6 July 2020

Must deputies or executors also observe the FinIA and FinSA?

FinSA / FinIA – Our blog series providing essential insights (Post 7)

The Financial Institutions Act (FinIA), which came into force on 1 January 2020, subjects financial institutions that engage in professional asset management for third parties to a uniform supervisory regime. Does this also apply if someone manages assets within the framework of a legally regulated mandate?

Asset Managers within the framework of a legally regulated mandate are not financial institutions

The FinIA explicitly answers this question with no. Persons who manage assets within the framework of a legally regulated mandate are not considered financial institutions within the meaning of the FinIA (Art. 3 para. 2 lit. f FinIA).

Legally regulated mandates include various mandates under adult protection law, inheritance law, bankruptcy law and financial market law. A non-exhaustive list of the mandates covered can be found in Art. 6 of the Financial Institutions Ordinance (FinIO). In particular, general deputyships (Beistandschaft), advance care directives (Vorsorgeauftrag), executorships (Willensvollstreckung), estate administrations (Erbschaftsverwaltung), representation of heirs (Erbenvertretung) as well as bankruptcy administrations (Konkursverwaltung) are covered.

The scope of the FinIA and the FinSA are not congruent

On 1 January, the new Financial Services Act (FinSA) came into force alongside the FinIA. The new law does not refer to the concept of a financial institution, but to the provision of financial services. The fact that the FinIA is not applicable does therefore not mean that the FinSA is not applicable either.

The FinSA lays down various duties of conduct for financial service providers (see blog post on the Duties of Conduct under the Financial Services Act (FinSA)). The main obligations under the code of conduct are as follows:

  • Provision of information (Art. 8 f. FinSA)
  • Transparency and care (Art. 17 ff. FinSA)
  • Documentation (Art. 15 FinSA)
  • Accountability (Art. 16 FinSA)
  • The obligation to carry out an appropriateness and suitability test (Art. 10 ff. FinSA).

The scope of the duties of conduct under the FinSA depends on the client segment to which the respective client is assigned (see blog post Client Segmentation under FinSA). Accordingly, the conduct obligations do not apply to dealings with institutional clients. Professional clients also have the option of waiving the financial service provider's compliance with the duties of conduct (Art. 20 FinSA).

Personal scope of application of the FinSA

Financial service providers, client advisors as well as producers and providers of financial instruments are subject to the FinSA, irrespective of their legal form. Financial service providers within the meaning of the FinSA are persons who provide financial services on a commercial basis in Switzerland or for clients in Switzerland.

The Swiss National Bank, the Bank for International Settlements, occupational pension schemes and selected financial service providers in the insurance sector are explicitly excluded from the scope of the FinSA (Art. 2 para. 2 FinSA). The Financial Services Ordinance (FinSO) provides for an additional exception from the classification as a financial service provider in Art. 3 para 4. Accordingly, companies of a group, which provide financial services to other companies of the same group, are not considered financial service providers under the FinSA. In contrast to the FinIA, neither the FinSA nor the FinSO provide for an explicit exception for persons who manage assets within the framework of a legally regulated mandate. Nor do the materials explicitly address the question of whether or not such persons should be covered. One argument against the applicability of the FinSA could, however, be that the Federal Council states in its dispatch on the FinSA (German only) concerning the exceptions applicable to the SNB that the activities of the SNB on the basis of a legal obligation and in the public interest do not constitute a commercial financial service.

Interpretation according to the wording of the FinSA

The FinSA covers persons who provide asset management services to clients, which presupposes that the assets to be managed are third-party assets. This therefore already excludes constellations in which the person who carries out the asset management within the framework of a legally regulated mandate is a member of an executive body of the company whose assets are managed. In such case, the assets do not belong to a third-party. This applies, for example, to bankruptcy administrators. The situation is different in the case of execution of wills or deputyships. Here, third-party assets are managed.

Does the FinSA require a contract between financial service provider and client?

Ordinarily, there will be a contractual relationship between the financial service provider and the client. However, this is not mandatory. In order to cover the distribution of fund units, the ordinance has been clarified to include placements by a distributor to the end client, even if the distributor is not acting on behalf of the client but on behalf of the issuer and even if there is often no contractual relationship between distributor and client. The fact that the person who manages the assets does not act on the basis of a contract with the owner of the assets, but on the basis of a legally regulated mandate, is therefore not sufficient in itself to negate the application of the FinSA.

Interpretation in line with the purpose of the FinSA

The FinSA primarily aims to protect the clients of financial service providers.

The transparency provisions and clear duties of conduct are intended to ensure the flow of information between market participants. The client should be able to make decisions based on this information. He can do so only if he is capable of making decisions. However, a deputy is appointed precisely because the person to be protected needs support in financial matters. Similarly, an advance care directive only takes effect once a person is no longer capable of making decisions. Furthermore, in the case of an execution of a will, the persons concerned, namely the heirs, have no decision-making authority with regard to the management of the assets in the estate. The execution of the will does not serve the investment of assets, but the settlement of the estate. The rules of the FinSA would therefore come to nothing in this respect.

In addition, most legally regulated mandates are subject to other provisions, which ensure the protection of the persons affected by them. For example, deputies are subject to the restrictions of the Ordinance on Asset Management in the context of Deputyship or Guardianship (VBVV) (German only) when managing the assets of the person under deputyship. In addition, they are subject to the supervision of the Children and Adult Protection Authority (KESB), which must authorize extraordinary transactions such as the reinvestment of assets that change the previous investment policy. Meanwhile, bankruptcy administrators are supervised by the cantonal supervisory authority in accordance with Art. 13 DEBA, and official estate administrators and executors are also subject to supervision by the competent cantonal authority.

Thus, in our opinion, persons who manage assets within the framework of a legally regulated mandate are exempt not only from the scope of the FinIA but also from the scope of the FinSA.

If you have any further questions, please contact our Banking & Finance team.

Categories: Banking & Finance, Restructuring & Insolvency

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