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Thousands of Swiss asset managers ‘breaching’ new FINMA rules, says MPL

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Managing Partners Limited (MPL) has launched a new service to help the thousands of Swiss asset management firms it believes are now struggling to meet – and are already breaching – new rules introduced by regulator FINMA.

FINMA is raising the regulatory bar in Switzerland to mirror the standards set by the AIFMD and MiFID in the European Union and MPL believes this requires a ‘stellar leap’ in compliance capacity for many of the country’s 5,000 independent asset managers (IAMs), which have been subjected to little more than money laundering regulations in the past. MPL estimates that it will require a minimum of EUR1 million a year for each IAM to become independently registered and licensed by FINMA under the new rules because of increased minimum capital requirements, additional staffing and compliance costs. But MPL can offer a simpler and far less costly alternative solution.
 
Under its new service, MPL will use its status as an international regulated fund management company to assist Swiss and foreign managers seeking to distribute funds in Switzerland, to satisfy the prescribed procedures and obtain the required status to distribute their funds to qualified investors in Switzerland. MPL group, which has a presence in both Switzerland and the EU, is able to provide effective solutions which both lower the costs and enhance the flexibility of Swiss-based managers seeking to maintain their involvement with non-Swiss funds.
 
Jeremy Leach, Chief Executive Officer, MPL, says: “FINMA has effectively been bounced into this because it needed to radically change the Swiss regulatory environment to bring it into line with new regulations introduced in the European Union. Whilst the Swiss should take significant pride in the fact that that such a high degree of ethics has negated the need for a radical overhaul of Swiss financial services practices, the European Union Rules have forced the issue and if the Swiss financial services industry wishes to align itself with Europe, then these regulatory changes are inevitable. I envisage that the scale of disruption being caused will be similar to that created in the UK in 1988 as a result of the United Kingdom Financial Services Act.”
 
The new regulations came into effect from 1 March 2015 under the recently revised Collective Investment Scheme Act (CISA) and Collective Investment Scheme Ordinance (CISO). They fall under the regulatory supervision of FINMA, are applicable to managers and distributors of non-Swiss funds to Swiss investors and impose strict new organisational requirements and substantial extra compliance costs for managers based in Switzerland. In particular, they require asset management companies in Switzerland to become directly authorised by FINMA if they manage more than CHF100 million in open-ended funds or more than CHF500 million in closed-ended funds.
 
Most of the IAMs in Switzerland are small operations managing less than CHF250 million for private clients. Many of them have set up offshore funds in jurisdictions such as BVI and Cayman, which they have managed for years either directly or via an offshore company but will now have to be directly regulated if they cannot demonstrate that these funds are managed by, or can be switched to, an established ‘fund manager of substance’ outside Switzerland.
 
Similar changes are afoot for the upgrading of regulation of private client asset managers and fiduciaries (with or without fund involvement). For now, the regulation is relatively benign and based solely on the basis of self-regulatory organisations monitoring anti-money-laundering procedures and therefore make setting up a Swiss asset manager or trust company much less expensive than in many other OECD countries. New laws currently going through the parliamentary process – the Financial Institutions Act (FIA) and the Financial Services Act (FSA) –  will be enforced from 2017-18 and will require much more onerous capital and staffing requirements than apply now.
 
Leach says: “This presents an unrepeatable opportunity for managers and trust companies outside Switzerland to consider setting up a small entity there – with the help of local partners such as MPL – which will benefit both from the low cost and generous grandfathering provisions when the new laws come in.” 

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