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Switzerland to impose regulation on trustees in 2020

Thursday, 7 November, 2019

The Swiss Federal Council has set 1 January 2020 as the commencement date of the Financial Services Act and Financial Institutions Act, introducing a regulatory system for the trust sector.

The most relevant regime for trustees is set out in the final version of the Financial Institutions Ordinance (FinIO), adopted yesterday (Wednesday 6 October) by the Swiss Federal Council. In addition to the Financial Services Ordinance (FinSO), also enacted, these ordinances mark 'the beginning of a new era' for trustees active on Swiss soil, bringing about ‘profound changes in the industry', according to Fabianne de Vos Burchart TEP, Counsel at Charles Russell Speechlys.

The law firm says that the original proposals to regulate trustees caused some disquiet, with many professionals fearing that the Swiss legislature did not understand the nature of trust relationships and would regard trustees as just another type of asset manager.

However, three years of lobbying have produced significant improvements in the ordinances, says David Wallace Wilson TEP, Private Client Partner at law firm Schellenberg Wittmer.

An exemption from licensing has been created for private trust companies, as well as a detailed exemption covering various types of single family office structures. The educational and professional experience requirements applicable to members of a trust company's senior management have also been adapted, in order to reflect industry standards. The legislation also recognises that trustees do not provide financial services and, as a general rule, do not act upon the instructions of clients.

A two-year transition period is being allowed for trustees to comply, and give time for the Swiss Financial Market Supervisory Authority (FINMA) to set up organisations to supervise the activities carried out by licensed trustees and portfolio managers. FINMA has started working on the guidelines they will be required to apply, in particular with respect to the risk categorisation of the soon-to-be licensed entities.

Both Swiss trustees and foreign trustees with a presence in Switzerland will have to apply for authorisation during the period. The regime will introduce additional compliance costs for trustees, and de Vos Burchart predicts that ‘certain actors will disappear as a result, whilst others will join forces with one another to reach a critical size that will allow them to cover their costs.’

Sources