The implementing ordinances of FinSA and FinIA (FINSO and FinIO) adopted by the Federal Council on 6 November 2019 entered into force on 1 January 2020, together with the two laws. The two ordinances contain selective delegations of ordinances to FINMA. The draft FINMA ordinance is now available, and the consultation of FINMA will be conducted by 9 April 2020. Adoption of the ordinance is planned for the 4th quarter of 2020.

The new FINMA Financial Institutions Ordinance (FinIO-FINMA) shall primarily regulate the following points:

Details of professional liability insurance for asset managers, trustees

Under FinIA, asset managers and trustees must, in addition to the minimum capital of CHF 100,000, have adequate collateral or take out professional liability insurance.
The FinIA ordinance stipulates in Art. 31 para. 2 that a professional liability insurance can be credited up to half of the own funds. The ordinance obliges FINMA, to specify the details of professional liability insurance. According to the present draft FINMA ordinance, the following conditions must be met:

  1. The professional liability insurance must be taken out with an insurance company supervised in accordance with the Insurance Supervision Act (ISA);
  2. The term of the insurance must be at least one year;
  3. The notice period is at least 90 days;
  4. In the case of policies with a claim assertion principle or loss occurrence principle, the subsequent liability is 5 years;
  5. The insurance covers at least the professional liability risks associated with the business model, including financial losses due to investment errors, in particular breaches of legal or contractual obligations or regulations or financial losses resulting from breaches of duty by employees of the asset manager or trustee (damages caused by breach of trust);
  6. The insurance covers pecuniary losses arising from the performance of all activities caused by the asset manager and trustee’s negligence or gross negligence.

If the above criteria are met, a maximum of 70% of the sum insured available to the asset manager or trustee for all claims in any one year may be set off against half of the required own funds.

Any change or termination of a professional liability insurance policy must be reported to FINMA immediately.

 

Details of professional liability insurance for managers of collective assets

For managers of collective assets, the previous provisions for CISA asset managers with regard to the required own funds will be incorporated into the FINMA Ordinance (own funds amount to 25% of the fixed costs and 0.01% of the total assets of the managed collective assets; as an alternative to the 0.01%, professional liability insurance can also be taken out). With regard to professional liability insurance, however, it is now planned to introduce supplementary liability for policies with the principle of entitlement or the principle of occurrence of loss. If the preliminary risk is assumed in the event of a change of insurance and there are no time gaps in the cover, no subsequent liability will occur. Compared to the previous regulation in the CISO-FINMA, the necessary insurance sums have also been increased: For an individual claim, an increase from the original 0.7% of the total assets of the managed group assets to at least 2% and for all claims for one year, the required insurance coverage is increased from the original 0.9% to at least 3%. This means that asset managers of collective investment schemes who are already licensed today must adjust the sums insured and the insurance coverage if necessary.

 

Details on the calculation of the de-minimis-threshold for fund assets and occupational pension assets (= collective assets)

The thresholds for asset managers of collective investment schemes remain unchanged, the provisions are transferred from CISA to FinIA. Most of the provisions have been taken over from the CISO-FINMA, which is why the previous regulation continues to apply for the calculation of the thresholds in the area of collective investment schemes. A de-minimis-threshold has now also been introduced for managers of pension assets. If the threshold value is exceeded, the manager of pension assets as well as the asset manager of collective investment schemes is considered a manager of collective assets and requires a corresponding licence from FINMA. The thresholds are reached for the manager of pension assets if the assets under management exceed CHF 100 million and if more than 20% of the assets of an individual pension fund are managed in the mandatory area. To calculate the threshold value of CHF 100 million, both mandatory and non-mandatory assets as well as the assets managed by all Swiss and correspondingly foreign pension funds must be taken into account. In the case of the latter, the respective local foreign principles are used for the valuation. For the calculation of the 20% threshold in the mandatory area, only the managed assets of Swiss pension funds are taken into account.

In the case of a single investor fund in which a pension fund has its assets managed, the assets are not counted against the managed pension assets, but the single investor fund is considered a collective investment scheme with the corresponding calculation of the threshold values for collective investment schemes.

In the case of delegation of asset management in the area of collective assets, these assets are also included in the calculation of the de-minimis-threshold. This delegation norm has existed up to now for asset managers of collective investment schemes and will now be extended to all managers of collective assets, i.e. also managers of pension assets.

 

Information on risk management, compliance and the ICS for managers of collective investment schemes

For asset managers of collective investment schemes, the provisions relating to compliance and ICS requirements were essentially taken over from the CISO-FINMA. In addition, an asset manager of collective investment schemes at the level of the individual collective investment scheme must assess and document liquidity and other material risks at regular intervals under various market scenarios (i.e. a kind of stress test per collective investment scheme). This risk assessment should not be applied to funds with net fund assets of < CHF 25 million. Furthermore, appropriate internal liquidity thresholds should be defined for each collective investment scheme, depending on the type of products and the market environment, and taking into account redemption obligations.

 

Amendment of further decrees

With the entry into force of the FinIA, certain provisions will be transferred from the CISA to the FinIA. Among other things, this requires (not conclusively) an adaptation of the CISA (Collective Investment Schemes Act) and the CISO-FINMA (Collective Investment Schemes Ordinance-FINMA). In addition, the FINMA Circular 2013/9 on the distribution of collective investment schemes will be repealed. In addition to the FINMA Bank Insolvency Ordinance, the FINMA Money Laundering Ordinance (especially the repeal of the status of DSFIs), the FINMA Financial Market Infrastructure Ordinance, the FINMA Circular on Outsourcing and the FINMA Circular on Market Conduct Rules must also be amended.

In the case of the latter, the scope of application is now also extended to asset managers and trustees as well as managers of collective assets (i.e. in addition to asset managers of collective investment schemes, the scope of application is now also extended to managers of occupational pension assets). The Circular on Outsourcing will be applicable to managers of collective assets but not to asset managers and trustees.

Some other decrees will also only have to be adapted to the changed terminology.

 

This post was automatically translated


Vivien Jain
Head LCR Services Aquila