Veritas – Swiss private bankers could win from planned hedge fund laws

Judging by some of the recent press reports about the forthcoming regulation of Switzerland’s fund industry, one might assume Bern is only giving bad news to its asset managers these days. It is not true.

Independent asset managers and their trade body are indeed nervous about the impending rules, and are urging politicians and regulators to tread carefully.

But some of Switzerland’s private bankers are quietly expecting they will be able to hire managers from firms that are too small to continue alone in a regulated climate.

Naming a minimum viable asset amount for a regulated asset management firm is difficult, but practitioners have said in the past $100m or more would be necessary to absorb costs of pending European regulation, the Alternative Investment Fund Managers (AIFM) directive.

There are concerns that Switzerland’s watchdog FINMA will be even stricter than AIFM, and provide the so-called “Swiss finish” to its own planned supervision, applicable from mid-2013.

Asset managers fear FINMA will have no exemption for smaller managers, in contrast to AIFM, and it will reportedly require overseas funds taking money from Swiss managers to adhere to its rules as well.

At the recent Swiss Funds Association conference in Bern, SFA president Martin Thommen said regulation that was too inflexible would put Switzerland’s status as a financial centre at risk.

“We must build in the flexibility for a flourishing asset management industry. We also want investor protection and good regulation, and to promote the reputation of the Swiss financial centre,” he said.

Matthaeus Den Otter, the SFA’s chief executive officer, said watching authorities in the lead-up to the revisions was like watching two fire brigades fighting outside a burning house about who would put it out.

At least CHF 469bn of domestic funds could be affected by FINMA’s rules, out of a total collective investment industry there worth about CHF 1.26trn. Presently fewer than 500 funds are believed to be regulated, though many thousands enlist for auto-regulation under a Code of Ethics and Professional Conduct.

Thommen noted his industry employs about 21,000 people and pays about CHF 1.4bn tax.

The SFA said: “Some of the proposed regulations cast aside good, well-established Swiss features. Regulations on distribution, in particular, have overshot the target. The [rules] are completely lacking in measures to strengthen competitiveness.”

A senior manager in the Federal Ministry of Finance told delegates to the SFA conference the government and supervisors had to balance competitiveness of industry with investor protection – and this would require some compromises.

The head of one Swiss family office said the Swiss regulator had left too little time to implement the reform, two full years after it began considering the topic.

One Swiss private banker estimated up to 50% of the industry was “very small groups” of a few people – and that the regulation would be a heavy burden on them.

Another Genevan banker said managers unable to bear the costs of compliance would either move to private banks or investment banks – often reversing their chosen career path.

“The private banks here could pick up some very talented individuals as a result,” he said.

“The other option would be moving to other financial centres, like London.”

This would be a reversal of the trend some UK hedge fund managers set last year, by moving to Switzerland to avoid 50% tax on their income.

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