Distributing Private Funds in Switzerland – Changes from 1 January

Distributing Private Funds in Switzerland – Changes from 1 January

Share on facebook
Share on twitter
Share on linkedin
Share on email
Share on print

From 1 January 2020, wide ranging changes will come into effect in Switzerland in the form of the Swiss Federal Financial Services Act (FinSA) and the Swiss Federal Financial Institutions Act (FinIA).

The most significant impact of this for private fund managers outside of Switzerland is that in many cases, the need for a Swiss Representative and Swiss Paying Agent will fall away. Currently, this is not required when distributing funds to regulated qualified investors (e.g. banks and insurance institutions), but it is required when engaging with most other institutional investors who are generally themselves not regulated by the Swiss Financial Market Supervisory Authority (FINMA). This means that in a majority of cases, firms distributing their private funds to Swiss institutional investors to any significant degree are currently required to appoint a Swiss representative and Swiss paying agent.

From 1 January 2020, a Swiss representative and Swiss paying agent will only be needed when distributing private funds to high-net-worth individuals (HNWI), or family offices that do not have professional treasury operations, and crucially will cease to apply in relation to other types of qualified investors, regardless of whether they are directly regulated by FINMA. This means that in a majority of cases, the requirement to appoint Swiss representative and a Swiss paying agent when distributing private funds will cease to apply.

This difference in treatment is connected to another new requirement, which is to categorise investors as retail clients or professional clients, albeit with a system of opt-ins and opt-outs to allow some clients to change their categorisation. By default, HNWI and family offices that do not have professional treasury operations would be considered as retail/private clients. These clients may “opt-out” to be classified as professional clients, which will enable fund distribution to occur without the need for a costly public offering. In that case however, the fact that these clients have opted out from the retail/private client status to become professional clients means that the requirement to appoint a Swiss representative and Swiss paying agent will continue to apply. For all other “per se” professional clients that have not opted out, the requirement to appoint a Swiss representative and Swiss paying agent will fall away from 1 January 2020.

With respect to HNWI, an additional change is that the threshold for being considered as HNWI will also reduce from a net worth of 5 million Swiss francs to a net worth of 2 million Swiss francs (around $2 million USD).

A significant caveat is that these rules have not yet been finalised, which is expected to take place sometime in November, and some elements of the new regime remain unclear. For example, new requirements are likely to apply to the “service provider,” rather than the fund, which will apply at the point of sale when making an offer for the fund. The degree to which these new requirements will impact private fund managers distributing their funds in Switzerland should become clearer once these rules are finalised. Firms are therefore advised not to disengage from their Swiss representatives too hastily, and to make sure they have taken proper advice and ensured they can meet any new requirements before doing so.

Related Posts

Darren Mooney

Partner and Co-Head of Business Development

Darren Mooney is a Partner and the Co-Head of Business Development at Greyline. Before joining Greyline, Darren served as deputy chief compliance officer of Partner Fund Management where he held primary responsibility for the compliance program of the second-largest hedge fund in the Bay Area. Prior to that, Darren spent five years providing compliance consulting services at Cordium and then ACA Compliance Group, where he led the company’s San Francisco office and west coast operations. In addition to providing ongoing consulting services to a variety of investment managers, including hedge fund, private equity, venture capital, real estate, quantitative and other wealth managers, Darren also regularly guided clients through the SEC registration process, implemented tailored compliance programs, supported clients’ live SEC exams, and served as an SEC-mandated independent compliance consultant following an SEC enforcement action. Darren’s other experience includes serving as deputy chief compliance officer and associate counsel at F-Squared Investments where he directly supported the compliance program during the investigation and subsequent enforcement regarding historical advertising practices. Darren has a B.S. in Economics from the University of Delaware and a J.D. from Suffolk University Law School. He is a member of the Massachusetts bar.

Annie Kong

Partner and Head of Venture Capital
Annie Kong is a Partner and Head of the Venture Capital Division at Greyline. She provides ongoing compliance consulting to investment advisers and manages client relationships. Prior to joining Greyline, Annie was part of compliance and operations at a long-only manager-of-managers that advised pension fund clients. While there, she conducted compliance and operational due diligence on SEC-registered investment advisers on the platform. She also oversaw and counseled on various legal matters across the firm. Annie has a B.A. in Economics from the University of California, San Diego, and a J.D. from the University of San Diego School of Law. She is an active member of the State Bar of California.
Greyline is pleased to announce that we are the recipient of the 2021 HFM U.S. Service Award in the Best Technology Firm – Newcomer category.