The financial industry takes a negative view of many laws. But further out, regulation may be what is required to get wealth managers to adjust their services, Felix Brem writes in an essay for finews.first.
finews.first is a forum for renowned authors specialized on economic and financial topics. The texts are published in both German and English. The publishers of finews.com are responsible for the selection.
When the Swiss government in June 2014 presented the new regulatory framework in the form of the Financial Services Act (FinSA) and Financial Institutions Act (FinIA), there was great concern about monster bureaucracy. The government aimed to improve investor protection as a consequence of the financial crisis – and at the same time help the industry get better access to the EU market through an adjustment to EU law (MiFID II).
Across the country, wealth managers expected a high regulatory burden and pressure to consolidate combined with a low value added and therefore had only a moderate readiness to comply. That was also the conclusion of a study among wealth managers about the consequences of regulation, which we conducted together with partners and the Institute of Financial Services Zug (IFZ) in 2016.
«The implementing provisions for FinSA are particularly relevant for wealth managers»
On October 24, 2018, the government proceeded to open the consultation process about the three directives that contain the implementing provisions for FinSA and FinIA. The implementing provisions for FinSA are particularly relevant for the everyday business of wealth managers. For instance, a new demand was introduced whereby clients need to be informed about distribution compensation and existing commercial relations in connection with a financial service.
The provisions for the obligations referring to prospectus requirements and key information documents also form an important part. The basic information sheet is there to help customers compare different products. The finance ministry took reference from a European template in its design, without taking it over as it was. With good reason, as our experiences and those of the German industry showed.
«The demands on IT in some ways are also generating enormous additional costs»
In Germany, MiFID II was implemented at the beginning of 2018. The new key information document caused particular concern. In essence, the document is designed to help private investors to better understand investment products. In reality, as information about performance and costs frequently is confusing and at times even misleading, the documents tend to be rather harmful. Evidently, theory and practice are not the same.
The industry is also unhappy about the obligation to record advisory service calls as long as they include advise and brokerage of financial services. Customer advise thus is taking longer to perform and therefore sometimes there is no successful completion of transaction. The demands on IT in some ways are also generating enormous additional costs.
«We will still be barred from the market»
In Switzerland, I don’t expect the industry to suffer any major damage. In the implementing provisions, the government has remained true to its strategy applied when it drafted FinSA and FinIA. There are no major surprises. It has omitted cumbersome and less-than-helpful clauses such as the obligation to record phone calls.
The requirements on key information documents can be implemented and aren’t too technical. They will help create transparency for clients. It remains to be seen though whether the EU will deem the Swiss guidelines as equivalent to its own. I believe – and that’s not least based on what I hear in Germany – that we will still be barred from the market and that we will be forced to have a FinSA II sooner rather than later, given the importance of the European market.
«The wealth management industry has a true sense for tradition»
The new regulation is demanding and concise and yet implementable. The rules strengthen the protection of investors and thereby trust in our industry. At the same time, they will also trigger an innovation drive. The wealth management industry has a sense for tradition, which for sure means that it should display a certain inertness in respect to new technology and business models.
A heretical question: need we be forced to our happiness? Isn’t it so that increasing regulation actually is a purgatory capable of making us reconsider our procedures, offering and also added value created for clients and to make the long overdue changes?
Felix Brem is the chief executive officer of Reuss Private Group and chairman of the Alliance of Swiss Wealth Managers (ASWM).
Previous contributions: Rudi Bogni, Peter Kurer, Oliver Berger, Rolf Banz, Dieter Ruloff, Werner Vogt, Walter Wittmann, Alfred Mettler, Peter Hody, Robert Holzach, Craig Murray, David Zollinger, Arthur Bolliger, Beat Kappeler, Chris Rowe, Stefan Gerlach, Marc Lussy, Nuno Fernandes, Richard Egger, Maurice Pedergnana, Marco Bargel, Steve Hanke, Andreas Britt, Urs Schoettli, Ursula Finsterwald, Stefan Kreuzkamp, Oliver Bussmann, Michael Benz, Peter Hody, Albert Steck, Andreas Britt, Martin Dahinden, Thomas Fedier, Alfred Mettler, Brigitte Strebel, Peter Hody, Mirjam Staub-Bisang, Nicolas Roth, Thorsten Polleit, Kim Iskyan, Stephen Dover, Denise Kenyon-Rouvinez, Christian Dreyer, Kinan Khadam-Al-Jame, Robert Hemmi, Anton Affentranger, Yves Mirabaud, Katharina Bart, Frédéric Papp, Hans-Martin Kraus, Gerard Guerdat, Didier Saint-Georges, Mario Bassi, Stephen Thariyan, Dan Steinbock, Rino Borini, Bert Flossbach, Michael Hasenstab, Guido Schilling, Werner E. Rutsch, Dorte Bech Vizard, Adriano B. Lucatelli, Katharina Bart, Maya Bhandari, Jean Tirole, Hans Jakob Roth, Marco Martinelli, Beat Wittmann, Thomas Sutter, Tom King, Werner Peyer, Thomas Kupfer, Peter Kurer, Arturo Bris, Frederic Papp, Claudia Kraaz, James Syme, Peter Hody, Dennis Larsen, Bernd Kramer, Ralph Ebert, Marionna Wegenstein, Armin Jans, Nicolas Roth, Hans Ulrich Jost, Patrick Hunger, Fabrizio Quirighetti, Claire Shaw, Peter Fanconi, Alex Wolf, Dan Steinbock, Patrick Scheurle, Sandro Occhilupo, Claudia Kraaz, Will Ballard, Michael Bornhäusser, Nicholas Yeo, Claude-Alain Margelisch, Jean-François Hirschel, Jens Pongratz, Samuel Gerber, Philipp Weckherlin, Anne Richards, Michael Welti, Antoni Trenchev, Benoit Barbereau, Pascal R. Bersier, Shaul Lifshitz, Klaus Breiner, Ana Botín, Michel Longhini, Martin Gilbert, Jesper Koll, Ingo Rauser, Carlo Capaul, Claude Baumann, Markus Winkler, Konrad Hummler, Thomas Steinemann, Karin M. Klossek, Michael Welti, Christina Boeck, Michel Longhini, Guillaume Compeyron, Miro Zivkovic, Alexander F. Wagner, Eric Heymann and Christoph Sax.
