FIDLEG SOLUTION - News 3/2019

From Distribution to the Offer of Collective Investment Schemes under the Financial Services Act

The Financial Services Act (FSA) brings a major change with regard to collective investment schemes: the previous concept of distribution of collective investment schemes (CIS) will be replaced by the concept of the offer of CIS. This FIDLEG SOLUTION News explains exactly what this change will mean.

It is important to know that the concept of the offer does not only apply to CIS. Rather, it applies to all financial instruments.

Compared to the offer of other financial instruments, however, the offer of CIS contains a peculiarity: it is regulated both in the FSA and in the CISA. The FSA regulates which requirements the person offering collective investment schemes by performing a financial service must meet. And the CISA regulates which conditions the offered collective investment scheme itself must fulfil.

WHAT EXACTLY IS AN „OFFER“?

Art. 3 let. g FSA stipulates exactly what is considered to be an "offer": an offer is "any invitation to acquire a financial instrument that contains sufficient information on the terms of the offer and the financial instrument itself".

Art. 3 of the draft ordinance to the FSA (draft FSO) explains this:

3 An offer within the meaning of art. 3 let. g FSA shall be deemed to be a communication of any kind whatsoever which:

  1. contains sufficient information on the terms of the bid and the financial instrument; and
  2. which normally aims to draw attention to a particular financial instrument and to sell it (…)

So an offer exists when

  1. written or oral communication takes place;
  2. which contains sufficient information on the terms and conditions of a financial instrument (to enable the recipient of the communication to make an informed investment decision);
  3. the communication must be understood by its recipient as being aimed at selling the financial instrument; and
  4. it is not purely advertising.

The concept of the offer is, therefore, narrower than that of distribution. This is particularly noticeable in two respects: On the one hand, the offer requires that it contains sufficient information to enable a conscious decision to be taken. On the other hand, pure advertising is not covered by the concept of offer.

THE REQUIREMENTS OF AN OFFER ARE SATISFIED - WHAT DOES THAT MEAN UNDER THE FSA?

If there is an offer of a CIS, this has no direct effect under the FSA. The reason is that the offer alone does not trigger an authorisation requirement for the person making the offer.

An authorisation requirement only arises if this person offers collective investment schemes as part of a financial service. And according to art. 3 let. c FSA, the following are financial services:

  1. acquisition or disposal of financial instruments;
  2. receipt and transmission of orders in relation to financial instruments,
  3. administration of financial instruments (portfolio management)
  4. provision of personal recommendations on transactions with financial instruments (investment advice)
  5. granting of loans to finance transactions with financial instruments.

Obviously, only the financial services referred to in letters a) - d) are relevant at issue whereas the financial service under letter e) is not.

Whereas the financial services under letters b) - d) are self-explanatory, the financial service under letter a) is not. However, the draft FSO now clarifies that "acquisition or disposal" is understood to mean any activity which, like brokerage, is specifically directed towards the acquisition or sale of a financial instrument (art. 3 para. 1 draft FSO). It is, therefore, not only the acquisition and the sale themselves which fall under this letter a, which would be a very limited scope of application. Rather, any action aimed at these activities falls under letter a. This, in turn, leads to a very wide scope of application.

If a financial service as described is provided commercially, this person qualifies as a financial services provider. And as a consequence, the following obligations under FIDLEG must be complied with (with exceptions depending on customer segmentation):

  1. customer segmentation according to art. 4 FSA into private customers, professional customers and institutional customers
  2. duty to provide information pursuant to art. 8 FSA;
  3. appropriateness test in the case of investment advice for individual transactions; suitability test in the case of asset management or investment advice taking into account the client portfolio in accordance with art. 10 et seq. of the FSA;
  4. duty to document and account pursuant to art. 15 FSA;
  5. duty of transparency and care according to art. 17 - 19 FSA

In addition, the financial services provider also has to satisfy the organisational measures pursuant to art. 21 ss. FSA.

THE REQUIREMENTS OF AN OFFER ARE SATISFIED - WHAT DOES THAT MEAN UNDER THE REVISED CISA?

The consequences of an offer under the revised CISA are less far-reaching. Thus, a distinction is still made according to the target audience:

  1. If foreign collective investment schemes are offered to non-qualified investors, the collective investment schemes must be approved by FINMA and must appoint a Swiss representative and a Swiss paying agent (art. 120 para. 1 / 2 revised CISA). The non-qualified investors correspond to private clients under FSA, with the difference that clients with a discretionary asset management or investment advisory agreement are regarded as qualified investors under CISA, but not as professional clients under FSA. The offer to private clients will, therefore, continue to be open only to UCITS funds in the future.
  2. If foreign collective investment schemes are offered to qualified investors in accordance with art. 5 para. 1 FSA, i.e. high net worth individuals (HNWI), these foreign collective investment schemes are not subject to FINMA approval, but require the appointment of a Swiss representative and a Swiss paying agent (art. 120 para. 4 revised CISA).
  3. If foreign collective investment schemes are offered to other qualified investors, they need neither be approved by FINMA nor do they require a representative and a paying agent.

It results that this concept is very much in line with the current distinction between (i) non-qualified investors, (ii) qualified non-regulated investors and (iii) qualified regulated investors.

THERE IS MORE TO COME…

The next issue of FIDLEG SOLUTION – News deals with the requirements for compliance and risk management of asset managers according to the Financial Institutions Act (FinIA).

Your FIDLEG SOLUTION Team
www.fidlegsolution.ch


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