Lamara von Albertini: «The Clock Is Ticking For Swiss Asset Managers»

Practice shows that some independent asset managers who have set a deadline of 2022 for applying for a Finma license have lost sight of Fidleg and risk violating the new regulations before having applied for a Finma license, Lamara von Albertini writes in an essay for finews.first

This article is published on finews.first, a forum for authors specialized in economic and financial topics.

At the end of the year, the two-year transition period for most of the provisions of the Financial Services Act (Fidleg) will end. The focus of the new law is to improve investor protection and to align it with EU law.

But where do financial service providers stand, what can their clients expect from them, where are the stumbling blocks and what can be recommended to financial service providers? First insights from practice.

«It applies that the more complex the business model, the bigger the stumbling blocks can be»

Fidleg, together with the Financial Institutions Act (Finig), has a «reform character» and, in the longer term, will definitely contribute to changing the Swiss financial industry to some extent. Basically, these are complex regulations that must be applied professionally and taken as a whole must not be underestimated.

In the EU, there are numerous rules of interpretation with regard to MiFID; the lack of such rules in Switzerland complicates the application in many cases. The initial experience shows that the implementation of Fidleg is underestimated by many financial service providers.

An appropriate, correct implementation of Fidleg confronts financial service providers with a number of different challenges. As a rule of thumb, it applies that the more complex the business model, the bigger the stumbling blocks can be. However, even smaller financial institutions should not underestimate the implementation of Fildleg and, above all, should not neglect it.

«The challenges in implementing Fidleg begin with customer segmentation»

Practice shows that some independent asset managers who have set a deadline of 2022 for applying for a Finma license have lost sight of Fidleg and risk violating the new regulations before having applied for a Finma license.

The challenges in implementing Fidleg begin with customer segmentation. Assigning clients to the three legal client categories can be complex. Correct identification of clients is the central gateway in Fidleg and determines the level of investment protection.

In practice, numerous special constellations arise, such as joint accounts and depots, mandates, relationships with independent asset managers, etc. Although the opting-in and opting-out possibilities provided for by the law offer interesting scope, their practical implementation may not prove easy in practice.

«Are clients sufficiently protected?»

In many cases, consultation and participation of the clients are unavoidable. The banks are strongly confronted with technical replication with regard to customer segmentation.

A special feature of Fidleg, in deviation from MiFID, is transaction-related advice with a reduced appropriateness test, in which neither the investment objectives nor the financial circumstances are to be inquired about.

This raises the question of whether clients are sufficiently protected because each individual transaction has an impact on the risks of an overall portfolio. For the financial service provider, it can be difficult to prove in individual cases whether transaction-related or portfolio-related advice took place.

«Structured products are particularly affected»

When implementing Fidleg, special attention must be paid to the scope for retaining third-party remuneration (retrocessions), which has been reduced for years, and to increased transparency requirements. This applies to all financial services and not only to asset management.

Structured products are particularly affected. However, many financial service providers do not (yet) want to review their pricing model.

The transition period for the preparation of a basic information sheet for all financial instruments will be extended by six months (until 30 June 2022). The extension of the transition period is primarily due to EU law: the UCITS KIID will be replaced by the PRIIPS KID six months later than originally planned, i.e. by 1 July 2022.

«The implementation of Fidleg is still underestimated»

The end of the transition period in 2021 also means that financial service providers must have trained their staff in Fidleg, especially rules of conduct. Management is required to implement Fidleg. Smaller financial institutions that outsource their compliance and risk management function to third parties must generally not be tempted by the principle of «out of sight, out of mind».

Practice shows that the implementation of Fidleg is still underestimated both in terms of the effort involved and the potential impact on the business model as well as the processes.

While the banks are working at full speed on the implementation of Fidleg and the adaptation of their IT systems, the Fidleg topics are often overlooked by smaller financial institutions and not perceived in their depth.

«The clock is ticking for the implementation of Fidleg»

Financial service providers still have time until the end of the year to adapt their organization to ensure compliance with Fidleg. In particular, corporate governance, compliance and risk management must be aligned with Fidleg compliance.

Financial service providers who have not yet started to do so are advised to introduce a Fidleg concept as soon as possible and to take the necessary measures to close gaps in the organization. The clock is ticking for the implementation of Fidleg.

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