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Switzerland: Law of Offshore

Banking Law

This page was last updated on 9 April 2021.

Until the arrival of FINMA, investment funds in Switzerland were authorised and supervised by the Federal Banking Commission (FBC) under the Federal Law on Investment Funds 1994. The law applies only to collective investment funds and foreign investment funds whatever their corporate basis. However, the FBC will only authorise a foreign fund if it is licensed at home under an acceptable regulatory regime (reciprocity provisions).

Swiss funds formed as companies under the Swiss civil code remain subject to pre-existing legislation, but the previous fund management legislation was repealed, so that they are very limited in scope.

The new law contains rules governing the establishment of a collective investment fund, and recognises three types of fund:

  • Securities funds, which may only invest in securities issued on a large scale and which are publicly-traded on a stock exchange or equivalent; there are limitations on stock-lending, short-selling etc; interestingly, the wording accommodates any type of investment behaviour which the EU may in future permit to collective investment funds;
  • Real estate funds, which may invest in real property at home and abroad, and may own controlling interests in real estate companies; there are extensive prudential conditions in the law;
  • 'Other' funds, which covers riskier types of investment including commodity funds, derivative (hedge) funds and funds of funds; managers are required to draw the attention of investors to the risks.

Funds authorised under the law are subject to extensive reporting requirements both to FINMA and to the Swiss National Bank. Annual audits are compulsory for all categories of fund. The law permits the formation of in-house, limited-membership funds, which may not be marketed to the public but which in other respects are covered by the law.

The law requires fund management and custody to be separated. The fund manager must be a limited company exclusively devoted to fund management with registered office and principal place of administration in Switzerland; there are other conditions dealing with professional qualifications etc. FINMA authorises fund managers and exercises continuing supervision. They have statutory duties towards investors. Custody must be exercised by a bank within the meaning of the Federal Banking Law. The custodian has a statutory duty towards the investors, including the exercise of a supervisory role in relation to the fund manager.

It is possible for the fund manager and custodian to be separate ('independent') entities within a group. Sanctions for misbehaviour under the Law are quite severe. In January 2009, the Swiss Financial Market Supervisory Authority (FINMA) announced the publication of a circular on the benchmarks for minimum standards for self-regulation in the asset management industry.

In its circular “Benchmarks for Asset Management", FINMA sets out minimum standards to guide industry organisations in drawing up their own self-regulation provisions. The FINMA circular defines minimum requirements, in particular with respect to duties of loyalty, due diligence and information provision obligations, in addition to remuneration for asset managers. Furthermore, it demands binding processes for self-monitoring throughout the industry.

FINMA noted that asset managers in Switzerland consist of various industry organisations, and in terms of self-regulation, different approaches have been standard practice hitherto. These FINMA benchmarks now form a basis for recognising different sets of regulations as a minimum standard and achieving a certain degree of equivalence in these standards.

FINMA said that the publication of the circular addresses a long-standing market requirement. The regulator's announcement added:

"The basic principles proposed by the Swiss Federal Banking Commission in the hearing on the circular (5 September 2008) received a generally positive response from the market. The changes are mainly to the specific details. The circular will also bring a change to the way the Swiss Bankers Association (SBA) regulates itself. The SBA will have to amend its provisions regarding the remuneration of asset managers."

"Industry organisations will have to adhere to these new benchmarks in order for the FINMA, to recognise their minimum asset management standards as such. They should be considered a benchmark for supervisory authorities, or a 'minimum standard for minimum standards.' The aim is for all completed applications from industry organisations submitted by the end of February 2009, to be presented to FINMA in April 2009 and then recognised where appropriate."

In February 2009, the Swiss Funds Association issued a statement welcoming the Federal Council’s decision to amend the Collective Investment Schemes Ordinance to bring it into line with EU law by adapting Article 31 of the Collective Investment Schemes Ordinance (CISO).

Together with the planned changes in the Swiss Financial Market Supervisory Authority’s (FINMAs) practice with regard to the authorization of foreign Undertakings for Collective Investment in Transferable Securities (UCITS), Swiss regulation now corresponds to European standards, thus enhancing Switzerland’s attractiveness as a distribution market.

Within the framework of the Financial Sector Dialogue Steering Committee (STAFI), FINMA in conjunction with the SFA and the other bodies behind the Masterplan highlighted the fact that Article 31 CISO deviated from the European standards, resulting de facto in obstacles to trade. With the amendment approved by the Federal Council on 28 January and other measures planned by FINMA, these formal impediments will be removed. The changes entered into force on 1st March 2009.

“Regulation in the financial sector must be coordinated internationally if it is to bring its full effectiveness to bear. Special regulations on a national level lead to additional costs and obstacles to competition, which are ultimately detrimental to investors. The SFA is therefore actively committed to removing mutual barriers to market access. The decision by the Federal Council coupled with other measures planned by FINMA represents a key element of the Masterplan,” said Dr. Gérard Fischer, President of the SFA.

“Investors will also profit from Swiss funds being regulated in an EU-compliant manner and from the authorization of foreign UCITS not being made more difficult by the imposition of special Swiss rules. In future, investors will have a broader selection of Swiss and foreign products at their disposal,” said SFA CEO Dr. Matthäus Den Otter.

In March 2009, changes to article 31 of the Ordinance on Collective Investment Schemes (CISO) came into effect which removed national regulations known as ‘Swiss Finish’ and brought the Swiss regulatory regime more into step with EU norms.

The Financial Market Supervisory Authority (FINMA) initiated the consultation process about the suppression of the Swiss Finish with the approval of the Federal Department of Finance on 16 September 2008. According to the government the suppression of the Swiss Finish on 1st March should contribute to repositioning the Swiss funds market and promoting Swiss collective investment schemes, making Switzerland an increasingly attractive jurisdiction for hedge funds to domicile. The Federal Council has also initiated changes to the taxation regime to make Switzerland a more attractive location for fund managers both on a corporate and a personal level.



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