Regulation has fundamentally altered the Swiss asset management landscape in recent years. However, further adjustment toward European standards comes with warnings of consolidation
In contrast to many of its European counterparts, the Swiss asset management industry is dominated by a multitude of independent asset managers, and until recently, its regulatory framework has allowed the industry to develop in relative independence from EU regulation.
However, recent moves by Swiss regulator Finma to align Swiss regulation with AIFMD and Mifid are set to have a transformative impact on the industry. With the introduction of stamp duty and the first steps of the Swiss Collective Investment Scheme Act (CISA) and Collective Investment Scheme Ordinance (CISO) in 2006, initially aimed at asset managers managing more than CHF100m (€95m), many larger asset managers relocated their business activities to Luxembourg, increasing the relative importance of independent asset managers.
Recent revisions of CISO and CISA which became legally enforcible with the expiration of a two year transition period as of March 2015, will now also affect smaller independent asset managers. Those managing CHF250m (€239m) or less in offshore funds in jurisdictions such as BVI and Cayman will now 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.
According to Jeremy Leach (pictured), CEO at boutique alternative fund management company MPL, the impact will be significant. “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 Financial Services Act.”
The firm, which now specialises in consulting Swiss asset managers in order to comply with regulation, forecasts that thousands of independent asset managers could potentially be in breach of new Finma rules.
Markus Fuchs, managing director at the Swiss Fund & Asset Management Association SFAMA provides a more cautious assessment. “Firstly, the new regulatory framework is not finalised, and one key concern is to create a set of rules which is appropriate for the Swiss context dominated by smaller asset managers.
Secondly, the estimate that thousands will be affected is simply unrealistic. There are currently approximately 2,000 non-regulated asset managers in Switzerland which will have to make some changes to their business model, but that does not imply they will cease to exist.”
Patrick Schmucki, senior manager Audit Financial Services at KPMG in Zurich argues that a more holistic analysis is required. “We have already seen a certain level of consolidation in the industry, but that cannot be understood independently of the ongoing international pressure on banking secrecy laws, record low interest rates and the ongoing debate about costs” he stresses.
At the same time, he tends to agree that the process of consolidation is set to continue. “It is clear that Switzerland currently has a disproportionately high number of independent asset managers and in the long term, it will have to move adjust towards the European level average.” With regard to the potential implication of the Finanzdienstleistungsgesetz (Federal Financial Services Act, FFSA), he predicts that: “A key change will be that independent asset managers will have to fulfill more stringent conditions in order to be considered independent.
“Switzerland has so far relied exclusively on self-regulation with only the adherence to the anti-money laundering laws being subject to regular mandatory audits. In the future, Swiss independent asset managers will be prudentially supervised. It is not yet clear if this supervision will be exercised by FINMA, a new regulatory body or a reinforced form of self-regulation. This, however, will be a crucial question for market players” he concludes.