From offshore to onshore: the end of Swiss banking secrecy?

Fund managers discuss the changee that may damage their offshore fund model, but not kill their industry.

Switzerland has long been an offshore haven in the heart of Europe, often running money in offshore funds for anonymous clients. As such, its fund managers did not have to submit to formal regulation by their Financial Market Supervisory Authority (FINMA), while few did.

That is about to change, as FINMA drafts rules – some say the harshest in Europe – to bring its fund ­managers onshore. Brussels is following suit via the EU ­Alternative Investment Fund Managers Directive (AIFMD). Early drafts of FINMA’s partial revision of the 2006 funds law (Kollektianlagegesetz – KAG) have shocked managers in Zurich and Geneva.

But even if the final law kills offshore investing, ­managers say Switzerland’s fund industry will survive. Indeed, they add, they were already shunning the offshore model, to the benefit of their clients, well before FINMA’s latest actions.


Under the draft, Swiss managers face compulsory regulation from mid-2013. The country’s CHF1.4trn fund industry defended itself robustly at its March conference. It urged FINMA and politicians not to make the draft rules even more severe than AIFMD, which itself aims to regulate EU managers of alternative offshore funds from mid-2013.

For EU authorities to allow Swiss managers to distribute their alternative funds freely on the continent, FINMA regulation only needs to be equivalent to, not ­surpass, AIFMD, according to the president of the Swiss Funds Association Martin Thommen. He and SFA members fear their industry will be o­ver-regulated and lose managers because of a ‘Swiss finish’ by FINMA – being even more ‘thorough’ than AIFMD.

“A few of Switzerland’s KAG provisions are more ­limiting than the corresponding EU rules and, in an ‘­own-goal’, [they] throw good established Swiss initiatives overboard,” Thommen says. Key worries for the Swiss Funds Association include:

• Costs of regulation and small independent managers migrating overseas to avoid them, rather than ­rejoining larger Swiss groups;

• Swiss managers only being able to distribute their funds to countries with which FINMA has co-operation a­greements, and;

• The same agreement requirement for foreigners to sell funds into Switzerland.
At the same time, many fund managers say their clients – Swiss and foreign – already wanted them to manage cash onshore – in Ucits funds, for example – before FINMA began to consider how best to subject the whole industry to onshore standards and transparency levels.

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