Assistance with FINMA license applications

For new market participants wishing to obtain a corresponding licence, it is crucial to set the right course at the outset in order to then take the right steps in a targeted manner. In addition to developing a suitable and successful business and investment strategy, it is also important to fulfil the relevant regulatory requirements efficiently. The asset management industry has undergone significant changes in terms of regulatory requirements since the Financial Institutions Act (FinIA) and the Financial Services Act (FinSA) came into force on 1 January 2020. The significantly increased and growing requirements represent a challenge for new market participants in particular. At the same time, regulation can also be seen as an opportunity. It not only ensures a level playing field among market players, but also creates trust and transparency with a clear set of rules. The implementation of FinIA also offers support in business management through clear processes and responsibilities and in accountability to customers.

This brochure is aimed at new market participants who require a FINMA license to commence their activities, whether as asset managers (individual client portfolios) or as managers of collective assets (collective investment schemes or pension fund assets). In this brochure, we would like to provide you with an overview of the two license categories and the associated organisational requirements, as well as introduce you to our services specially tailored for new market participants.

According to the law, an asset manager is anyone who can dispose of clients' assets on a professional basis in the name and for the account of clients or who manages assets of collective investment schemes or pension funds (possibly also below certain thresholds as a so-called de minimis asset manager).

Asset management for individual assets

An asset manager pursuant to Art. 17 ff. FinIA typically manages individual client portfolios as part of their core activity on the basis of a power of attorney granted to them. They make discretionary investment decisions within the framework of the investment strategy agreed with the client and implement them accordingly. Other activities may also be performed, such as investment advice, portfolio analysis or the offering of financial instruments (e.g. units in collective investment schemes).

Asset managers require a licence if they carry out their activities on a commercial basis. Professional activity within the meaning of Art. 19 of the Financial Institutions Ordinance ("FinIO") is deemed to exist if one of the following criteria is met:

• Achieving a gross income of more than CHF 50,000 per calendar year; 
• Establishing business relationships with more than 20 contracting parties per calendar year, which are not limited to a one-off activity, or maintaining at least 20 such relationships per calendar year; or
• Indefinite power of disposal over third-party assets that exceed CHF 5 million at any given time.

The FinIA then provides for certain exceptions, the existence of which (despite reaching or exceeding one of the thresholds for commercial activity) excludes the licensing requirement. Persons who exclusively manage the assets of persons economically or family-related to them (e.g. companies in a group, insofar as services are provided within the group) are exempt from the licensing requirement. Depending on the specific circumstances, an in-depth examination of the relevant requirements or non-subordination request to FINMA may be required in order to definitively exclude the licensing requirement.

Asset management for collective assets

The main difference between asset managers pursuant to Art. 17 ff. FinIA and managers of collective assets pursuant to Art. 24 ff. FinIA is the way in which the managed portfolios are organised. While the former manage individual client portfolios, the latter are entrusted with the management of collective assets, i.e. collective capital investments (or "funds") or pension assets, which are generally backed by a large number of beneficiaries. Anyone entrusted with the management of such collective assets generally requires a FINMA license within the meaning of Art. 24 et seq. FINIA. 

As an exception, the FinIA subjects managers of collective assets to the less comprehensive license of an asset manager in accordance with Art. 17 FinIA, provided the following criteria are met:

• The managed collective investment schemes are exclusively open to qualified investors within the meaning of Art. 10 para. 3 or 3ter of the Collective Investment Schemes Act ("CISA"); and
• the assets under management (including the use of leverage) do not exceed CHF 100 million; or
• the assets under management (without the use of leverage) do not exceed CHF 500 million and the collective investment schemes do not grant any right to redemption in the first five years after the first investment is made.

The so-called "de minimis" exemption applies to pension fund managers if they manage assets of no more than CHF 100 million and, in the mandatory area, no more than 20% of the assets of an individual pension fund.  

Licensing requirement and supervision

Both asset managers of individual client portfolios and managers of collective assets require prior licensing from FINMA in order to carry out their activities. While FINMA supervises the latter directly or prudentially (on an ongoing basis), asset managers of individual portfolios (including de minimis managers of collective assets) are subject to ongoing supervision by a supervisory organisation recognised by FINMA. In the event of any breaches of supervisory law, FINMA is responsible for the associated investigations, proceedings and measures ("enforcement") for both types of licence.  

Licensing requirements

Since the new financial market architecture came into force in January 2020, the organisational and financial requirements for obtaining the FINMA license for asset managers of individual portfolios and managers of collective assets have been regulated in the FinIA and FinIO as well as in the FINMA Financial Institutions Ordinance ("FinIO-FINMA"). As summarised below, a distinction is made between general and institution-specific requirements:

The general and institution-specific requirements listed above must be documented and verified as part of the license application to FINMA. It should be noted that there is no "one size fits all" approach, but that the requirements must be fulfilled in each case with regard to the specific business activity (e.g. type of products, type of clients, geographical focus, etc.) and the associated risks.

The application for licensing as an asset manager in accordance with Art. 17 FinIA - Milestones

The application for licensing as a manager of collective assets pursuant to Art. 24 FinIA - Milestones

Preparation

Careful planning is essential for an efficient and successful licensing process. This begins with a critical examination of the planned business model and the willingness to make any necessary adjustments to the organisation and resources. It is essential to gain an understanding of the relevant regulatory framework in relation to the specific business activity. Thanks to our extensive and long-standing experience in assisting with license applications, we can provide you with optimal support and identify and address potential hurdles at an early stage. 

The preparation phase then serves in particular to define the internal responsibilities and organisational structure, to determine the activities carried out and the associated regulatory obligations, as well as to understand the risks inherent in the business and to implement appropriate measures and controls. At the same time, any "weak points" must be anticipated at this stage and suitable strategies adopted to eliminate them. Experience has shown that this relates in particular to the appropriateness of the organisation and ensuring the necessary separation of functions. Even at this stage, it may be appropriate to examine the possibility of outsourcing certain functions, for example. 

Clarification of these and numerous other fundamental questions forms the basis for successful application preparation.

Application preparation and further procedure

In addition to the above-mentioned clarification of the basic principles and planning of the organisational structure, the formal preparation also includes in particular the preparation of the necessary documents and directives, the preparation and documentation of the calculation of own funds, the preparation of personnel documents (in particular CVs), obtaining reference documents (criminal and debt register excerpts, training certificates, etc.), the preparation of information on the financial situation (business plan, budgets for the next three years, etc.) and the preparation of the financial statements. CVs), obtaining reference documents (criminal records, extracts from the debt enforcement register, certificates of further training, etc.), preparing information on the financial situation (business plan, budgets for the next three financial years with various scenarios) and preparing the application and guarantee for proper business conduct form on the FINMA electronic platform.

After submission of the application and an initial review by the supervisory organisation and/or FINMA, open points and questions are addressed, which generally have to be answered in a written statement. The processing time or duration of this process varies depending on the complexity of the business model and depends on the circumstances of the individual case. Timely and efficient processing and communication are nevertheless essential in this phase. If, for example, the circumstances described in the license application change during the review process, it is advisable to inform the supervisory organisation and/or FINMA promptly. This may involve potentially favourable elements, such as a capital increase or an increase in assets under management, but FINMA must also be informed of more challenging changes, such as the opening of proceedings against a person subject to the guarantee of proper business conduct.

Our PwC Legal team has extensive experience in advising on FINMA license applications in the asset & wealth management sector, ranging from individual asset managers in the form of a one-man company to managers of collective assets with funds in various asset classes and jurisdictions as well as pension funds and fund management companies.

Our PwC Legal team supports and advises new market participants in the asset management sector with a holistic approach. We are characterised in particular by the fact that we not only provide support with regard to legal and regulatory matters, but also take a holistic approach that includes, in particular, the strategic orientation. This enables us to create sufficient clarity about the planned business model, the associated target operating model and ultimately the preparation of the application from the outset.

As part of the application preparation process, the focus is on preparing the organisational documents, always with the aim of taking the individual case into account and designing the organisation as efficiently as possible. Thanks to our extensive experience in assisting with licence applications, we are very familiar with the respective requirements of the supervisory organisations and FINMA and can prepare the documentation in line with the current circumstances.

The PwC legal team manages and coordinates communication with the supervisory organisation and/or FINMA and other stakeholders throughout the entire licensing process until FINMA grants the licence. 

Our unique market position as part of an international network of independent PwC entities should also be emphasised. If required, PwC can draw on this further concentrated expertise, whether for additional support in tax, corporate law or accounting matters as well as international aspects, such as cross-border labour law matters, social security aspects or the structuring of investment products.

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