There are a few pertinent points to consider when servicing assets in Switzerland. The first is a unique and very particular client-focused culture, which means that a small set-up can generate as much revenue as a global custodian in the country. A typical client will want more than just custody, and can look to a local provider for wealth and asset management and private banking, as well as custody services.
There are a few pertinent points to consider when servicing assets in Switzerland. The first is a unique and very particular client-focused culture, which means that a small set-up can generate as much revenue as a global custodian in the country. A typical client will want more than just custody, and can look to a local provider for wealth and asset management and private banking, as well as custody services.
Swiss GAAP (Generally Accepted Accounting Principles) FER 26 accounting standards for pension funds must also be accounted for by all Swiss-domiciled funds—and local players can take advantage of the fact that they are different to the EU national and cross-border pension regulations that the global custodians are familiar with in other European countries.
GAAP FER 26 came into force on 1 April 2004, establishing principles of transparency and disclosure for pension assets and liabilities. Despite the similarities to other GAAPs, as well as to other regulations such as the IFRS (International Financial Reporting Standards), PricewaterhouseCoopers described the IFRS and US GAAP as “globally acknowledged accounting standards for which a broad range of theoretical background, interpretations and literature is available”.
Swiss GAAP FER, it said, focuses on accounting for small- and medium-sized organisations and groups based in Switzerland, and that, “if there are questions that are not answered by a respective standard, the general principle of a true and fair view should be applied”.
Early to the finish line
Though the country may be contrary in some of its rules on tax and accounting, it was straight off the draw when the Alternative Investment Fund Managers Directive (AIFMD) kicked into action.
The country beat the July 2013 deadline to comply with AIFMD, signing a memorandum of understanding with the European Securities and Markets Authority (ESMA) in December 2012, which represented all EU member states during negotiations.
ESMA approved cooperation arrangements between the Swiss Financial Market Supervisory Authority (FINMA) and the EU securities regulators for the supervision of alternative investment funds, including hedge funds, private equity and real estate funds.
The MoU arrangement includes cross-border on-site visits, exchange of information and mutual assistance in the enforcement of respective supervisory laws.
It will apply to Swiss alternative investment fund managers that manage alternative investment funds in the EU, as well as EU managers that manage or market the funds in Switzerland.
ESMA is currently in contact with other non-EU authorities that are members of the International Organisation of Securities Commissions to negotiate cooperation arrangements before the deadline.
According to AIFMD, the fund industry from a non-EU country whose securities regulator did not have cooperation arrangements in place by July 2013 would not be permitted to offer or manage alternative investment funds in the EU.
ESMA chair Steven Maijoor said that the agreement between EU and Swiss supervisors to facilitate cooperation on the supervision of cross-border alternative funds was an important step in increasing investor protection and the global consistency of supervision.
FINMA chair Anne Héritier Lachat said that cooperation between FINMA and EU supervisors will further improve cross-border supervision of the funds business and ultimately reinforce investor protection in cross-border operations of alternative funds.
But the reactions of Swiss alternative investment fund managers may not reflect the positive stance of EU authorities. In a market survey, KPMG warned that since there are a number of possible ways in which these managers can respond to these forthcoming changes—and since there are several alternatives to becoming fully regulated, such as relying on the de minimis exemptions, switching to a UCITS structure or simply choosing a wait-and-see approach—the assumption that the majority will opt for full AIFMD regulation is probably not warranted.
“Since the results ... do not clearly indicate that Swiss managers will automatically apply for a Swiss licence, the question arises as to how they will react,” said KPMG.
“Given the importance their [survey] responses indicate that they attach to the expectations they place on their domicile of choice being met, there are strong indications that a significant proportion of Swiss [alternative investment fund managers] will look beyond the borders of Switzerland.”
