1. A quick overview
Switzerland has become a favorite place of residence for numerous family offices which are founded and operated within Switzerland. The reasons for this choice vary broadly: be it the favorable infra-structure, the amount of qualified employees or the very often attractive tax regime in many cantons. The idea of family offices (be it a single or a multi-family office) is to render a variety of (both financial as well as non-financial) services for one or several families by the same personnel or entity. Since this may include a professionalization of financial intermediation, such activity may then be subject to regulatory and supervisory requirements. This essay shall provide its reader with a short overview of regulatory and legal duties with regard to family office activities.
2. Financial Intermediation: Supervision with regard to Anti Money Laundering
Besides non-financial services, family offices very often are mandated to manage and invest the family’s fortune. In such case, if this mandate is executed in a professional and – with the words of the Swiss legislator – commercial manner (i.e. the activity creates a certain amount of revenue) and includes employees who are outside of the family itself (and consequently, the services are rendered for a foreign fortune – which also applies for single family offices with employees outside of the family), this qualifies as financial intermediation according to the Federal Act on Anti Money Laundering AMLA. The qualifications for a professional financial intermediation are as follows (alternatively, not cumulatively):
– Net revenue of at least CHF 20’000.00 per year
– Contractual relationship with at least 20 clients per year (be it existing or newly on-boarded cli-ents)
– Unlimited power of disposition over at least CHF 5 Mio.
– Transactions of at least CHF 2 Mio. per year
If one of the above conditions is met, then the family office must be supervised with regard to compli-ance with AML duties, either by the Swiss Financial Market Supervisory Authority (FINMA), or an ap-proved Self-Regulated Organization (SRO). The AML supervision is restricted to compliance with AML duties, but does not give any further guidelines with regard to the office’s organization, business model, etc.
3. Asset Management of Collective Investment Schemes
If the family and its family office should decide to initiate and launch a collective investment scheme, no matter under which jurisdiction that vehicle shall be regulated, the office itself requires the ap-proval of the Swiss Financial Markets Supervisory Authority FINMA. Such an approval as asset manager of collective investment schemes is connected to various organizational requirements (partial inde-pendency of the members of the board, deputy-rules for every leading position, only partial personal overlap between board of directors and management, etc.), structural standards (rules and policies must be in place and lived by) as well as risk and compliance controls. The FINMA approval is therefore very often a large step with regard to the office’s organization and the work structure within a compa-ny.
Even if such an investment scheme is primarily set up for only one investor, it may under certain cir-cumstances be acknowledged by FINMA as a “private label fund” for only one investor – with the same legal requirements and restrictions as for any other collective investment scheme.
Since certain functions must be strictly separated from others (in particular risk and compliance officer vs. operations and management, but also IT and accounting), FINMA allows to outsource these tasks to experienced third parties to allow an office to remain a reasonable size with regard to personnel.
4. Management of pension funds assets
If the family office is not regulated as an Asset Manager of Collective Investment Fund but manages asset of a pension, then it is required to obtain approval by the „Oberaufsicht Berufliche Vorsorge OAK BVG“ (the Commission of high surveillance for occupational pension plans). The OAK BV’s approval must be requested before starting the mandate as manager of a pension fund’s fortune. The re-quirements are not as strict as with regard to the requirements for an asset manager of collective in-vestment schemes; still, the OAK BV controls the technical skills of the managing personnel as well as the organization and structure of the company (rules and policies, controls, allocation of tasks and competences).
When approving the business model of an asset manager of pension funds, OAK BV allows to out-source certain tasks and functions such as accounting, risk and compliance office or IT.
5. Outlook: FIDLEG/FINIG
As laid out before, most asset management activities in Switzerland are merely regulated – only with regard to AMLA issues and the respective supervision by FINMA/SRO. With new regulatory decrees of the financial services act and the financial institutions act (FIDLEG and FINIG), which we expect to come into force in 2019, all asset management companies will be in some form prudentially super-vised. While Asset Managers of Collective Investment Schemes will still be supervised by FINMA as before, the same supervision will newly be effective for Asset Managers of pension funds as well. These asset managers will be qualified together as Asset Managers of Collective Assets.
The planned new regulatory regiment foresees numerous duties to be fulfilled by all institutions. While many details are still unclear, and while there certainly will be graduation depending on every respective business model, this means that under future legal and regulatory standards every asset manager – including family offices with respective activities – will be under prudential supervision and hence be obliged to comply with minimal standards with regard to internal framework, structure and organization.
All asset managers who do not qualify as Asset Managers of Collective Assets will be supervised by a so called “Aufsichtsorganisation” (AO). The AO (it is possible that there will be more than one AO in Switzerland) will be approved and supervised by FINMA. The AO will supervise asset managers with regard to their organization, structure, policy and regulatory framework as well as the qualifications of their personnel. Many requirements are not yet defined – but the new supervisory regime signifies a clear accentuation of the asset managers’ legal and regulatory challenges compared to the current status. Certainly, the new regime will result in higher regulatory standards to be complied with by all Swiss based asset management firms or family offices who provide asset management services.