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How can Swiss family offices future-proof themselves?

18 Jun 2024

By Alex Dean, Head of Family Office, Europe and Middle East and Freddy  Meyer, Deputy Managing Director, Switzerland

The Swiss financial industry is currently in the midst of a major regulatory overhaul, with authorities increasing their oversight of institutions. The speed of change is open for debate; however, the trend is clear for all to see.

So, what does this regulatory reform mean for Swiss family offices? And how can family offices future-proof themselves to ensure that they continue to operate effectively in a world of increased regulation?

A major regulatory shift

Traditionally, the Swiss Financial Market Supervisory Authority (FINMA) – Switzerland’s central regulatory authority – has employed a risk-based supervisory approach, assigning risk categories to different types of financial institutions. This has allowed the regulator to take a more tailored approach to supervision, with stronger oversight for higher-risk firms such as large-scale banks.

Now in the past, self-regulatory organisations (SROs) played a crucial role in FINMA’s strategy. These professional associations had the power to establish rules and controls to ensure that affiliated financial intermediaries, such as investment firms and family offices, acted in a professional and ethical manner and met their obligations in relation to the Anti-Money Laundering Act (AMLA).

However, in an effort to increase investor protection, FINMA has recently been moving away from the self-regulatory model towards a licensing approach. In 2020, for example, it introduced the Swiss Financial Institutions Act (FinIA), which requires asset managers and trustees to obtain licences from the regulator – and comply with strict regulatory requirements – if they engage in certain activities.

The aim of this new approach is to improve transparency and reduce systemic risk. By employing a licensing system, the regulator can have more control over who operates in the Swiss market.

Implications for family offices

In terms of the implications of this regulatory shift for family offices, there are several. For a start, family offices exceeding certain asset management thresholds or offering specific services such as portfolio management for multiple clients may need to obtain a licence from the regulator. It’s worth noting that there is an exemption for asset managers who only manage assets owned by persons linked to them economically or by family ties.

Additionally, family offices may have to comply with strict regulatory reporting obligations. This can involve submitting regular reports to authorities on firms’ investment activities and risk management practices.

Given these implications, family offices could be looking at both higher costs and more administration going forward. Obtaining licences and complying with regulations can be expensive. Meanwhile, keeping up with reporting requirements can be a burden, particularly for smaller firms.

How family offices can future-proof themselves

To future-proof themselves and ensure that they don’t become overburdened by new regulatory obligations, there are several moves that Swiss family offices can make.

Taking a proactive approach to the regulatory shift is one. Firms should make an effort to stay informed about the latest regulatory developments. They should also assess the potential impact of new regulations on their business models and develop a plan for compliance.

Consulting professionals that specialise in financial regulation is another strategy to consider. Regulatory experts can help family offices decipher the evolving regulatory environment – explaining the implications for different family office structures and activities – and guide them through the licensing process if required. Professionals can also assist in developing a comprehensive compliance strategy, minimising the risk of fines and reputational damage. It’s worth pointing out here that demonstrating a commitment to regulatory compliance through professional guidance can boost a family office’s credibility with investors and other stakeholders.

Finally, family offices may also want to consider the adoption of regulatory technology (RegTech). One major benefit of RegTech is that it can automate and streamline regulatory reporting. This can save firms time and reduce the risk of errors in manual data entry. Another benefit is that it can consolidate data from various platforms into a single system, reducing the amount of time needed to source compliance information. Additionally, it can offer tools to identify, assess, and monitor risks, helping firms proactively manage their risk profiles. By automating tasks and improving efficiency, RegTech can help firms reduce the overall costs of maintaining regulatory compliance while simultaneously freeing up staff to focus on core family office activities.

How IQ-EQ can help

At IQ-EQ, we have a deep understanding of FINMA regulations and the specific licensing requirements that apply to family offices. With over 25 offices globally, we also have a proven track record when it comes to advising family offices on regulatory change and effective RegTech solutions.

To learn more about how we can help your family office navigate the regulatory changes in the Swiss financial market and beyond, get in touch with us to discuss your requirements.

Working with IQ-EQ has been seamless – you and your team understand our business, advise us appropriately, and handle your side of our collective partnership so that we can focus on making good investment decisions. Evan Gibson SVP, Merchants Capital

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