Access to the Swiss Market for Irish Funds
The Swiss regulatory system for the offer of foreign funds is changing and opens exciting new opportunities for asset managers. With Switzerland’s reputation as a sophisticated but complex market, how can foreign funds navigate a straightforward and cost-effective route through the new landscape?
For asset managers and their funds, Switzerland represents an exciting and potentially lucrative market. It is one of the largest markets in the world, with CHF 7.3 trillion in securities holdings, of which more than a third, some CHF 2.8 trillion, is invested in funds. Switzerland is renowned as a global leader in wealth management, and offers an exceptionally diverse range of investors, from high-net-worth individuals and family offices to banks, pension schemes and fund platforms.
The marketplace for foreign fund managers in Switzerland is sophisticated, open, transparent – and operates in a unique regulatory landscape. In January 2020 a new Federal Act on Financial Services (FinSA) came into force and led to modifications of the Collective Investment Schemes Act (CISA). In short, the concept of ‘Distribution’ as found in CISA has been replaced by ‘Offer’ in FinSA. A two-year transition period allowed firms undertaking distribution in Switzerland, such as MiFID companies, to achieve compliance with FinSA by 31 December 2021.
The FinSA regime imposes some new obligations on foreign fund managers and requires anyone exporting their funds in the Swiss market to segment their offering and their activity precisely, according to the target customer and the investment strategy of their fund.
That said, for non-Swiss asset managers, certain elements of the authorisation process have been made easier; for example, when applying to the Swiss Financial Market Supervisory Authority (FINMA) for authorisation to offer funds to Swiss retail investors, the relevant documents can be filed in English.
The new bilateral agreement between the UK and Switzerland, which came into effect on 1 January 2021, also aims to facilitate closer market access for financial services between the two jurisdictions.
Appointing a Swiss representative is still a mandatory step in the compliance process for most foreign funds and target client segments but can offer far more than simply meeting a regulatory requirement.
Mapping out the landscape
As one of the world’s leading financial centres, Switzerland offers an enticing marketplace for foreign fund managers, with a wide range of outlets for marketing and distributing funds.
Investors and distributors
The main investor groups in the Swiss market are:
- Institutional (pension funds and insurance)
Switzerland is home to almost 1,500 pension funds, which account for CHF 1,000 billion assets under management. There are also 198 insurance companies operating in the Confederation.
- Intermediary wholesale (banks and asset managers)
Demand is driven by a high concentration of intermediaries, with more than 240 banks and about 2,000 independent wealth managers active in Switzerland. Wealth management accounts for approximately CHF 4 trillion of assets.
- Intermediary retail (IFA, unit-linked, private pension solutions)
- Retail (direct)
The 300 wealthiest high-net-worth individuals (HNWI) and family offices in Switzerland are estimated to have a total net worth of CHF 707 billion. Private customers account for more than CHF 1.3 billion of funds, and commercial customers for more than CHF 350 billion.
The main distribution channels
- Banks (particularly private banking) and independent wealth managers
The main distribution channel for funds, banks, and wealth managers offers the opportunity for direct face-to-face selling. They serve a cross-border pool of investors, as 48% of the wealth managed in Switzerland is owned by foreign residents.
- Fund platforms
Having developed as part of large banking groups, fund platforms have become independent from banks and are now significant distribution channels in their own right. Their primary purpose is to provide operational solutions to fund buyers, and they play a significant role in the value chain.
Locally, players such as UBS and Credit Suisse now rely on large fund platforms, having partnered with third–party entities – Clearstream Fondcenter and Allfunds respectively – in late 2019 and early 2020.
Fund managers active in Switzerland
All the leading international asset managers are active in Switzerland, and many foreign boutiques and specialised fund managers also operate successfully in the Swiss market.
The market: funds in demand
Foreign funds dominate the Swiss market, with more than 8,000 foreign funds authorised by the Swiss Financial Market Supervisory Authority (FINMA) for offer to retail clients. These funds are mostly EU UCITS.
Swiss-domiciled funds are a minor component of the market, with 1,771 funds at the end of 2020, according to FINMA.
There is a demand for both UCITS and Alternative Investment Funds (AIFs), with European and non-European funds commonly used.
Requirement to appoint a swiss representative and paying agent
Offering share of funds to an investor in Switzerland in any way is considered a financial service and requires appointing a Swiss representative and a Swiss paying agent, typically a Swiss bank. This requirement can be avoided when the targeted investor is a regulated Swiss Qualified Investor, such as an insurance company or pension fund or Swiss fund management company. If the targeted investor is a high-net-worth individual and has opted out of the protection of FinSA, the appointment of a Swiss representative and Swiss paying agent is still required.
Regulations also differ according to the type of fund that is being offered, as well as the clientele segment being targeted. For example, only European UCITS can be authorised by FINMA for offer to Non-Qualified Investors (retail). This also applies to UK funds that were UCITS/OEICs before Brexit. AIF can be offered to Qualified Investors, but the rules are not homogeneous to all categories of clients in this segment.
A Swiss representative plays a key role in supporting a fund to become and remain Swiss-compliant, from applying to FINMA for authorisation on behalf of the fund (if required), to helping to structure appropriate point-of-sales activity for the clientele segment being addressed. This could involve modifying internal processes within your company or providing training for staff. It must be understood that Swiss representatives assume legal liability for how the funds they represent are documented for Switzerland and marketed in Switzerland.
By working with an experienced Swiss partner such as Carnegie fundservices (CFS), asset managers can minimise the burden of becoming Swiss-compliant and take advantage of the strong and growing demand from Swiss investors for good-quality foreign funds with diverse investment strategies
For more details on how CFS can help please contact:
Alexandre Pini (Director of Business Development): firstname.lastname@example.org
Nicholas Weir (Senior Business Development Manager): email@example.com
Sources of the statistics: Swiss National Bank, Swiss Financial Market Supervisory Authority, Swiss Federal Statistical Office, Bilan