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Preparing for Switzerland’s new supervisory regime

New regulations are reshaping Switzerland’s financial architecture, presenting challenges for wealth managers as they seek authorisation for the first time. Lessons are already being learnt about the authorisation process, just as the alternatives also become clearer.

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As Switzerland’s new regulatory regime becomes reality, it is ushering in great change for wealth managers and intermediaries. Early experience of the Swiss Financial Market Supervisory Authority (FINMA) authorisation process is providing a greater understanding of what’s involved. At the same time, the alternatives for those firms that do not want to apply for stand-alone authorisation are now evident.

The conventional route: applying for a FINMA licence

Those firms that decide to apply for a licence can benefit from the valuable lessons of earlier applicants.

Broadly speaking, applicants should be clear about their business models, client types and domiciles, as this helps to inform FINMA about the types of risk taken and the capabilities needed to manage them. It is also worth defining the internal organisation and respective responsibilities, as well as having the specified level of capital from the outset. Additionally, there are particularly extensive requirements concerning documentation.

The three sub-sections below describe FINMA’s main requirements, drawing on PwC’s experience to date.

Authorisation of wealth managers

1. Financial resources

Wealth managers must have capital equivalent to at least 25% of fixed costs, or a minimum of CHF 100,000 in cash – with a maximum ceiling permissible of CHF 10 million.

2. Information on business activities

Information about the activities conducted by client type and geography is key. This relates to the management of portfolios and investment advice. If financial instruments are also offered, they must comply with the Financial Services Act (FinSA).

3. Body responsible for direction, supervision and control

Wealth managers are not required, in principle, to have an independent board of directors. However, FINMA may request one, depending on the type of activity, once annual gross earnings reach CHF 5 million or there are 10 full-time employees.

4. Management / guarantee

In principle, management must have at least two qualified managers, although in exceptional cases just one qualified person may be judged able to manage the business. If so, a third party must be contracted for business continuity. The company’s managers must guarantee irreproachable business activity.

5. Operational organisation

The company’s organisational chart must show individual responsibilities, internal reporting lines, delegation arrangements and outsourcing partners. From an operational perspective, details are requested about: infrastructure and software / information systems, access rights to business premises, access to business documents and the protection of client data. Turning to investment, the decision-making process must be described. Additionally, the regulator requires companies to assess their business model’s inherent risks, as a prelude to controlling them. Finally, the provision of cross-border services, and monitoring of associated risks, must be documented.

6. Delegation of tasks

Wealth managers are allowed to outsource tasks to third parties in the areas of: compliance/risk, outsourcing of client data processing and the storage of business files.

7. Money laundering supervision

FINMA focuses on custodian banks, especially the number of banks and their head office locations. All wealth managers must have an anti-money laundering directive.

8. Codes of conduct

When reviewing the authorisation application, FINMA assesses the appropriateness of products and services for particular clients. Specifically, documented processes must demonstrate compliance with FinSA requirements.

FINMA authorisation process

1. Preparation

Careful planning is crucial. You should start by examining your company’s business model, and then make any necessary changes to your organisation, processes and resources – as well as familiarising yourself with how the regulations apply to your business.

2. Procedure

Preparing the application typically takes up to 16 weeks. Initial review by the supervisory organisation takes up to seven business days. After that, you can submit the application to FINMA, which generally gives an initial response within a month.

Support from PwC

PwC has service packages that provide comprehensive support when preparing your application, regardless of your company’s size or configuration. We draw on our extensive experience of FINMA authorisation applications for all kinds of financial institutions, including smaller wealth managers.

The alternative option: whether to merge or sell?

As many founders of intermediary firms are now approaching retirement age, they may decide that now is a good time to merge. If that is your preferred route, it’s best to have a clear vision of the role you wish to play in the future setup and of the specific stages you would like to go through, such as transferring your portfolio in full to a trusted partner, as opposed to staying on in your capacity as a consultant, advising your clients during a transition period.

On the other hand, the merger might have its best chance of success if you stay on, given your in-depth knowledge of your clients and the organisation.

Finding the best partner

Consider different partners to decide the best way to safeguard your legacy. You could hand over to another intermediary who shares your style and values, and would continue to give your clients a high-quality service. With our large network, we might be able to help you find a match. If you prefer, you could transfer all or a part of your firm’s assets to a bank like Julius Baer that provides independent advice in a similar way to you.

Wealth planning for you

Lastly, a holistic private wealth plan of your own is important, including a tax-efficient pension. Our wealth planning experts can provide you with the optimal succession solution for your needs. We are happy to discuss the entire range of holistic advice, including supplementary pension, philanthropy, relocation, financing, trust services and much more.

For Switzerland’s wealth managers and intermediaries, a new, more transparent, documented and organised world is emerging. Depending on your personal and business situation, there are choices to be made.

Key takeaways

  • New regulations are redrawing Switzerland’s financial architecture, ushering in major change for wealth management intermediaries.
  • Early experience has furnished firms like PwC with key learnings about the FINMA authorisation process, e.g. in terms of business operations and setup.
  • For intermediaries who don’t want to undergo the licensing process, there are viable alternatives such as M&As or succession solutions.

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