proper continuation of business operations is also guaranteed (Art. 20 para. 1 FinIA). A qualified managing director must have at least five years of professional experience and adequate training (at least 40 hours) in asset management (Art. 25 para. 1 FinIO). FINMA may waive these requirements in justified cases (Art. 25 para. 2 FinIO). Art. 25 para. 3 FinIO prescribes regular education.

Art. 21 FinIA requires:

• an adequate risk management and effective internal control of compliance with legal and internal regulations (Art. 21 para. 1 FinIA);
• the performance of risk management and internal control tasks by a qualified managing director, suitably qualified employee or third party (delegation) (Art. 21 para. 2 FinIA);
• personal separation between controlling and controlled personnel, i.e. personnel performing tasks of risk management or internal control must not be involved in the activities they supervise (Art. 21 para. 3 FinIA). However, if the asset manager’s headcount does not exceed five full-time positions or if its annual gross revenues are below CHF 2 million and if there is no business model with increased risks, the “independence of risk management and internal control of profit-oriented activities” may be waived (Art. 26 FinIO);
• upon FINMA’s request, the appointment of an internal audit function if the asset manager’s annual gross revenues exceed CHF 10 million, if the asset manager according to Art. 23 para. 5 FinIO is obliged to have a senior management body and if the scope and nature of the activity so require (Art. 19 para. 3 FinIO, FINMA).

The supervisory regime for asset managers pursuant to Art. 17 ff. FinIA is split: The licence to carry out the activity is granted by FINMA (Art. 5 para. 1 FinIA). FINMA is also responsible for sanctioning breaches of regulatory obligations following notification by the Supervisory Organisation (Art. 43b para. 2 FINMASA). Ongoing supervision of asset managers is carried out by Supervisory Organisations, which in turn require FINMA approval (Art. 61 para. 2 FinIA). For domestic asset managers that are part of a financial group, FINMA may provide for their inclusion in FINMA’s consolidated supervision and that ongoing supervision is exercised exclusively within the framework of group supervision (Art. 83 para. 1 FinIO). This shall prevent a division of responsibilities between FINMA and the Supervisory Organisation (FDF explanatory report on FinSO, FinIO and SOO, p. 109 f.).

Yes; cf.: “Do FinSA&FinIA require the documentation of the internal organisation?“.

For asset managers not previously subject to authorisation, this means that their management structure, internal processes, control mechanisms, etc. must be comprehensively mapped in a FinSA&FinIA-compatible system of internal rules and regulations.

Managers of collective assets are, on the one hand, those who manage assets of collective investment schemes unless they are covered by an exception under Art. 24 para. 2 let. a FinIA (cf.: “Which managers of collective investments are considered managers of collective investments under the FinIA?“).

Furthermore, managers of collective assets are those who manage the assets of pension funds (Art. 24 para. 1 let. b FinIA) if these assets exceed CHF 100 million or, in the mandatory space, account for more than 20% of an individual pension fund (Art. 24 para. 2 let. b FinIA).

Managers of collective assets must be organised as a commercial company (i.e. limited partnership, commercial partnership, company limited by shares, limited liability company) (Art. 25 FinIA).

Pursuant to Art. 26 para. 1 FinIA, a manager of collective assets assumes the portfolio management and risk management for the assets entrusted to it. In addition, it may, in particular, conduct the fund business for foreign collective investment schemes and other administrative activities (Art. 26 para. 2 FinIA). Within this framework, a manager of collective assets may perform additional administrative tasks (Art. 26 para. 3 FinIA). In our view, the exercise of additional activities should not be limited to administrative matters only.

Yes, Art. 14 FinIO and Art. 15 ff. FinIO, cf. “What are the most important general licensing requirements of the FinIO?”

The minimum capital must be CHF 200,000 and be fully paid up in cash (Art. 28 FinIA in conjunction with Art. 42 para. 1 FinIO). FINMA may allow partnerships to provide appropriate collateral instead of the minimum capital. Further, a minimum equity of one quarter of the fixed costs of the last annual financial statements up to CHF 20 million is required (Art. 29 FinIA in conjunction with Art. 44 para. 1 FinIO). This corresponds to the provisions of the CISA currently applicable to managers of collective investment schemes, as does Art. 44 para. 2 FinIO, which requires that managers of collective assets hold additional equity of 0.01% of the managed collective assets or take out professional indemnity insurance as further regulated by FINMA.

Art. 42 f. and art. 45 f. FinIO specify the positions which count against the capital and the equity; these provisions also largely correspond to those previously applicable to asset managers of collective investment schemes under the CISA.

On the one hand, the organisational requirements for managers of collective assets result from Art. 21 f. FinSA (cf. “Organisational Requirements“.

It goes without saying that managers of collective assets must also comply with Art. 9 FinIA and therefore specify appropriate corporate governance rules and be organised in such a way that they can fulfil their legal obligations. They must provide adequate risk management and effective internal controls. This is further specified in the FinIO. Accordingly, managers of collective assets must, among other things, in principle:

• have qualified staff (Art. 12 para. 3 FinIO);
• provide for a collective signature right of two (Art. 37 para. 1 FinIO);
• establish a management body consisting of at least two persons (Art. 37 para. 3 FinIO);
• designate a special senior management body (e.g. board of directors for a company limited by shares) which is also responsible for supervision and control; FINMA may grant exceptions if this is justified by the scope and nature of the activity, in particular if gross revenues amount to less than CHF 5 million p.a. and if head count does not exceed 10 FTE (Art. 37 para. 4 FinIO);
• ensure that the majority of the members of the senior management body are not members of operational management (Art. 38 para. 1 FinIO);
• ensure that there is no identity between the chairman of the board of directors and the CEO (Art. 38 para. 2 FinIO);
• ensure that at least one-third of the members of the senior management body are independent of the persons who have a direct or indirect qualified participation in the asset manager (Art. 38 para. 3 FinIO). A qualified participation is held by any person who directly or indirectly possesses at least 10% of the capital or votes of the asset manager or who is able to otherwise exert a significant influence on the business activity (Art. 11 para. 4 FinIA).
• ensure adequately equipped risk management and effective internal control, in particular to ensure compliance with legal and internal regulations (Art. 41 para. 1 FinIO);
• separate the risk management and compliance functions functionally and hierarchically from the operational business units, in particular from portfolio management (Art. 41 para. 3 FinIO);
• have an internal control system (Art. 41 para. 4 FinIO);
• record the internal processes in appropriate guidelines and ensure periodic reporting to the senior management body (Art. 41 para. 5 FinIO);
• by order of FINMA, appoint an internal audit unit independent of the management (Art. 41 para. 6 FinIO).
• However, FinIO contains exceptions to the above mentioned basic duties.

To exercise their activities Managers of collective assets require a licence from FINMA, which also performs ongoing supervision (Art. 5 para. 1 FinIA and Art. 61 para. 3 FinIA).

See: “How are the periodic supervisory audits of financial institutions carried out under the FinIA?” and “At what intervals do the supervisory audits take place? “.

Yes; see: “Do FinSA&FinIA require the documentation of the internal organisation?” and “What are the organisational requirements for managers of collective assets?“.  

For managers of collective assets that previously did not have to be approved by FINMA, this means that their management structure, internal processes, control mechanisms, etc. must be comprehensively mapped in a FinSA&FinIA-compatible internal instruction system. Mangers of collective assets that are already prudentially supervised (i.e. “larger” asset managers of collective investment schemes) will have to review their internal rules and regulations in view of their compatibility with FinSA&FinIA.

Yes, both the FinSA and the FinIA contain various transition periods (see: “FinSA transition periods” and “FinIA transition periods“.

Financial service providers must implement FinSA’s code of conduct by December 31, 2021; no transitional period will be granted solely with regard to the obligations in connection with the use of financial instruments by clients pursuant to Art. 19 FinSA. As long as asset managers have not implemented the FinSA code of conduct, they are bound by the rules of conduct of their industry organisations (Art. 105 para. 3 lit. f FinSO).