According to FINMA, around 2,400 portfolio managers and trustees have registered to make use of the transition period. Halfway through the transition period, FINMA had granted a license to 180 portfolio managers and trustees, corresponding to 7% of the financial service providers concerned. The remaining 2,200 or so are in the process of obtaining a licence or arranging another solution for once the transitional period has expired. Alternative solutions include seeking to merge with another financial institution or deciding to discontinue the business contrary to the originally expressed intention.
Portfolio managers and trustees who wish to continue their business activities free of sanctions after the end of the transitional period must have submitted a licence application to FINMA by the end of 2022. This involves, among other things, proving that they are affiliated with a supervisory organization (SO) that will assume ongoing supervision once FINMA has granted the licence. To plan the next few months, then, it is important to keep in mind that the FINMA authorization procedure must be preceded by an SO affiliation procedure. Out of the five SOs currently licensed, only two are located in the German-speaking part of Switzerland (FINcontrol Suisse and AOOS), while the other three (OSIF, SOFIT and OSFIN) are based in Neuchâtel or Geneva.
The figures show the potential for capacity bottlenecks soon if there is a rush to affiliate to the SOs in the second half of 2022. FINMA’s recommendation is clear: the regulator strongly encourages applicants to start the authorization process in good time. Although time pressure is already being felt, it is still crucial to prepare the license application accurately. On the one hand, the organizational structure of the future licensee needs to be determined carefully based on the licensing requirements and the existing setup. On the other, internal regulations must be drawn up in accordance with the specific business model envisaged.
In total, the license application comprises at least 40 enclosures, some of which must be prepared from scratch, while others need to be obtained from third parties. All of this requires additional time once the intended organization has been determined.
It should be noted that a large part of the new FinIA requirements must already be implemented by 31 December 2021. By then, comprehensive client segmentation must have been carried out, which in turn impacts the applicability of the business conduct duties. While the latter do not apply at all in relation to institutional clients, they can largely be waived by professional clients. Client segmentation also lays an important foundation for the portfolio manager’s future organizational and operational structure. Implementing the conduct provisions involves examining suitability or appropriateness and ensuring compliance with information, transparency and equal treatment obligations; in many cases, this triggers a need for reorganization and redefinition of processes. This affects financial institutions that are also financial service providers, including portfolio managers.
Besides considering the regulatory and formal requirements, another important aspect must not be underestimated: as part of the licensing procedure, portfolio managers and trustees often find themselves reflecting on their business model. Does the current approach to investment advice and asset management still meet their own criteria, or do they want to make changes? Are the right client groups being targeted? Is there room to reorganize the division of tasks within the company? Such considerations and changes also take time and should not be put off.
So once the festive season is over, use the new year as an opportunity to push ahead your licensing project quickly. Not submitting an affiliation application to a supervisory organization by mid-2022 is likely to leave you entering a critical phase, which needs to be avoided if possible.
Learn more about this topic in our factsheet (PDF).