Distributors of Collective Investment Schemes
How were distributors of collective investment schemes previously regulated?
Pursuant to the old CISA, persons marketing collective investment schemes in or from Switzerland required a FINMA distributor licence. According to the old CISA, “distribution” meant any offer of and solicitation for collective investment schemes which was not directed exclusively at supervised financial intermediaries, central banks or supervised insurance institutions and which did not constitute an exception pursuant to the old CISA.
Distributors pursuant to the CISA were not subject to ongoing supervision by FINMA.
How are distributors of collective investment schemes regulated under FinSA&FinIA?
With FinSA&FinIA entering into force, the distribution licence category is abolished. In its Report on FinSA and FinIA (p. 144), the Federal Council assumed that distributors of collective investment schemes under FinSA qualify as client advisors and are thus subject to the associated registration obligation pursuant to Art. 28 et seq. FinSA (cf. “Advisory Register“). The Federal Council concluded that the abolition of the distributor status would therefore not lead to a reduction in client protection. However, only persons rendering financial services on a professional basis qualify as client advisors. Accordingly, the question arises as to whether the distribution or the “offer” (see Art. 3 let. g FinSA) of collective investment schemes constitutes a financial service. A financial service is inter alia assumed in case of investment advice which by definition involves personal recommendations relating to financial instruments (Art. 3 let. c n. 4 FinSA). The offering of collective investments, though, does not necessarily include a personal recommendation (cf. Art. 1. of the Directive of the Swiss Bankers Association on the obligation to keep records pursuant to Art. 24 para. 3 CISA).
This was recognised and corrected by introducing in the FinSO a broad definition of financial services pursuant to Art. 3 let. c n. 1 FinSA (“Acquisition or disposal of financial instruments”): According to Art. 3 para. 2 FinSO, the acquisition or disposal of financial instruments is defined as any activity wich is targeted directly at specific clients and specifically aims at the acquisition or sale of such an instrument. Thus, activities in the run-up to the formal acquisition or disposal where no transaction-specific advice has yet been provided are also covered. It is further clarified that the activity must be directed at the end client and, for example, that there is no financial service if the financial instrument is offered to a financial service provider who wishes to place it with its customers (see Explanatory Report FDF on FinSO, FinIO and SOO, p. 19). This means that the previous distribution of collective investment schemes will in principle be qualified as a financial service and that the point-of-sale employees of the respective distributor will be obliged to be entered in the register of advisors.
Has FinSA&FinIA led to further adjustments in the distribution of collective investment schemes?
Yes, it has resulted in the following adjustments:
- On the one hand, old Art. 3 CISA which previously defined the concept of distribution, has completely been deleted when FinSA&FinIA came into force. Under the new CISA that was revised in the wake of FinSA&FinIA (R-CISA), the “offering” of foreign collective investment schemes to non-qualified investors requires the approval of the collective investment scheme by FINMA and the appointment of a Swiss representative and a Swiss paying agent. This corresponds to the previous regulatory concept.
- If foreign collective investment schemes are offered to qualified investors in Switzerland, this no longer requires the appointment of a representative and a paying agent under Art. 120 para. 4 R-CISA, except in the case of offers to high-netwoth private individuals (with an opt-out option) (Art. 5 para. 1 and 2 FinSA). This constitutes a mitigation compared to the old regulatory concept.
- Pursuant to the old Art. 3 para. 1 CISA, the distribution of collective investment schemes was defined as any offering of and advertising for collective investment, unless directed at prudentially supervised financial intermediaries and insurance institutions. Art. 3 let. g FinSA describes an offer as “any invitation to purchase a financial instrument that contains sufficient information about the terms of the offer and the financial instrument itself”. Pursuant to Art. 3 para. 5 let. b FinSO, an offer must further “normally aim to draw attention to and sell a particular financial instrument”. This definition appears to be narrower than that of “distribution” under the old CISA, which should give offerors of foreign collective investment schemes more regulatory flexibility. It remains to be seen whether this will be maintained in the FinSO’s final version.
- The definition of a qualified investor is aligned with the FinSA: According to Art. 10 para. 3 and 3ter R-CISA, qualified investors are institutional and professional clients according to FinSA (cf. “What are institutional and professional clients?“) as well as retail clients for whom a financial intermediary pursuant to the Banking Act, FinIA or CISA or a foreign financial intermediary subject to equivalent ongoing supervision “provides asset management or investment advice within the scope of a long-term asset management or investment advisory relationship within the meaning of Art. 3 let. c sections 3 and 4 FinSA, unless they have declared that they do not wish to be regarded as such”.
- The “point-of-sale” obligations pursuant to the old Art. 20 et seq. CISA were transferred to the FinSA (cf. “What happens to the rules of conduct under the CISA after the FinSA comes into force”). In order for the obligations under the FinSA to take effect, a financial service must be provided.