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.