Global Registration Services – Market Update, Q1 2013
Switzerland – Revised Collective Investment Schemes Act
On 1 March 2013 the revised Collective Investment Schemes Act (the "CISA") and revised Collective Investment Schemes Ordinance (the "CISO") came into force. Both contain new rules governing the distribution of foreign collective investment schemes ("foreign CIS") in Switzerland, as summarised below.
Under the existing rules, the distribution of foreign CIS in or from Switzerland does not require the approval by the Swiss Financial Market Supervisory Authority FINMA ("FINMA"), provided that they are not "publicly distributed". Distribution is not considered to be "public distribution" if the investors are exclusively qualified investors (the so called qualitative safe harbour rule) and/or a small group of investors (the so called quantitative safe harbour rule).
Under the new rules:
a) The definition of what constitutes "public distribution" is changed: No requirements to be satisfied provided the placement of collective investment schemes (whether foreign or Swiss) does not constitute "distribution", as (now) defined under the CISA (see "What is considered distribution" below).
b) The distribution of foreign CIS to qualified investors only does not require authorisation from FINMA, provided that certain requirements are met (see "Next steps, and by when" below).
c) The definition of "qualified investors" has become more restrictive (see "Qualified investor(s)" below).
d) It is unclear whether the quantitative safe harbour rules, relating to the public element, still apply. Therefore judicious distributors should only distribute foreign CIS to non-qualified investors on the basis of strict reverse solicitation (see "What is considered distribution" below).
Next steps, and by when?
- Determine whether selling activities qualify as distribution (see "What is considered distribution" below). If the selling activity does not qualify as distribution, no action needs to be taken.
- If selling activities do qualify as distribution, it is necessary to determine whether the foreign CIS will be distributed to qualified investors only (see "Qualified investor(s)" below). If this is the case:
a) a Swiss representative and a Swiss paying agent must be appointed by the foreign CIS within two years of the entry into force of the revised CISA (i.e. by no later than 1 March 2015);
b) a foreign financial intermediary who distributes the foreign CIS needs to (i) be authorised to distribute collective investment schemes in the state of its statutory seat; and (ii) have entered into a written distribution agreement with the Swiss representative agent of the relevant foreign CIS within two years of the entry into force of the revised CISA (i.e. by no later than 1 March 2015);
c) with regard to Swiss financial intermediaries the new rules are somewhat contradictory. According to local sources, the above-mentioned requirements are thought only apply to foreign financial intermediaries. As a consequence, as under the existing rules, Swiss distributors do not require an authorisation from FINMA; and
d) the distribution documentation (including disclaimers, selling restrictions etc.,) and websites may need to be amended to reflect the revised definition of qualified investors (see "qualified investor(s)" below) by no later than 1 June 2013.
For those foreign CIS (to be) distributed to non-qualified investors in or from Switzerland, both the distributor and the foreign CIS must be authorised by FINMA and a Swiss representative and Swiss paying agent must be appointed. In circumstances where the foreign CIS has already been approved by FINMA for the distribution to non-qualified investors under the former regime, the new, more restrictive approval requirements have to be satisfied within one year of the entry into force of the revised CISA (i.e. by no later than 1 March 2014).
What is considered distribution?
Any kind of offering of, or advertisement for, collective investment schemes, whether foreign or Swiss, is considered as distribution under the new CISA, unless such offering or advertisement is made:
a) exclusively to a regulated financial institution such as a bank, securities dealer, fund management company, asset manager of collective investment schemes or central bank (each a "Regulated Financial Institution") or a regulated insurance institution;
b) on the basis of a strict reverse solicitation;
c) by an asset manager to a Regulated Financial Institution on the basis of a written asset management agreement; or
d) by an independent asset manager to its client on the basis of a written asset management agreement, provided the independent asset manager is subject, (i) as financial intermediary; to the Swiss laws on anti-money laundering, and (ii) to the recognised conduct of business rules of an organisation in the financial sector (a "Recognised Independent Asset Manager"), and the asset management agreement is in compliance with the recognised standards of the aforementioned organisation.
The publication by regulated financial intermediaries of current prices, net asset values and tax data does not constitute distribution of collective investment schemes, provided that such publication does not include any contact details. The revised CISA exempts to a certain extent the offering of participation plans to employees through collective investment schemes.
As of 1 June 2013 the following entities will be treated as qualified investors by operation of law:
- Regulated Financial Institutions and regulated insurance institutions;
- Public entities and retirement benefits institutions with professional treasury operations; and
- Companies with professional treasury operations.
Additionally, certain individual investors have the right to opt in or opt out, respectively:
a) investors who have concluded a written management agreement with a Recognised Independent Asset Manager or a Regulated Financial Institution are deemed to be a qualified investor, provided that it does not declare that it wishes to be treated as a non-qualified investor (opting out). The investor has to be informed of its status as qualified investor, the relevant risks involved, and its right to opt out before 1 June 2013;
b) high net worth individual(s) (who does not fall within the above mentioned category) may declare in writing that they want to be treated as a qualified investor (opting in), provided that they (i) demonstrate the knowledge necessary to understand the risks in connection with the investment based on individual education, professional experience or similar experience in the financial sector, and that they possess bankable assets of at least CHF 500,000; or (ii) confirms in writing and demonstrates that they possess financial assets of at least CHF 5 million. These are higher standards than those under the current regime, which require financial assets of (only) CHF 2 million, but no proof of market knowledge.
c) as of 1 March 2015 persons that are deemed high net worth individuals under the existing CISA which do not meet the above requirements may no longer enter into investments in collective investment schemes available to qualified investors only.
Any distribution to qualified investors has to be made by means customary for such specific investor base.
Belgium – Implementation of UCITS IV into Belgian Law
On 14 February 2013 the Belgian Financial Services and Markets Act ("FSMA") published the revised Circular FSMA_2013_05 dealing with the notification procedure for foreign UCITS seeking to market in Belgium pursuant to Directive 2009/65/EC ("UCITS IV Directive"). This revised Circular reflects the Belgian Act of 3 August 2012 and the Royal Decree of 12 November 2012 implementing the UCITS IV Directive into Belgian law.
Czech Republic – Draft Bill on Investment Companies and Investment Funds
On 17 January 2013 the draft bill on investment companies and investment funds was submitted to the Czech Republic Parliament and is awaiting approval. It transposes the provisions of the UCITS IV Directive and AIFMD, as well as setting out a framework for collective investment vehicles similar in type to SICAVs.
Sweden – Reminder regarding private placement rules
Following the implementation of UCITS IV into Swedish law in August 2011, funds are no longer allowed to market on a solicited basis to Swedish investors (whether retail or institutional). The only exception to this is in circumstances where a Swedish investor contacts the fund on their own initiative (without any solicitation). Then the fund sell units to Swedish investors under private placement.
If you have funds under a private placement regime in Sweden and where the funds provide any "type of measures intended to recruit Swedish investors" or any "forms of sale promotion" (as defined in section 3 of the Marketing Act (2008:486) which defines "marketing" of units of UCITS these funds must be registered with the Swedish Financial Services Authority ("FSA") as soon as possible.
For further information on the topics covered in this note please contact any of the individuals listed above.