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READY OR NOT! GETTING SET FOR THE NEW REGULATORY LANDSCAPEThe final vote on the upcoming FinSA and FinIA regulations will take place in spring 2018, with the new laws expected to come into force in 2019. Four independent asset managers reveal what they have done to comply with the regulations and share whether they’re feeling prepared for the future

ALEXANDRE CAVÉSenior researcher, Citywireacave@citywire.co.uk

JANIS KLENKSenior researcher, Citywirejklenk@citywire.de

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Having attended some of the parliamentary debates on FinSA and FinIA, I can’t help getting a feeling of ‘déjà vu’.

The two laws have four stated objectives: increasing investor protection and transparency, ensuring fair and efficient competition, bringing about equivalency with international norms and – a more recent addition – providing a framework for fintech.

The authorities have been working on these pieces of legislation for more than five years now. While the specifics are still subject to discussions between the two federal chambers, a consensus seems to be emerging among the different

political groups and the two laws could enter into force in early 2019. In any case, Switzerland is up against the clock, as the automatic exchange of information and MiFID II are being rolled out in 2018 and our national legislators have to ensure equivalency with these international norms.

Among the key points still being discussed is the new supervision regime for independent wealth managers, which may see the existing regulators replaced by a single entity directly attached to Finma.

The new rules will increase the administrative burden on wealth managers and will therefore inevitably eat into the time spent advising clients. Wealth managers will need to have adequate IT systems in place, strengthen compliance and separate functions. One solution to these costs is to pool resources with other wealth managers, whether through agreements, platforms or mergers. At Meylan Finance, we have already increased our compliance capabilities with a consultant and we are in touch with different providers to be ready to adapt our systems once the specifics of the new laws become clear.

Will FinSA and FinIA help to provide a better regulatory environment? Looking across the Atlantic, we can see that despite a heavily regulated financial industry, the US is still regularly hit by scandals and frauds. Most of the fundamental principles which should govern relations between wealth managers and their clients are already codified in Swiss laws. Instead, what needs to change is behaviour, in a system which is too often governed by immediate profit rather than clients’ best interests.

FRANÇOIS MEYLANMeylan FinanceLausanne

Our firm has been following the developments of the MiFID II regulations over the years. We always assumed that Swiss regulations would follow suit and would eventually resemble the MiFID II requirements.

We have already converted to a transparent fee-only revenue model, and will receive no retrocession or other emoluments from the start of next year. Of course, ‘know your client’, suitability of investments, best execution and thorough record-keeping have always been part of a decent wealth management business, so we already comply with these aspects of the MiFID II regulations.

In order to identify any residual vulnerabilities, we have contracted a Zurich-based compliance firm and have done their ‘MiFID II Readiness test’. From that, they can point out other areas we could improve. The idea is that once we are fully MiFID II compliant, we should be ready for FinSA and FinIA too, as the Swiss rules are likely to share many of the salient features of MiFID II.

Last but not least, we are moving all our processes and record-keeping from our current mix of IT systems (developed in-house over the years) and physical files to a single, specialised platform. This will be a major investment for our firm but it is vital for maintaining efficient workflow and record-keeping under the new regulations.

We expect the asset management community to consolidate further following the implementation of FinSA/FinIA as the cost of compliance will be too high for the smallest firms.

MARIANNE RAMEAUISGAMZurich

We have already converted to a transparent fee-only revenue model

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Institutions Act (FinIA) are part of the new financial market architecture. Both acts will create uniform competitive conditions for financial intermediaries and improve client protection.’ Well, that’s what the Swiss Federal Department of Finance says, citing deficiencies in the current laws and the need to improve client protection as the reasons behind this change.

Really? Switzerland is a country where self-regulation and low administrative complications have historically prevailed. On the other hand, globalisation creates complex organisations that sustain themselves with new frameworks and regulations. They are – apparently – a ‘must’ and

seem to come in waves. Just a few examples from the past few years: MiFID (2007), cross-border regulation (2010), the revised Collective Investment Schemes Act (2013), the automatic exchange of information (2017) and MiFID II (2018).

In a few months’ time, independent asset managers will have to obtain authorisation to practise from Finma. To get that, they will need to comply with all of the other recent regulations too. This means greater requirements for internal organisation, separation of functions, guarantee of irreproachable activities, and so on.

It leaves firms with no choice but to adopt a new corporate structure and develop adequate tools. The former could be particularly tricky if the firm is a one-man band. New employees or partnership solutions would be required. The latter, on the other hand, needs to be addressed with IT systems. It can be costly and time-consuming to make changes of this kind.

So far, very few independent asset managers have opted to prepare for this real change, and for good reason: the bills are still being debated, implementation will be lagged and the measures will be costly if implemented fully.

Anticipating today’s needs and the legislation of the future, we implemented a new working structure two years ago. We invested in IT tools and organised the next wave of digitisation that will be key for business going forwards. For maximum efficiency and cost reduction, we have consolidated all of that with a company called AWAP. This model is open and flexible, allowing us to add new services if the regulations require. We share costs to maintain a competitive edge and concentrate on servicing our clients. It’s smooth, simple and effective.

ANDRÉ BARAHONAMount InvestGeneva

We have had a great opportunity to build up Brevalia, our private banking boutique, with a completely new business model. As a result, we are already fully prepared for FinSA. We are very pleased that there is now some clarity in terms of regulation. It is good to see that the minimum standards of service quality and organisation are being raised.

Unfortunately, there is still no obligation for external asset managers to be certified under FinSA, nor are efforts being made to introduce that on a voluntary basis, as is currently the case with the certification of banks under the Swiss Association for Quality’s standard. This would be

a very effective customer protection move and would improve the quality of financial advice.

As FinSA significantly increases the organisational requirements and therefore increases costs, I expect that consolidation will take off through both traditional mergers and acquisitions and the pooling of service platforms.

As an asset manager, one must either share as many services as possible with peers in order to distribute the costs, or have a specific business model that results in a clear division of the service chain.

Furthermore, clear specialisation and differentiation will be necessary. FinSA will lay the old model of simply managing all clients in a discretionary asset management mandate to rest. Sooner or later the customer will need services that go well beyond asset management and offer a more holistic approach.

PASCAL BERSIERBrevaliaZurich

Unfortunately, there is still no obligation for external asset

managers to be certified under FinSA