literature review on asset management pdf

The Asset Management Review

The Asset Management Review The Asset Management Review Fourth Edition Editor Paul Dickson Law Business Research

The Asset Management Review The Asset Management Review Reproduced with permission from Law Business Research Ltd. This article was first published in The Asset Management Review - Edition 4 (published in September 2015 editor Paul Dickson) For further information please email [email protected]

The Asset Management Review Fourth Edition Editor Paul Dickson Law Business Research Ltd

PUBLISHER Gideon Roberton SENIOR BUSINESS DEVELOPMENT MANAGER Nick Barette SENIOR ACCOUNT MANAGERS Katherine Jablonowska, Thomas Lee, Felicity Bown, Joel Woods ACCOUNT MANAGER Jessica Parsons PUBLISHING MANAGER Lucy Brewer MARKETING ASSISTANT Rebecca Mogridge EDITORIAL ASSISTANT Sophie Arkell HEAD OF PRODUCTION Adam Myers PRODUCTION EDITOR Anne Borthwick SUBEDITOR Charlotte Stretch MANAGING DIRECTOR Richard Davey Published in the United Kingdom by Law Business Research Ltd, London 87 Lancaster Road, London, W11 1QQ, UK 2015 Law Business Research Ltd www.thelawreviews.co.uk No photocopying: copyright licences do not apply. The information provided in this publication is general and may not apply in a specific situation, nor does it necessarily represent the views of authors firms or their clients. Legal advice should always be sought before taking any legal action based on the information provided. The publishers accept no responsibility for any acts or omissions contained herein. Although the information provided is accurate as of September 2015, be advised that this is a developing area. Enquiries concerning reproduction should be sent to Law Business Research, at the address above. Enquiries concerning editorial content should be directed to the Publisher [email protected] ISBN 978-1-909830-68-4 Printed in Great Britain by Encompass Print Solutions, Derbyshire Tel: 0844 2480 112

THE LAW REVIEWS THE MERGERS AND ACQUISITIONS REVIEW THE RESTRUCTURING REVIEW THE PRIVATE COMPETITION ENFORCEMENT REVIEW THE DISPUTE RESOLUTION REVIEW THE EMPLOYMENT LAW REVIEW THE PUBLIC COMPETITION ENFORCEMENT REVIEW THE BANKING REGULATION REVIEW THE INTERNATIONAL ARBITRATION REVIEW THE MERGER CONTROL REVIEW THE TECHNOLOGY, MEDIA AND TELECOMMUNICATIONS REVIEW THE INWARD INVESTMENT AND INTERNATIONAL TAXATION REVIEW THE CORPORATE GOVERNANCE REVIEW THE CORPORATE IMMIGRATION REVIEW THE INTERNATIONAL INVESTIGATIONS REVIEW THE PROJECTS AND CONSTRUCTION REVIEW THE INTERNATIONAL CAPITAL MARKETS REVIEW THE REAL ESTATE LAW REVIEW THE PRIVATE EQUITY REVIEW THE ENERGY REGULATION AND MARKETS REVIEW THE INTELLECTUAL PROPERTY REVIEW THE ASSET MANAGEMENT REVIEW

THE PRIVATE WEALTH AND PRIVATE CLIENT REVIEW THE MINING LAW REVIEW THE EXECUTIVE REMUNERATION REVIEW THE ANTI-BRIBERY AND ANTI-CORRUPTION REVIEW THE CARTELS AND LENIENCY REVIEW THE TAX DISPUTES AND LITIGATION REVIEW THE LIFE SCIENCES LAW REVIEW THE INSURANCE AND REINSURANCE LAW REVIEW THE GOVERNMENT PROCUREMENT REVIEW THE DOMINANCE AND MONOPOLIES REVIEW THE AVIATION LAW REVIEW THE FOREIGN INVESTMENT REGULATION REVIEW THE ASSET TRACING AND RECOVERY REVIEW THE INTERNATIONAL INSOLVENCY REVIEW THE OIL AND GAS LAW REVIEW THE FRANCHISE LAW REVIEW THE PRODUCT REGULATION AND LIABILITY REVIEW THE SHIPPING LAW REVIEW THE ACQUISITION AND LEVERAGED FINANCE REVIEW THE PRIVACY, DATA PROTECTION AND CYBERSECURITY LAW REVIEW THE PUBLIC-PRIVATE PARTNERSHIP LAW REVIEW THE TRANSPORT FINANCE LAW REVIEW THE SECURITIES LITIGATION REVIEW THE LENDING AND SECURED FINANCE REVIEW www.thelawreviews.co.uk

ACKNOWLEDGEMENTS The publisher acknowledges and thanks the following law firms for their learned assistance throughout the preparation of this book: ADVOKATFIRMAET BA-HR DA APPLEBY ARTHUR COX BONELLIEREDE CAPITAL LEGAL SERVICES CASTRÉN & SNELLMAN ATTORNEYS LTD CYRIL AMARCHAND MANGALDAS DE BRAUW BLACKSTONE WESTBROEK NV DE PARDIEU BROCAS MAFFEI ELVINGER, HOSS & PRUSSEN ENSAFRICA FANGDA PARTNERS HENGELER MUELLER HENRY DAVIS YORK KING & SPALDING LLP KING & SPALDING LLP IN ASSOCIATION WITH THE LAW OFFICE OF MOHAMMAD AL AMMAR LENZ & STAEHELIN LIEDEKERKE WOLTERS WAELBROECK KIRKPATRICK i

Acknowledgements MANNHEIMER SWARTLING ADVOKATBYRÅ AB MAPLES AND CALDER MORI HAMADA & MATSUMOTO PINHEIRO NETO ADVOGADOS ROPES & GRAY LLP SLAUGHTER AND MAY STIKEMAN ELLIOTT LLP TSMP LAW CORPORATION UDO UDOMA & BELO-OSAGIE URÍA MENÉNDEZ ii

CONTENTS Editor's Preface...vii Paul Dickson Chapter 1 EUROPEAN OVERVIEW... 1 Edward Burrows Chapter 2 AUSTRALIA... 40 Lucinda McCann, Nikki Bentley and Vinod Kumar Chapter 3 BELGIUM... 55 Thierry Tilquin, Tom Van Dyck, Greet Bontinck and Steven Peeters Chapter 4 BERMUDA... 68 Sarah Demerling and Sally Penrose Chapter 5 BRAZIL... 81 Fernando J Prado Ferreira and José Paulo Pimentel Duarte Chapter 6 BRITISH VIRGIN ISLANDS... 95 Jeffrey Kirk and David Mathews Chapter 7 CANADA... 104 Alix d Anglejan-Chatillon and Jeffrey Elliott Chapter 8 CAYMAN ISLANDS... 121 Nicholas Butcher, Anna Goubault and Krista-Lynn Wight Chapter 9 CHINA... 136 Richard Guo and Zhen Chen iii

Contents Chapter 10 FINLAND... 152 Janne Lauha, Leena Romppainen and Hannu Huotilainen Chapter 11 FRANCE... 166 Arnaud Pince Chapter 12 GERMANY... 180 Thomas Paul and Christian Schmies Chapter 13 HONG KONG... 193 Jason Webber, Peter Lake and Ben Heron Chapter 14 INDIA... 211 Ashwath Rau, Ganesh Rao and Aditya Jha Chapter 15 IRELAND... 224 Kevin Murphy, Elizabeth Bothwell, David O Shea, David Kilty and Sarah McCague Chapter 16 ISLE OF MAN... 238 Simon Harding and Katherine Johnson Chapter 17 ITALY... 250 Giuseppe Rumi, Daniela Runggaldier, Riccardo Ubaldini and Michele Dimonte Chapter 18 JAPAN... 267 Yasuzo Takeno and Fumiharu Hiromoto Chapter 19 LUXEMBOURG... 286 Jacques Elvinger, Olivier Gaston-Braud and Joachim Kuske Chapter 20 NETHERLANDS... 304 Lotte Boon and Joost Steenhuis Chapter 21 NIGERIA... 316 Dan Agbor, Folake Elias-Adebowale and Christine Sijuwade iv

Contents Chapter 22 NORWAY... 331 Peter Hammerich and Markus Heistad Chapter 23 PORTUGAL... 347 Carlos Costa Andrade, Marta Pontes, Diogo Tavares, Hélder Santos Correia and Gerard Everaert Chapter 24 RUSSIA... 361 Pavel Karpunin, Dmitry Churin and Anastasia Fomicheva Chapter 25 SAUDI ARABIA... 376 Nabil A Issa and James Stull Chapter 26 SINGAPORE... 388 Stefanie Yuen Thio and Yvonne Lee Chapter 27 SOUTH AFRICA... 399 Johan Loubser and Magda Snyckers Chapter 28 SPAIN... 416 Juan Carlos Machuca Siguero and Joaquín García-Cazorla Taboada Chapter 29 SWEDEN... 438 Emil Boström and Jonas Andersson Chapter 30 SWITZERLAND... 451 Shelby R du Pasquier and Maria Chiriaeva Chapter 31 UNITED ARAB EMIRATES... 467 James Stull and Macky O Sullivan Chapter 32 UNITED KINGDOM... 476 Paul Dickson Chapter 33 UNITED STATES... 517 Jason E Brown, Leigh R Fraser and John M Loder v

Contents Appendix 1 ABOUT THE AUTHORS... 535 Appendix 2 CONTRIBUTING LAW FIRMS CONTACT DETAILS... 559 vi

EDITOR S PREFACE Following several challenging years in the wake of the global financial crisis of 2007 2008, recent years have seen a more sustained economic recovery take hold. However, despite significant improvements in the global economic landscape, 2014 was marked by significant geopolitical events, which have taken their toll on financial markets outside the US and Japan. In the UK, both the Scottish referendum and predictions of a close general election outcome in May 2015 created an uncertain political environment. At a European level, markets have been faced with continuing tensions in Eastern Europe, as well as the ongoing sovereign debt issues, with the Greek crisis featuring heavily in news headlines over the past 12 months. The collapse of oil prices, the spread of the Ebola virus in West Africa and the ongoing conflict in the Middle East have also had a significant impact on the global economy. Nevertheless, the importance of the asset management industry continues to grow. Nowhere is this truer than in the context of pensions, as the global population becomes larger, older and richer, and government initiatives to encourage independent pension provision continue. By way of example in the UK, changes to the rules governing what retirees can do with their pension benefits look set to open up a new section of the market to discretionary managers and product providers. The activities of the financial services industry remain squarely in the public and regulatory eye, and the consequences of this focus are manifest in ongoing regulatory attention around the globe. Regulators are continuing to seek to address perceived systemic risks and preserve market stability through regulation. In Europe, major changes to the regulatory landscape were introduced by the Alternative Investment Fund Managers Directive, which has applied in full since July 2014, and this trend is set to continue in other areas of the asset management industry with the implementation of changes to the UCITS regime and the revised Markets in Financial Instruments package. In the UK, the Financial Conduct Authority has announced plans for a market study on the asset management industry and the charges it levies on investors. vii

Editor s Preface It is not only regulators who continue to place additional demands on the financial services industry in the wake of the financial crisis; the need to rebuild trust has led investors to call for greater transparency around investments and risk management from those managing their funds. Investors and regulators demands for greater clarity on fees and commissions charged by fund managers for services provided also remain a constant presence. This continues to be a period of change and uncertainty for the asset management industry, as funds and managers act to comply with regulatory developments and investor requirements and adapt to the changing geopolitical landscape. Despite the challenges outlined above, confidence has begun to return across a number of areas, buoyed by increasingly positive assessments of the global economic outlook, which raises the prospect of increased investment and returns. Although the challenges of regulatory scrutiny and difficult market conditions remain, a return of risk appetite has also evidenced itself. The industry is not in the clear but, prone as it is to innovation and ingenuity, it seems well placed to navigate this challenging and rapidly shifting environment. The publication of the fourth edition of The Asset Management Review is a significant achievement, which would not have been possible without the involvement of the many lawyers and law firms who have contributed their time, knowledge and experience to the book. I would also like to thank Gideon Roberton and his team at Law Business Research for all their efforts in bringing this edition into being. The world of asset management is increasingly complex, but it is hoped that the fourth edition of The Asset Management Review will a useful and practical companion as we face the challenges and opportunities of the coming year. Paul Dickson Slaughter and May London September 2015 viii

Chapter 30 SWITZERLAND Shelby R du Pasquier and Maria Chiriaeva 1 I OVERVIEW OF RECENT ACTIVITY With its long tradition of banking and finance, Switzerland is one of the leaders at the international level in the asset management industry. Swiss asset management constitutes one of the main pillars of the Swiss financial centre. The asset management industry in Switzerland is heterogeneous and applies different business models. Large banking institutions active in wealth management (private banking) coexist with a number of smaller niche players. Independent asset managers represent the lion s share of the para-banking sector within the Swiss financial industry, with a limited level of regulatory oversight for the time being (see Section V.i, infra, on the future regulatory developments in this respect). In recent years, a number of alternative asset managers have decided to relocate to Switzerland. Current challenges to the asset management industry in Switzerland include a wave of new regulatory activity spurred by the 2008 financial crisis and the regulatory developments occurring at the EU level. The Swiss legal and regulatory framework is being adjusted on an ongoing basis to ensure its euro-compatibility to keep it in line with international standards and to enhance the protection granted to investors. II GENERAL INTRODUCTION TO THE REGULATORY FRAMEWORK Switzerland does not have a comprehensive licence for all financial services providers. Certain financial activities do require licences, whereas others can be conducted on a largely unregulated basis. The following financial services providers are subject to prior licensing and ongoing prudential supervision by the Swiss Financial Market Supervisory 1 Shelby R du Pasquier is a partner and Maria Chiriaeva is an associate at Lenz & Staehelin. 451

Switzerland Authority (FINMA): banks, insurance companies, securities dealers, fund distributors, fund administration companies and managers of collective investment schemes (CISs). Switzerland is not a Member State of the EU; therefore, EU rules and regulations do not apply directly to financial services activities conducted in Switzerland. With the exception of general rules that apply to all asset managers in Switzerland (see Section II.i, infra), the conduct of asset management activities is subject to specific regulations only where such services are rendered in connection with a CIS (see Section II.ii, infra) or involve the trading of securities (see Section II.iii, infra) or the management of Swiss pension funds assets (see Section II.iv, infra). In light of its practical relevance, we further set out an overview of the rules applicable to the distribution, in or from Switzerland, of interests in a non-swiss CIS (see Section II.v, infra). i Regulation of asset management in general Direct regulation under the Swiss Anti-Money Laundering Act (AMLA) Contrary to the situation prevailing in a number of other jurisdictions, asset management activities are not, as a matter of principle, subject to prudential supervision in Switzerland unless these activities are conducted in connection with a Swiss or non-swiss CIS (see Section II.ii, infra), the asset manager is characterised as a securities dealer (see Section II.iii, infra) or he or she manages assets of Swiss pension funds (see Section II.iv, infra). That said, asset managers will in all instances qualify as financial intermediaries within the meaning of Article 2(3) of AMLA and, as such, be subject to the Swiss regulations against money laundering, which are based on the standards adopted by the Financial Action Task Force on Money Laundering (FATF). In particular, AMLA requires that the relevant financial intermediary registers with, and is subject to the supervision of a self-regulatory body recognised by FINMA or is supervised by FINMA directly (Article 12(c) AMLA). The duties imposed upon the financial intermediary under AMLA are essentially know-your-customer rules and procedures, as well as certain organisational requirements (e.g., internal controls, documentation and continuing education) (Article 3 et seq. AMLA). In addition, financial intermediaries are required to report to the regulatory body and to immediately block the assets for a period of up to five days in the event of suspicion of criminal activity. Such reporting duty presupposes that the financial intermediary is aware of, or has reasonable suspicion, as regards the criminal origin of the assets involved (Articles 9 and 10 AMLA). In this context, the regulatory body is also entitled to request information from third-party financial intermediaries that appear to be involved in the transaction or business relationship that triggered the reporting by another financial intermediary. A financial intermediary may incur a criminal liability, should it fail to comply with these duties. Between 2013 and 2014, the government worked on a revision of AMLA with a view to adapting it to the revised FATF recommendations and to addressing certain shortcomings that were identified during Switzerland s evaluations by the FATF. The Swiss parliament adopted the final draft on 12 December 2014. The entry into force of the revised AMLA and the other relevant pieces of legislation will take place in two stages, first on 1 July 2015 (see Section III.ii, infra, on the revision of the Collective Investment Schemes Act (CISA)) and then on 1 January 2016. 452

Switzerland As per the revised AMLA, from January 2016 financial intermediaries will have to implement a two-stage mechanism after the reporting of suspicions to the regulatory body. First, they will have to monitor the concerned account for a period of up to 20 days during the analysis of the case by the regulatory body (so as to suspend any transaction that may result in preventing the confiscation of the concerned asset). As a second step, if the case is transferred to a criminal prosecution authority, the financial intermediaries will have to implement a full freeze on the account for up to five days until a decision to maintain the freeze is made by the criminal authority. Indirect regulation under FINMA Circular 01/2009 Furthermore, FINMA has defined certain requirements (outlined in the revised FINMA Circular 01/2009, which entered into force on 1 July 2013) that asset managers are required to comply with in order for such managers and their clients to benefit from certain exemptions under the (CISA see Section II.v, infra). The duty to enforce the provisions of FINMA Circular 01/2009 lies with the self-regulatory bodies, which are in turn supervised by FINMA. As a result, it is generally considered that asset managers are only indirectly regulated in Switzerland. Inter alia, FINMA Circular 01/2009 imposes on asset managers certain duties of care, loyalty and information in relation to their clients, as well as a duty to comply with a fit and proper test. In addition, FINMA Circular 01/2009 provides for a requirement to specify in the asset management agreement entered into with clients the terms of the remuneration of the asset manager. 2 FINMA Circular 01/2009 also regulates the third-party inducements (retrocessions) that may be received by asset managers. From a Swiss law perspective, the term retrocessions generally refers to certain forms of fee payments agreed upon between financial intermediaries (e.g., banks, securities dealers, asset managers). Typically, in the field of private wealth management, a custodian bank may pay certain retrocessions to an external asset manager who manages client assets deposited with the custodian bank. In a decision rendered on 30 October 2012, 3 the Swiss Supreme Court ruled that the distribution fees that the promoter of a financial product pays to the distributor could be characterised as retrocessions, and therefore be subject to the legal regime set out below (for the same topic within the context of the distribution of CISs, see SFAMA guidelines on distribution and transparency below). 2 Certain professional organisations also limit the level of compensation of asset managers. For instance, the Code of Conduct issued by the Swiss Association of Asset Managers sets out a maximum amount of management fees corresponding to 1.5 per cent per year calculated on the basis of the net asset value of managed assets, or performance fees of a maximum 20 per cent of the net capital increase (i.e., the increase in value taking into account deposits and withdrawals in addition to any unrealised losses). If both above-mentioned systems of fees are combined, management fees are capped at 1 per cent per year and the performance fees to a maximum of 10 per cent. 3 Decision of the Swiss Supreme Court of 30 October 2012 and published in the Official Court Reporter under No. ATF 138 III 755. 453

Switzerland In a landmark decision rendered on 22 March 2006 4 (confirmed in subsequent decisions), the Swiss Supreme Court held that retrocessions are subject to a statutory restitution duty and are, as a matter of principle, payable to the client of the receiving financial intermediary. Nonetheless, according to the Court, an arrangement whereby the client agrees that a financial intermediary may retain retrocessions received from third parties is valid, provided the client was duly informed of the existence and calculation formula of such retrocessions, and the client expressly waived his or her statutory restitution claim. As a result of this case law, a Swiss financial intermediary (such as an asset manager) intending to retain retrocessions received from third parties should ensure that the contractual documentation governing its client relationships meets the requirements set forth by the Swiss Supreme Court. In this context, the level of information (ex ante disclosure) that needs to be provided to clients is set forth in FINMA Circular 01/2009 and in the guidelines of the relevant professional organisations. Asset managers must typically advise their customers of any conflicts of interest that might arise as a result of accepting third-party inducements. According to the revised FINMA Circular 01/2009, they are to inform their clients of the calculation parameters, as well as of the spread of inducements they receive or might receive from third parties. In doing so, the information provided must differentiate between various product classes, insofar as this is possible. Upon a client s request, asset managers must also disclose the amount of any third-party inducements already received by them (ex post reporting). The revised FINMA Circular 01/2009 further requires that asset managers establish a client risk profile to cover the client s experience and knowledge in the financial field, risk appetite (subjective criteria) and risk capacity (objective criteria); and cover in their asset management mandate the investment objectives of the client based on this risk profile. These amendments were essentially triggered by the 30 October 2012 decision as well as the CISA revision. ii Regulation of CIS managers In the wake of the adoption of the EU Alternative Investment Fund Managers Directive (AIFMD), the CISA has been amended to ensure the euro-compatibility of the Swiss regulatory framework. One of the purposes of the CISA revision was to ensure that Swiss asset managers are in a position to continue to manage the assets of CISs that fall within the ambit of the AIFMD. Pursuant to the revised CISA (which entered into force on 1 March 2013), asset managers of both Swiss and non-swiss CISs must obtain a licence from FINMA. That said, the revised CISA contains a de minimis rule, according to which asset managers of non-swiss CISs whose investors are qualified investors (as defined in the revised CISA: see Section II.v, infra) are not regulated if they satisfy one of the following requirements: a the assets under management, including those resulting from the use of leverage, do not exceed 100 million Swiss francs; 4 Decision of the Swiss Supreme Court of 22 March 2006 and published in the Official Court Reporter under No. ATF 132 III 460. 454

Switzerland b c the assets under management do not exceed 500 million Swiss francs, and the CISs are unleveraged and closed-ended for a five-year period; 5 or the investors are exclusively group companies. According to the revised FINMA Ordinance on Collective Investment Schemes, which entered into force on 1 January 2015, assets whose management is entrusted to third-party managers are to be included in the calculation of the above thresholds. The value of the assets under management is also to be determined for each collective investment scheme in light of the valuation rules provided in the legislation of the home jurisdiction of the CIS. An asset manager of a non-swiss CIS that is exempt under the de minimis rule may, however, opt in under the revised CISA and apply for a FINMA licence, provided that its registered office is in Switzerland, and Swiss law or the applicable foreign law requires such regulated status for the management of the assets of the CIS. One important novelty of the revised CISA is the possibility for a non-swiss asset manager to operate in Switzerland as a branch for both Swiss and non-swiss CISs. The authorisation of a branch is, however, subject to the following cumulative requirements: a the non-swiss asset manager is subject to adequate supervision by its home regulator; b the non-swiss asset manager has adequate organisation, sufficient financial resources, as well as competent staff to operate a branch in Switzerland; and c a cooperation agreement is in place between FINMA and the non-swiss asset manager s home regulator. On 3 December 2012, FINMA announced that it had reached an agreement in principle with the European Securities and Markets Authority (ESMA), acting on behalf of the national supervisory authorities of the EU Member States, as regards a model cooperation agreement. On 16 July 2013, FINMA announced that this agreement with ESMA is to be supplemented by bilateral agreements with each national supervisory authority in the EU and in the European Economic Area. These bilateral agreements entered into force on 22 July 2013. Cooperation includes the exchange of information, cross-border on-site visits and mutual assistance in the enforcement of the respective supervisory laws, namely the AIFMD and the CISA, and covers the activities of Swiss alternative investment fund managers who distribute or manage alternative investment funds in the EU, as well as the European alternative investment fund managers who manage them or distribute them in Switzerland to qualified investors (as defined in the revised CISA: see Section II.v, infra). As a consequence of the above-mentioned AMLA revision (see Section II.i, supra), in June 2015, FINMA also revised its Ordinance on Money Laundering (AMLO-FINMA). According to the revised AMLO-FINMA, which will enter into force on 1 January 2016, asset managers of foreign CISs will benefit from a certain relaxation 5 In its annual report 2014, FINMA clarified that, for the purposes of this calculation, the fact that the CISs are invested in target funds or other investments is not relevant. 455

Switzerland of their due diligence requirements. Thus, the identification of the subscriber and the beneficial owner will not be required in the event that the foreign CIS or its investment management company are subject to adequate supervision in terms of AMLA and counter-terrorist financing, and the amount invested by the subscriber does not exceed 25,000 Swiss francs. iii Regulation of professional securities trading Depending upon the structure of their activities and of their client relationships, certain Swiss asset managers could fall within the ambit of the Swiss regulatory framework governing securities traders. Professional trading in securities as a principal (either for own account or on behalf of clients) is, subject to certain exceptions, a regulated activity under the Swiss Federal Act on Stock Exchanges and Securities Trading (SESTA). The concept of a securities dealer is defined in Article 2(d) SESTA as any person or entity who: [ ] purchases and sells securities in a professional capacity on the secondary market, either for its own account with the intent of reselling them within a short period of time or for the account of third parties, or makes public offers of securities to the public on the primary market, or creates derivatives and offers them to the public. The Swiss regulatory definition of securities dealer covers five types of trading activities, which are detailed in Article 3 of the Swiss Federal Ordinance on Stock Exchanges and Securities Trading and may be summarised as follows: a trading in securities as a principal on a short-term basis (own-account dealer); b underwriting and public offering on the primary market of securities issued by third parties (issuing house); c issuance and public offering on the primary market of derivatives as a principal or as an agent (derivative supplier); d trading in securities as a principal on a short-term basis, and offering sale or purchase prices in certain securities either permanently or upon request (market maker); and e trading in securities as an agent for clients, and either holding accounts for the clients or holding securities in safe custody for the account of clients, either directly or with third parties (securities dealer operating for the account of clients). Swiss securities dealers are subject to FINMA supervision, and are required to comply with organisational, conduct of business and prudential requirements broadly comparable with those applicable to Swiss banks. As a rule, asset managers or investment advisers that manage the assets of third parties on the basis of powers of attorney (i.e., who are acting as agent) are not characterised as securities dealers for the purpose of the SESTA and are, as things stand, only regulated under AMLA (see Section II.i, supra). iv Regulation of Swiss pension fund asset managers As of 1 January 2014, Swiss pension funds may only appoint as external asset managers financial intermediaries that are subject to official supervision in Switzerland (or abroad). 456

Switzerland Swiss banks and securities dealers were not affected by this change, as they were already subject to FINMA supervision. These supervised financial intermediaries were therefore entitled to continue to act as external asset managers of Swiss pension funds after 1 January 2014. Unregulated Swiss-based asset managers (i.e., independent asset managers) that intended to manage, or to continue to manage, assets of Swiss pension funds after 1 January 2014 have had to register and apply for a provisional licence with the Swiss Supervisory Commission for Pension Funds (Commission). In February 2014, the guidelines of the Commission on the issuance of licences to asset managers of Swiss pension funds (Guidelines) entered into force. The Guidelines provide that unregulated Swiss-based asset managers or regulated Swiss-based distributors of CISs (which do not, according to the Guidelines, benefit from the above dispensation) intending to manage assets of Swiss pension funds must apply for a three-year licence. This should be a temporary solution, inasmuch as independent asset managers are likely to be subject to regulatory supervision in the near future, regardless of whether or not they manage pension funds, following the enactment of the reform summarised under Section V, infra. v Regulatory framework applicable to the distribution of interests in non-swiss CISs The regulatory concept of distribution The entry into force of the revised CISA on 1 March 2013 resulted in the replacement of the long-established concept of public offering with the concept of distribution of CISs. Any offer or advertisement for a CIS that is not exclusively directed towards regulated financial intermediaries (e.g., banks, insurance companies, securities dealers, fund administration companies, asset managers of CISs and central banks) is now construed as distribution. Distribution, irrespective of whether being public or private, is regulated under the revised CISA. It is important to note that the revised CISA excludes the following four situations from the definition of distribution. The provision of information on or the offer of interests in non-swiss CISs are not deemed to constitute a distribution if they take place: a at the investor s request in the context of a long-term and remunerated advisory agreement or an execution-only relationship with a regulated financial intermediary (e.g., banks, securities dealers, fund administration companies, asset managers of CISs) or with an independent asset manager (subject to certain conditions); b upon the sole request of the investor in relation to a specific fund, and without any intervention or initial contact made by the financial intermediary (reverse solicitation); c within the context of a written discretionary asset management agreement entered into by the investor with a regulated financial intermediary or with an independent asset manager (subject to certain conditions); or d through the publication of prices, net asset values and tax data by regulated financial intermediaries. 457

Switzerland Following the CISA revision, FINMA revised its implementing FINMA Circular 09/2013 on the distribution of CISs, which entered into force on 1 October 2013. This Circular aims at clarifying the concept of distribution and, in particular, the concept of qualified investors (see Qualified investors below). The Swiss Funds and Asset Management Association (SFAMA) published revised Guidelines on the distribution of CISs whose entry into force took place on 1 July 2014. These Guidelines impose certain duties upon distributors and promoters of CISs, and provide for minimum standard provisions to be included in distribution agreements (for further details, see SFAMA guidelines on distribution and transparency below). Finally, the Guidelines of the Swiss Bankers Association on protocol requirements under Article 24 (3) CISA are also of relevance for the distribution of CISs. According to these Guidelines, distributors must record in writing the client s needs and document their recommendations made in view of the subscription to a CIS. Although FINMA initially recognised these Guidelines as minimum standard for a period of up two years (until 31 December 2015), these will continue to apply to all distributors until the entry into force of the future Federal Financial Services Act (FinSA) (see Section V.i, infra). Qualified investors The concept of qualified investor is another important regulatory concept in the context of the distribution of interests in non-swiss CISs. The revised CISA narrows the definition of qualified investors as follows: a Regulated qualified investors: regulated financial intermediaries, including banks, securities dealers, fund administration companies and managers of CISs, as well as central banks; and regulated insurance institutions. b Unregulated qualified investors: public entities and retirement benefit institutions (pension funds) with professional treasury management (this concept presupposes that the entity has at least one qualified professional in charge of the management of its financial assets); companies with professional treasury management; high-net-worth individuals (HNWIs) and private investment structures created for them, provided they have declared in writing that they wish to be deemed qualified investors (subject to certain conditions, such as minimum financial assets and technical competences) (opt-in declaration); and investors who have concluded a written discretionary asset management agreement with a regulated financial intermediary or with an independent asset manager (subject to certain conditions), provided that they do not exercise their right to opt-out of the qualified investors status. The latest revision of the Collective Investment Schemes Ordinance, which entered into force on 1 January 2015, clarified that private investment structures created for HNWIs may qualify as qualified investors. FINMA clarified in its Circular 09/2013 that asset managers may be treated as qualified investors subject to certain conditions, and provided that they undertake in writing that any information or materials in relation to the CIS be solely used for 458

Switzerland the benefit of qualified investors. Such written undertaking must be obtained from the asset manager before any provision of information on the CIS, as such discussion may otherwise be deemed to constitute an unauthorised distribution activity targeting non-qualified investors. It should be noted, however, that FINMA Circular 09/2013 does not address the issue of asset managers based outside Switzerland. The characterisation of an investor as being qualified has a bearing on the regulatory restrictions applicable to the distribution of interests in non-swiss CISs. The regulatory situation under the revised CISA can be summarised as follows. Distribution of non-swiss CISs to non-qualified investors The offering documentation of non-swiss CISs distributed to non-qualified investors must be approved by FINMA. Regular filing, notification and publication duties apply to the CIS, which must appoint a Swiss representative and paying agent. Additionally, the revised CISA requires the entering into of cooperation agreements between FINMA and the relevant foreign supervisory authorities. Any Swiss-based financial intermediary that distributes non-swiss CISs to non-qualified investors must be licensed as a distributor by FINMA. In addition, all distributors involved in the distribution of the CIS to non-qualified investors in Switzerland must enter into a written, Swiss law-governed distribution agreement with the Swiss representative, based on the requirements of the SFAMA Guidelines on distribution of CISs and its template distribution agreement. Distribution of non-swiss CISs to qualified investors The offering documentation of non-swiss CISs distributed to qualified investors is not subject to approval by FINMA, but a Swiss representative, as well as a paying agent, must be appointed by the CIS. Any Swiss-based financial intermediary that distributes non-swiss CISs to qualified investors must be licensed as a distributor by FINMA. By contrast, non-swiss financial intermediaries that are regulated in their home country may conduct distribution activities in connection with qualified investors, provided the foreign supervision is deemed appropriate by FINMA (i.e., their foreign regulatory status allows them to distribute CISs in their own jurisdiction). This carve-out could, for example, apply to the (regulated) non-swiss asset manager of a non-swiss CIS intending to distribute interests to certain qualified investors in Switzerland (without appointing a Swiss distributor). In addition, all distributors involved in the distribution of the CIS to qualified investors in Switzerland must enter into a written, Swiss law-governed distribution agreement with the Swiss representative, subject to the conditions set out in the SFAMA Guidelines on distribution of CISs and its template distribution agreement. SFAMA Guidelines on distribution and transparency On 22 May 2014, the SFAMA issued its revised Guidelines on the distribution of CISs (Distribution Guidelines), as well as its revised Guidelines on the charging and use of fees and costs (Transparency Guidelines), which specify certain requirements regarding the distribution of CISs and investors information. These Guidelines entered into force on 1 July 2014 and were recognised as a minimum standard by FINMA. As such, they are of general application for all Swiss and non-swiss market participants. The SFAMA 459

Switzerland provided for various transitional periods, until 31 August 2015 at the latest, to allow financial intermediaries to comply with the new requirements. The Distribution Guidelines apply, inter alia, to fund promoters and fund managers. They include mandatory provisions for distributors that are to be incorporated into the distribution agreements concluded between foreign distributors and the Swiss representative of the non-swiss CIS. In addition, the Guidelines provide for due diligence and information duties both for promoters and distributors of CISs. These include, in relation to distribution to non-qualified investors, the obligation to provide them with objective information on the investment character, opportunities and risks associated with the CIS, by taking into account their experience and knowledge and the complexity of the CIS. The Transparency Guidelines, which apply to distributors and Swiss representatives of non-swiss CISs, impose on them duties of information on fees, costs, rebates and retrocessions. In a nutshell, rebates (i.e., any payment by fund managers, SICAVs or their agents directly made to investors that result in a reduction of the fee or cost attributable to the CIS) are allowed to the extent they are based upon objective criteria (e.g., the subscription amount). The criteria and conditions upon which they are granted must be disclosed in the fund documentation in order to enable the investors to verify whether they are entitled to benefit from such rebates. In the same vein, retrocessions paid to distributors and advisers are allowed but are subject to disclosure requirements (see also Section II.i, supra). They are to be disclosed in the fund documentation and must specify for which services they are paid. In addition, the recipient of the retrocessions is subject to a certain number of specific disclosure duties. He or she must spontaneously inform the investor on the amount of the compensation that he or she receives for distribution by giving the calculation parameters or the spread of these inducements. Upon the investor s request, the recipient is to further disclose the amount actually received. Finally, the recipient is to indicate the existence and nature of any conflicts of interest that are or may be triggered by the payment of retrocessions. In order to incorporate the new disclosure requirements, in March 2015, the SFAMA amended its template notice to Swiss investors to be included in the documentation of foreign CIS guidelines. III COLLECTIVE INVESTMENT SCHEMES From a Swiss legal perspective, asset management services can be rendered either on the basis of a power of attorney that the client grants to the asset manager in relation to assets deposited with a bank (managed account) or through an investment, by the client, in interests or shares of a collective investment scheme. The CISA provides for four different types of collective investment schemes for Swiss CISs: a the contractual investment fund; b the SICAV; c the Swiss investment company (SICAF); and d the Swiss limited partnership (Swiss LP). 460

Switzerland The main characteristics of these legal institutions are set out below. One common requirement is for the Swiss CIS to have substance in Switzerland. i The contractual investment fund The Swiss contractual investment fund is a contractual pool of assets constituted for purposes of common investment, which is separately administered by a licensed fund administration company. The fund administration company, acting on behalf of the investors, deposits the assets of the investment fund with a custodian bank. This legal institution is the most commonly used structure in the Swiss asset management industry. ii The SICAV The Swiss SICAV is a special corporate vehicle governed by the CISA and subject to the supervision of FINMA. The Swiss SICAV s corporate purpose is limited to the collective management of its own assets. Unlike a licensed fund administration company, a SICAV may not perform other activities or services, even ancillary ones such as the management of third-party assets. The Swiss SICAV is in many respects based on the model of the Luxembourg SICAV. The CISA distinguishes between self-managed and externally managed SICAVs. The relevant criterion under the CISA is to determine whether the SICAV performs its own administration, or whether such administration is delegated to a licensed fund administration company. The Swiss SICAV has two types of shares: investor shares and promoter shares. The SICAV is thus composed of at least two segregated sub-funds, one corresponding to the contributions of the investors and one corresponding to those of the promoter. Both types of shares have, as a rule, the same rights and obligations: votes are based on the principle of one share, one vote for both types of shares, there are no restrictions for a holder of one category of shares to hold also shares of the other category, and the creation of preference shares is expressly prohibited. There are important exceptions to the principle of equal treatment among the shareholders. On one hand, the obligation to provide for the minimum capital contribution, as well as the duty to maintain the required capital adequacy requirements for self-managed SICAVs, rest only upon the holders of promoter shares. On the other hand, the holders of promoter shares have the exclusive competence to resolve on the dissolution of the SICAV, to close a sub-fund and to request FINMA to liquidate the SICAV for cause. Following the recent revision of the AMLA framework (see Section II.i., supra), since 1 July 2015, SICAVs are required to keep a register of the ultimate beneficial owners (i.e., individuals owing more than 25 per cent of the company s shares or voting rights) of its unlisted promoter shares. In parallel, holders of those shares are now subject to a reporting obligation towards the SICAV. They are to disclose the name and the address of the ultimate beneficial owners in the event that their participation reaches or exceeds 25 per cent. Breach of this reporting requirement may trigger restrictions or the cancellation of the economic and voting rights related to the investment. According to the applicable transitional provisions, existing holders of unlisted promoter shares must comply with this new requirement by 1 January 2016. These amendments form part of the corporate law reform triggered by the implementation of the FATF recommendations. 461

iii The SICAF Switzerland The SICAF is a Swiss company limited by shares whose corporate purpose is limited to the management of its own assets. The SICAF is not allowed to pursue any entrepreneurial activity. The SICAF is a closed-ended investment scheme, meaning that the investors do not benefit from a redemption (i.e., exit) right. The regulatory framework set forth in the CISA as regards the SICAF is rather limited. The SICAF is substantially governed by the provisions of the Swiss Code of Obligations that are applicable to regular companies limited by shares (including the new disclosure requirements as regards holders of bearer shares and ultimate beneficial owners deriving from the recent revision of the AML framework (see Sections II.i and III.ii, supra)). In this context, a SICAF is not subject to the CISA if its shares are listed on a stock exchange or if its shareholders are exclusively qualified investors (see Section II.v, supra) and its shares are registered shares (as opposed to bearer shares). To our knowledge, all Swiss SICAFs have so far relied on this regulatory safe harbour. As a result, there is currently no Swiss SICAF that is regulated by FINMA. iv The Swiss LP The Swiss LP is a CIS that is aimed at private equity, alternative investments and real estate projects, and that has been designed to mirror the legal form of certain offshore limited partnership structures. The Swiss LP is subject to the supervision of FINMA. Swiss LPs are closed-ended investment schemes, meaning that the investors do not benefit from a redemption (i.e., exit) right. Swiss LPs are managed by one or more general partners (GPs) with unlimited liability for the commitments of a Swiss LP. The GP may delegate certain tasks to third parties to the extent such delegation is in the best interest of the Swiss LP. The asset management function may, however, only be delegated to a regulated asset manager of a Swiss CIS. The investors in a Swiss LP are the limited partners. They may not be involved in the management of the Swiss LP, which is the exclusive competence of the GP. That said, the limited partners benefit from information rights and certain governance rights, such as the delivery of periodic financial information, as well as information on the financial accounts. The Swiss LP is only open to qualified investors (see Section II.v, supra). The partnership agreement of the Swiss LP sets out the key rules that apply among the GP and the limited partners. Swiss law allows a significant freedom to the parties in the regulation of their relationship in the partnership agreement, subject to a limited set of contractual provisions that are required as a matter of law. IV MAIN SOURCES OF INVESTMENT The Swiss asset management industry is heavily reliant upon the assets deposited with Swiss banking institutions. According to figures published by the Swiss Bankers Association in its 2014 Banking Barometer Report, the aggregate amount of assets under management held by Swiss banks amounted to over 6,300 billion Swiss francs at the end of May 2014. This total is divided equally between assets held by Swiss-based and non-swiss based clients. According to the Swiss Funds and Asset Management Association, the Swiss CIS market was valued at 874 billion Swiss francs in June 2015. 462

Switzerland V KEY TRENDS i New regulatory regime for independent asset managers The protection of investment advisory and asset managers clients has been at the top of the Swiss regulator s agenda for several years now, and will be one of the most important legislative projects in the financial services sector for years to come. To ensure better protection of investors, Swiss authorities have recently launched a revision of the regulatory framework applicable to the provision of financial services. From June to October 2014, the Federal Council opened up a consultation procedure on two new instruments: the FinSA and the Financial Institutions Act (FinIA). The FinSA deals with the relationship between the financial intermediary and investors, and essentially provides for rules of conduct aiming at protecting investors upon the provision of financial services or financial instruments in Switzerland. Those proposed rules are primarily based on the EU s MiFID regulations. By contrast, the FinIA includes provisions concerning the relationship between the financial intermediary and the regulatory authority, and imposes licensing and organisational requirements. The provisions as regards asset managers that are already subject to regulatory supervision (namely, qualified asset managers) will be, in principle, incorporated into the FinIA without material change. It should, however, be noted that the draft FinIA provides that pension fund asset managers will be subject to direct FINMA supervision, while retirement benefit institutions (i.e., pension funds) will remain subject to the Swiss Supervisory Commission for Pension Funds. By contrast, independent asset managers who are currently not subject to prudential supervision will be newly supervised. The draft FinIA provides for two options: supervision will be conducted either by FINMA directly or by a semi-state supervisory organisation (whose regulatory activity will in turn be subject to FINMA s oversight). The choice between these two options was one of the issues of the consultation procedure. To date, the Swiss Federal Council has not determined which approach to follow. It should be noted that the draft FinIA also provides for specific provisions for existing asset managers that will benefit from grandfathering provisions. On the specific topic of retrocessions, which was heavily debated during the consultation procedure, on 13 March 2015, the Federal Council confirmed in a decision in principle to allow retrocessions subject to complying with the current transparency regime. The principles laid down in the Swiss case law and FINMA Circular 01/2009 (see Section II.i, supra) should also be crystallised in the FinSA. Following the consultation procedure, revised drafts are to be prepared by the end of 2015. The date of entry into force of the new rules is not expected before 1 January 2017. It is, however, certain that this reform will represent a tidal change for the independent asset management industry. ii Enhanced due diligence requirements in relation to foreign customers assets Since 2012, the Swiss Federal Council has been keen to implement its clean money strategy through, inter alia, the introduction of enhanced due diligence requirements applicable to financial intermediaries. To achieve its objective of a financial centre compliant with tax regulations, financial intermediaries must ensure that foreign clients 463

The Asset Management Review

asset management literature review and potential applications of