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FINMA’s brave new world for Swiss asset managers

Siro Spellini, Managing Partner of LFG Holding SA believes FINMA’s new regulatory regime will push smaller intermediaries to merge, collaborate or find external partners. It marks the beginning of a brave new world, he says, when not just regulators but also tomorrow’s younger clients will prove more demanding.

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When was LFG Investment Consulting authorised by FINMA?

Our company formally obtained authorisation at the beginning of June this year. It was the first company to do so in the canton of Ticino and, if I am not mistaken, among the first three in Switzerland. Unusually, we manage the assets of clients who are mostly non-European. LFG Investment Consulting (LIC) is part of the LFG Group, alongside Lugano Financial Advisors (LFA), which is exclusively dedicated to US clients. For its part, LIC manages assets for clients in Central and South America as well as in Canada.

How long did authorisation take?

The authorisation process lasted a little over six months. Initially, we intended to become authorised by the end of 2020. But unfortunately, due to the pandemic, everything took longer than expected.

How much of a commitment was required?

FINMA carried out a comprehensive screening exercise, from the corporate structure to internal competencies, from the analysis of conflicts of interest to risk management, in general and not only related to the operational aspects. The requests ranged from the list of foreign banks to the type of clients, to the mitigation of various risks, etc. One of the important points for FINMA is to understand that the company works with specific centres of competence and how these cover their respective markets. It focuses on the risks and what measures the company implements to mitigate them. Operating independently, without any outsourcing, the exercise took about one year, from the beginning of preparation until the obtaining of the licence.

We have to provide the products that the children of our clients will want, and do so in the right way.

Siro Spellini, Managing Partner of LFG Holding SA

What’s the broader significance of FINMA authorisation?

In our opinion, the authorisation confirms that the company is solid, structured according to the latest standards and regulatory requirements, and in line with the times. Looking to the future, this approach is increasingly relevant and inevitable, both in Switzerland and internationally.

Can you explain the kind of impact you think the new laws will have on small Swiss asset managers?

The new legislation that has come into force entails a whole series of control activities and internal audits that require considerably more time, resources and technical skills. Medium-sized companies such as ours tend to already operate in line with these cross-checking and multi-level control requirements. But smaller asset managers by nature cannot have the division of functions, roles and skills needed. In my opinion, there can only be three solutions to this situation: merger, close collaboration, or – within the limits of the law – the appointment of external partners to carry out the activities needed for FINMA compliance.

Do you foresee consolidation?

I am expecting a gradual but noticeable change in the industry. I think that FINMA is inevitably pushing the smaller companies to come up with a solution, in order to comply with the new regulations. But from our discussions in Lugano we can see that there are smaller companies that have yet to start the authorisation process and are waiting to see what happens. If FINMA keeps to the end of 2022 deadline for authorisation, these firms cannot wait much longer to start the process. We would absolutely be open to evaluate mergers or cooperation with some of these companies as we believe it will be important to be larger as we move towards 2030. Our aim is to create an entity that gives continuity to our philosophy and to the philosophy of those who want to cross their story with ours to create a successful future together.

What else should Swiss asset managers do in order to compete in tomorrow’s world?

We are investing quite a lot to be closer to our clients through tools such as apps and e-banking, as we realise that the next generation wants to do everything electronically. The external asset manager has the advantage of providing a service to the client that is much more personal on account of its different role and size. We have to provide the products that the children of our clients will want, and do so in the right way. Two other important factors remain service quality (in every respect) and cost control. It will be challenging.

Key takeaways

  • LFG Investment Consulting is the first intermediary to gain authorisation in the canton of Ticino.
  • Smaller asset managers actually have three options to provide the division of functions needed for authorisation.
  • FINMA authorisation is likely to prove a turning point, heralding a new and challenging era.

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