Bloomberg - Conference PWC - AIFMD and CISA revision - Regulatory Challenges for Swiss AIFMs
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Bloomberg - Conference PWC - AIFMD and CISA revision - Regulatory Challenges for Swiss AIFMs

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Auteur du document : Bloomberg & PWC (Dr. iur. Guenther Dobrauz-Saldapenna) ...

Auteur du document : Bloomberg & PWC (Dr. iur. Guenther Dobrauz-Saldapenna)
Type d’auteur : Editeur & Conseil
Réglementations financières traitées : AIFM et CISA
Langue du document : Anglais

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  • 1. AIFMD and CISA-Revision
  • 2. AIFMD and CISA-Revision Regulatory Challenges for Swiss AIFMs Dr. Guenther Dobrauz-Saldapenna PwC Zurich Bloomberg presents » AIFMD Rules and Regulation« Geneva | 17th July 2013
  • 3. PwC Agenda Slide 3 1 The Regulatory Tsunami 2 AIFMD 3 CISA Changes
  • 4. PwC The Regulatory Tsunami 1 Slide 4
  • 5. PwC The Regulatory Tsunami visualized 2015 2013 Packaged retail investment products Credit rating agencies UCITS IV Solvency II ASSET MANAGEMENT INSURANCE Bank capital rules FATCA AIFMD UCITS V Consumer protection Corporate governance & executive remuneration Target 2 Securities MiFID II BANKING 2020 IMD II IFRS 4 Phase II CISA Slide 5
  • 6. PwC Horses for courses Initiatives have different goals and thus impact • US-led ones like the Foreign Account Tax Compliance Act (»FATCA«) and the Dodd-Frank Wall Street Consumer Protection Act (»Dodd-Frank«) increase tax transparency by requiring intermediaries to look through structures to identify taxable income • The EU Alternative Investment Fund Managers Directive (»AIFMD«) focuses on strengthening supervision by requiring licensing where the actual substance is and indirectly impacts on distribution • Swiss Collective Investment Schemes Act (»CISA«) amendments try to ensure continued access of Swiss-based financial intermediaries to the EU market for product distribution and service provision Combination of AIFMD and CISA will modify established structures, business models and distribution channels of Swiss advisors and managers of alternative investment funds Slide 6
  • 7. PwC AIFMD 2 Slide 7
  • 8. PwC AIFMD key concepts • Directive regulating activities of Alternative Investment Fund Managers (»AIFMs«) operating in the EU, i.e., any EU or non-EU AIFM managing and/or marketing any EU or non-EU Alternative Investment Fund (»AIF«) in the EU • “Managing” broadly means performing portfolio and risk management, “Marketing” covers (active) direct or indirect offering/placement by/on behalf of an AIFM of shares/units in an AIF to EU investors; reverse solicitation not covered • AIFMD does not regulate AIFs per se but indirectly imposes requirements on EU and on non-EU funds • An AIF is any non-UCITS fund, both EU and non-EU domiciled, explicitly including hedge funds, private equity funds and real estate funds Slide 8
  • 9. PwC EU carrot & stick approach • AIFMD will offer an EU-passport for compliant EU AIFMs and EU AIFs as of 2013 • EU passport may be available from 2015 to EU AIFMs marketing non-EU AIFs, and non-EU AIFMs marketing EU or non-EU AIFs if − AIFM fully complies with directive and supervision is recognised as equal − Cooperation and OECD-compliant TIEAs are in place between AIFM and AIF domiciles, EU AIFM reference member state and EU states where AIF is marketed − AIF and AIFM domicile not FATF blacklisted • National private placement schemes may remain until 2018 • Directive does not apply to AIFM with (»de minimis«): − less than €100m under management; or − less than €500m AuM if funds not leveraged and lock-up of min. 5 years Slide 9
  • 10. PwC Publication in the Official Journal (1 July) AIFMD Timeline Jul 11 Aug 11 Jul 13 Jan 19 Entry into Force (21 July) 1st Draft ESMA advice on Delegated Acts (consultation deadline 13 Sep) • Deadline for transposition into national law • Passport introduction for EU AIFMs managing EU AIFs (21 July) Jul 14 Deadline for authorisation of AIFMs (21 July) Jul 15 ESMA opinion on implementation of the passport regime for non- EU funds and managers Oct 15 Oct 18 EU passport available for non-EU AIFM ESMA opinion on withdrawal of national PPRs Withdrawal of national PPRs following receipt of ESMA’s positive advice Final ESMA advice on Delegated Acts to be submitted to the EC (16 November) Nov 11 2nd Draft ESMA advice on Delegated Acts (consultation deadline 23 Sep) Slide 10 Jun/ Jul 12 Level 2 measures by EU Commission
  • 11. PwC The Directive – Structure Art. 6-11: Authorisation of AIFM Art. 12-17: Operating conditions for AIFM Art. 19-20: Valuation; Delegation Art. 21: Depositary Art. 22-24: Transparency Requirements Art. 25-30: AIFM managing specific types of AIF Art. 31-33: Rights of EU AIFM to market and manage EU AIF in the EU Art. 34-40: Rules in relation to 3rd countries Art. 41-53: Marketing to retail investors. Competent authorities Art. 12-13: General principles and remuneration Art. 15: Risk Management Art. 16: Liquidity Management Art. 17: Investment in securitisation positions Art. 22: Annual report Art. 23: Disclosure to investors Art. 24: Reporting obligations to competent authorities Art. 1-5: Definitions, exemptions, determination of AIFM Art. 6: Conditions for taking up activities Art. 8: Conditions for granting Art. 9: Initial capital and own funds Art. 11: Withdrawal Art. 18: Organisational requirements Art. 14: Conflicts of interest Art. 7: Application Slide 11
  • 12. PwC Overview of key provisions Slide 12
  • 13. PwC Authorisation • All AIFMs need to be regulated by their EU «home state» financial regulator; • Authorisation process will require submission of detailed information to the regulator about shareholders, members, managers and cont- rollers, a programme of activity, including information concerning how the AIFM will comply with its operational obligations under the Directive, about the AIFs to be managed, the countries where the AIFs are to be sold and details of the custodians, valuers and other third parties to whom material functions are delegated; • As from 2015, non-EU AIFMs who manage EU AIFs and/or want to market an AIF to professional investors in the EU under the AIFMD passport will need to be authorised and regulated for AIFMD purposes by their MS of reference. Slide 13
  • 14. PwC Operational requirements (I) General provisions • Documented internal systems of management and control complying with EU standards (partly following UCITS models) relating to liquidity, management of conflict of interest and risk management (see later); • AIFM requires independent «valuer» and an independent depositary (see later); • For external AIFM, regulatory capital of not less than € 125,000, with additional funds equal to the higher of 0,02 % of the amount by which portfolios under management exceed € 250m – this includes portfolios the AIFM manages on a delegated basis (capped at € 10m) or one quarter of fixed annual overheads; • Internally managed AIFs need to maintain regulatory capital € 300,000. Slide 14
  • 15. PwC Operational requirements (II) Delegation • An AIFM is permitted to delegate its functions subject to having objective reasons for doing so; • An AIFM must not delegate its functions to the extent that it can no longer be said to be the AIF’s AIFM and becomes a «letter box entity». Risk management • AIFM must create a functionally and hierarchically separate risk management function, and formally documents a risk management policy relevant to the specific dynamics of each fund it manages; • Provisions are analogous to the requirements contained in recent UCITS requirements – emphasis on creation of robust framework rather than prescriptive rules. Slide 15
  • 16. PwC Operational requirements (III) Liquidity management • ESMA recommends that the AIFM documents a liquidity policy consistent with, and appropriate for, the liquidity profile of the investors, and of the portfolio of investments; • Specific reporting and notification requirements are provided in the event of ‘special arrangements’, to include side pockets, illiquid investments and suspension of NAVs as a result of liquidity issues. Conflict of interest • AIFM will be required to establish, implement and maintain an effective conflicts of interest policy; • Possibility of a firm disclosing circumstances that represent a conflict of interest as a solution to the conflict significantly limited, requiring instead a firm to manage its affairs to avoid such conflicts. Slide 16
  • 17. PwC Operational requirements (IV) Valuation • For each fund, either the AIFM or an external third party needs to own the valuation function; • If the AIFM assumes the responsibility, the function needs to be functionally independent from the portfolio management process. Leverage • Basically three options for calculating the leverage – the Gross Method, the Commitment Method and an «Advanced Method». The first two would be mandatory calculations; the third would be used at the discretion of the national supervisor. Slide 17
  • 18. PwC Depositaries • Duties: - custody of financial assets and non-financial assets; - cash-flow monitoring, cash booking and record-keeping; - oversight duties both in terms of due diligence into sub-custodian and also of oversight AIFM conduct. • Depositaries will be responsible for ensuring that transactions are in accordance with investment strategies, as explained to investors; • Depositaries will be liable for repaying to the fund the value of any financial assets held by them or their sub-custodians, which subsequently are lost. Slide 18
  • 19. PwC Transparency General provisions Transparency requirements are envisaged in three main categories: • Annual reporting and periodical reporting to investors; • Reporting to national regulators; • Remuneration. Remuneration (1/2) Aspects of remuneration need to be disclosed to investors: • Total amount of remuneration for the financial year, split into fixed and variable remuneration paid by the AIFM to its staff, and number of beneficiaries, and, where relevant, carried interests paid by the AIF; • Aggregate amount of remuneration broken down by senior management and members of staff of the AIFM whose actions have a material impact on the risk profile of the AIF. Slide 19
  • 20. PwC Transparency Remuneration (2/2) • AIFMD requires the deferral of performance related payments, participation in equity based compensation and reward policies that align bonuses to the wider strategy of the business; • Managers will be required to defer for an «appropriate» period at least 40-60 % of the bonuses and carried interest of affected staff, and at least 50 % of the variable compensation will need to be equity interests in the relevant fund, share linked instruments or equivalent non-cash instruments. Slide 20
  • 21. PwC Third-country provisions Requirement for equivalence Focuses is on three major areas: • Delegation of portfolio or risk management to third-country undertakings • Appointment of a depositary based in a third country • Cooperation arrangements between EU and third-country competent authorities in connection with the management and marketing of third-country (or third-country managed) AIFs Slide 21
  • 22. PwC DomicileofFund EUNon-EU Slide 22
  • 23. PwC What are the impacts for AIFMs? AIFMD decision tree (simplified assumptions) Slide 23
  • 24. PwC CISA Changes 3 Slide 24
  • 25. PwC Background Indirect Swiss AIFMD transposition/partial MiFID alignment • CISA revision attempts to align the Swiss legal framework with EU standards to ensure continued access of Swiss managers and service providers to the EU harmonised market and to close perceived gaps in investor protection in Switzerland; • Revised CISA and CISO have entered into force 1 March 2013; • Under the revised law the FINMA licencing regime for managers of collective investment schemes has been expanded to also include the management of foreign AIFs and Swiss branches of foreign asset managers unless de minimis rules apply; • The Swiss regime for the placement of AIFs in Switzerland has been brought closer in line with MiFID standards by narrowing the definition of qualified investor and introducing additional qualitative requirements on product and distributor level with further significant changes expected in the near future. Slide 25
  • 26. PwC New licensing regimes Asset Managers • Under the revised CISA branches of foreign asset managers and managers of all foreign investment funds will require licencing unless: − these funds are exclusively open to qualified investors; and − these funds do not in aggregation exceeded CHF 100m AuM (open-ended and including leverage) or CHF 500m (no leverage and closed ended) (de minimis); or − investors are exclusively member firms belonging to the same group as the Swiss-based asset manager. • Capital requirements for AIFMs remain at CHF 200k, CHF 500k is required if fund business for foreign collective investment schemes is also conducted. • Asset managers who fall under new licencing regime must contact FINMA by 31 August 2013 and file an application within 2 years. Slide 26
  • 27. PwC New licensing regimes Branches and consolidated supervision • Branches of foreign AIFMs must and can obtain licencing if they: − are in toto (head office and branch) subject to adequate supervision at their domicile; − have adequate financial resources, qualified personnel and organisational infrastructure to operate a branch in Switzerland; − they are not entirely controlled from Switzerland or the majority of their business is conducted from Switzerland; − all general requirements with the exception of capital requirements are complied with, and if − cooperation between FINMA and competent authority is in place. • FINMA may require adequate consolidated (group) supervision of asset managers who are part of a financial group or conglomerate if this is required by international standards. Slide 27
  • 28. PwC New licensing regimes Distributors and Representatives • Distributors of foreign collective investment schemes intended for distribution to qualified investors (unless exclusively to supervised financial intermediaries and insurance companies) require licencing unless they are: − adequately supervised by their home regulator; − licenced for such activity; and − have concluded a written distribution agreement with a Swiss representative. • Representatives of foreign collective investment schemes intended for distribution to qualified investors (unless exclusively to supervised financial intermediaries and insurance companies) require licencing; • Representatives of foreign collective investment schemes as well as distributors now requiring licencing must contact FINMA by 31 August 2013 and file an application within 2 years; • Banks, securities dealers, insurance companies and asset managers of collective investment schemes require an additional representative licence – file by end 02/14. Slide 28
  • 29. PwC New transparency rules Incentivisation of distribution chain Following the CISA revision: •All commissions and other benefits paid to distributors must be disclosed to investors in full; •All commissions received by fund management companies and asset managers when acquiring investment funds managed by them on behalf of their clients must be disclosed. ecording /minuting n all instances of distribution activity (i.e., not if placement with supervised financial intermediaries and insurance companies) it will be required to record determined investors’ requirements and reasons for investment recommendations in writing. Such minutes (protocols) have to be delivered to investors. ctual form and content of minutes will be determined via self- regulatory bodies recognised by Slide 29
  • 30. PwC Modified catalogue of Qualified Investors Discretionary asset management clients of regulated financial intermediaries who have not opted out and where the asset manager is: • In his capacity as financial intermediary governed by the Anti-Money Laundering Act; • Bound by an industry body code of conduct recognised by FINMA as minimum standard; and • The discretionary asset management agreement similarly complies with the guidelines of an industry body recognised by FINMA as minimum standard. Discretionary asset management clients of regulated financial intermediaries who have not opted out. Regulated financial intermediaries •Banks •Securities dealers •Fund management companies •Asset managers of collective investment schemes •Central banks •Representatives of foreign collective investment schemes •Swiss corporate investment vehicles (SICAVs, SICAFs, Swiss LPs). Regulated insurance institutions. Public entities and retirement benefits institutions with professional treasury operations. HNWIs who have opted in and are able to prove that at the time of investment into an AIF they either • Have assets of at least CHF 500k, and • Have sufficient knowledge to asset the investment’s risk based on education and professional experience or based on comparable experience in the financial sector; or • Have assets of at least CHF 5 Mio. which may also comprise real estate of up to a maximum of CHF 2 Mio net value (market value net debt). Qualified investors Companies with professional treasury operations. Slide 30
  • 31. PwC New distribution rules • All distribution of foreign collective investment schemes to qualified investors requires nomination of a Swiss representative and paying agent on behalf of the AIF and a distributor’s licence, unless − marketing of foreign AIFs only to regulated financial intermediaries and insurance companies; or − acquisition of AIFs based on reverse solicitation; − acquisition in the course of a discretionary asset management agreement with regulated financial intermediary or IAM on behalf of the client; or − acquisition in the course of an investment advisory mandated based on a long-term, written advisory agreement with a regulated financial intermediary an or independent asset manager. • No distributor’s licence is required for the distribution of Swiss AIFs to Swiss qualified investors. • The product if not offered to public does not require authorisation by FINMA but adequate product supervision. Slide 31
  • 32. PwC State of play in Switzerland What we see in the market • Huge questions around distribution of products; • Entire business models – for example of distributors only – are endangered if these do not have appropriate licensing outside of Switzerland, enough local substance to obtain licensing or if expected additional cost on product level are prohibitive; • Independent asset managers chiefly relying on AIFs to create alpha for portfolios and make money from incentives have to reconsider; • Independent asset managers with own (label) AIFs have to become licensed which is often difficult; • Incentivisation of distribution chain further threatened by initiated Financial Intermediaries Law which may in turn lead to disruption of existing business models. Slide 32
  • 33. Dr. iur. Guenther Dobrauz-Saldapenna, MBA Director, Asset Management Regulatory & Compliance Services PricewaterhouseCoopers AG Birchstrasse 160 CH-8050 Zürich Switzerland +41 58 792 14 97
  • 34. This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers AG, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. © 2013 PwC. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers AG which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.