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Five lessons for a smooth process

Any authorisation process is a journey for a portfolio manager or trustee. Like most journeys, it makes sense to plan your route well and have a clear map or plan in place. It is also useful to learn from experiences and lessons of others who have already travelled the path. 

Takeaway no. 1: Consider the alternatives to authorisation as a portfolio manager / trustee

You should think strategically how to cope best with the new rules under the Swiss Financial Institutions Act (FINIA) and the Swiss Financial Services Act (FINSA). Your choice should, naturally, align with your business activities. While it is beyond the scope of this article to list all the possibilities, the most common strategies pursued are the following:

  • Gaining authorisation as a stand-alone portfolio manager or trustee;
  • Partnering with other external asset managers (EAMs), banks, asset managers of collective investment schemes or other authorised entities;
  • Applying for a higher-ranking regulatory category, such as an asset manager of collective investment schemes, investment firm etc. that allows for additional financial services;
  • Taking a “regulatory light”-approach by entering one of the client advisor registries without the need of an authorisation from FINMA;
  • Becoming a member of a body of an entity, such as a board member or manager, and performing in that function portfolio management or trustee activities; or
  • Leaving the business that needs authorisation after the transition period.

Takeaway no. 2: Timing your application well

The transition period for getting authorised as a portfolio manager or trustee runs until 31 December 2022. Portfolio managers can start preparing the application at any point until then. But several factors influence the best time to do so. These are:

  • Your clients’ needs and wishes; 
  • The availability of internal resources; 
  • The availability of an established and reliable FINMA practice;
  • Requirements imposed by the market and the key stakeholders, such as custodian banks.

The important message here is that there is one common preferred approach. The right timing depends upon your individual set-up and needs.

Takeaway no. 3: Professional liability insurance can cover capital requirements

A portfolio manager or trustee must have capital of at least CHF 100,000. In addition, their own funds must cover 25% of fixed costs. Most portfolio managers and trustees, however, want to minimise the cash kept in the firm as far as possible. Consequently, many firms use their professional liability insurance to cover up to 50% of the required own means.

Takeaway no. 4: Take a hard look at outsourcing 

There is no best approach for handling authorisation. Yet successful authorisations show that it can make sense for portfolio managers and trustees to focus on what they do best and then to outsource other tasks to specialist third parties. In particular, outsourcing the role of compliance officer or risk manager can prove wise (a portfolio manager or trustee must have these functions if it exceeds the thresholds of at least CHF 2 million in gross revenue, more than five full-time employees and no business model with increased risks). Other activities that are outsourced include preparing the application for authorisation. 

Takeaway no. 5: Plan for the ongoing regulatory obligations 

Authorisation is just the start of your journey. Successfully authorised portfolio managers / trustees also think ahead. What’s especially important is the role of portfolio management and customer relationship management systems. For instance, fulfilling regulatory requirements for documenting daily activities on behalf of clients is almost impossible without technological support. For larger portfolio managers or trustees, the additional costs of FINIA / FINSA authorisation are unfortunately unavoidable. Smaller firms, however, may wish to collaborate in order to share costs.