Since the entry into force on 1 January 2014 of Article 48f of the Ordinance on Old Age Pensions, Disability and Survivorship (OPP 2), management of Swiss institutional occupational pension plan assets may be entrusted only to third parties subject to prudential oversight or to an accreditation from the Occupational Pension Supervisory Commission. This instance issues accreditations valid for three years (renewable) to independent asset managers who fulfill the conditions of the directive «Habilitation des gérants de fortune actifs dans la prévoyance professionnelle » (Directive D-01/2014 – Accreditation of Asset Managers Working in the Area of Occupational Pensions). At present, these accredited asset managers are nonetheless not subject to any prudential oversight.
This system will change with the entry into force of the Loi sur les établissements financiers (LEFin – Financial Establishments Act «FinIA») on 1 January 2020. Thenceforth, managers of assets of institutions of occupational retirement plans will have to obtain an accreditation from the FINMA in their capacity as managers of collective assets, insofar as they are managing assets over the legal limits (i.e. they are managing assets over CHF 100 million and, in the compulsory field, 20% of the assets of a single institution ; rules called de minimis). The managers of institutional pension assets who do not exceed the minimal limits will be subject to a less stringent asset manager licence. Moreover, as financial service providers, all asset managers will be subject to the rules of conduct of the Loi sur les services financiers (LSFin – Financial Services Act «FinSA»). Below, we discuss the main changes to come.
FINIA: LICENSE AND OVERSIGHT
The conditions to which collective asset managers are to be subjected are provided for in the FinIA and its enabling ordinance, broadly inspired by the conditions for authorisation currently applicable to managers of collective investment schemes under the Collective Investment Schemes Act.
The conditions for authorization of managers of collective assets are generally already partially fulfilled by accredited asset managers, for they are to be found, in essence, in Directive D-01/2014 regarding accreditation. Accredited managers are required to observe the guarantee of proper business conduct as well as the obligation to be organized on a scale commensurate with the volume of activity and the extent of the risks, all while maintaining adequate financial conditions. However, Directive D-01/2014 defines these conditions with less precision than the new rules. For example, the solid financial conditions required today have taken the form of required minimal capital of CHF 200,000 distinct from adequate own funds corresponding to a quarter of fixed costs, which must be permanently maintained. The requirements regarding organizational set up provided for in the FinIA exceed those regarding accreditation.
The real novelty resides in the prudential oversight of occupational pension asset managers. They will now be subject to FINMA oversight, passing from the status of non-regulated financial intermediaries to that of financial institutions subject to FINMA authorisation and oversight. The corollary of this oversight is the obligation to appoint an accredited audit company to carry out a prudential as well as a statutory audit. The newly regulated entities will thus incur additional costs.
FINSA: CATEGORIZATION OF CLIENTS AND RULES OF CONDUCT
The FinSA applies to managers of collective assets as financial service providers. The new law establishes: 1. the duty to inform; 2. the duty to verify the suitability and the appropriatness of the financial service provided; 3. the duty of documentation and accountability; and 4. the duty of transparency and due diligence in dealing with clients. The scope of application of these rules will vary according to the category of clients concerned, for the FinSA distinguishes three categories of clients, i.e. institutional, professional and private clients. Pension institutions belong to the professional clients category but can request to be considered institutional clients (opting- out) or, conversely, as private clients (opting-in).
As a professional client, the pension institution has the possibility of waiving the requirement that the financial service provider fulfill in its favor the duty to inform, the duty of documentation and accountability. This waiver must nonetheless be explicitly declared. This explicit waiver is not required in case of the opting-out of the pension institution in order to be considered an institutional client. In this last case, the financial service provider will be automatically dispensed from applying the above cited rules ; on the other hand, in case of opting-in of the pension institution in order to be considered a private client, all the protective rules of the law remain applicable. In practice, the institutional pension asset manager will generally wish to deal only with clients benefiting from the same status.
Finally, one might note that the FinSA also regulates the matter of retrocessions. If these are authorized by the FinSA, they will continue to require to be restored to the pension institutions in compliance with the regulations in matters of occupational pension.
The desire to subject institutional asset managers of occupational pension plans to the oversight of a prudential authority is not new. With the entry into force of the FinSA, this oversight becomes a reality and should be welcomed in that it reinforces the protection of professional pension plan assets. More exacting conditions for authorization and prudential oversight reassure the pension institutions regarding the quality of the asset managers that they mandate. For their part, the asset managers of occupational pension plan will then be able to claim prudential oversight, whereas today only the Occupational Pension Supervisory Commission accreditation is available to them.
Accredited asset managers will have until 30 June 2020 to report their existence to the FINMA and until 30 December 2022 to meet the FinIA requirements, bringing themselves into compliance with the law, and to put on file their request for authorisation as collective asset managers. The time has thus come for these actors to consider the type of regime they will work under, their organizational set up and the related costs.
Occupational pension fund managers will have until the 31 December 2020 to comply with the requirements of the FinSA, which will involve, in particular, a review of their internal documentation.
(published in French in Allnews).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.