I Introduction

The final version of the revised Swiss Collective Investment Scheme Act ("CISA") was adopted by both chambers of parliament on September 28, 2012.

The period to request a referendum lapses on January 17, 2013. The Federal Council will then determine when the new CISA will enter into force, most likely on February 1, 2013.

In the meantime, the necessary amendments to the Swiss Collective Investment Scheme Ordinance ("CISO") to implement the new rules are being prepared. The outcome of the revised ordinance will have a substantial impact on how the new legislation will be applied. For the time being, it is still foreseen that the revised CISA and CISO will be able to enter into force concurrently.

II Final version of the revised CISA

1 Distribution

1 .1 Definition

The distinction between public offering and private placement has been abolished. Any form of offering or advertising pertaining to Swiss or foreign collective investment schemes ("CIS") is, in principle, deemed to be "distribution" unless it is addressed to regulated financial intermediaries (banks, securities dealers, fund management companies, asset managers of CIS and central banks). It is essential to bear in mind that the previously straight forward private placement rules generally allowing offering or advertisement to all qualified investors ("QI") or to a limited number of non qualified investors ("NQI") no longer apply. Furthermore, different regimes now govern various categories of qualified investors.

1.2 Exceptions

Certain activities have been specifically excluded from the scope of "distribution". Such exceptions include providing information and acquiring CIS

- based on instructions or upon the initiative of the investor, particularly within the scope of advisory agreements and execution only transactions and

- within the scope of a written discretionary asset management agreement with (i) a regulated financial intermediary or with (ii) an independent asset manager complying with minimal standards with respect to AML regulations, conduct rules as well as the form and content of the agreement.

Moreover, price publications by regulated financial intermediaries and the offering of employee participation schemes in the form of CIS are not considered to be "distribution" either.

2 Distribution of Foreign Collective Investment Schemes to Non-Qualified Investors

As under the current law, an approval of the foreign CIS by FINMA is required for distribution to NQI. According to the new law however, further to the existing conditions for approval, the asset manager and the custodian of a foreign CIS must be subject to supervision in their home state. The rules applicable to the custodian must also be deemed equivalent to those of CISA. Finally, a cooperation agreement providing for information exchange between FINMA and the regulator of the home state of the CIS must be in place.

3 Distribution of Foreign Collective Investment Schemes to Qualified Investors

3.1 Appointment of Representative and Paying Agent

The new requirement to appoint a representative and a paying agent in Switzerland also for the distribution of foreign CIS to QI was maintained in the final version of the revised CISA. However, the originally foreseen very extensive requirements to be fulfilled and supervised by the Swiss representative have been substantially reduced.

It is important to reiterate that a representative and paying agent need to be appointed only if the CIS is being distributed in or from Switzerland.

3.2 Duties of the Representative

According to the (unchanged) wording of the law, the representative must represent the foreign CIS towards the investors and FINMA. The representative is also responsible for compliance with (i) publication requirements and (ii) conduct rules issued by professional organizations which have been declared a minimum standard by FINMA.

The revised CISA does not however give any guidance regarding the concrete tasks to be performed by the Swiss representative with respect to CIS distributed exclusively to QI.

Since it cannot have been the intention of the legislator that the tasks of the representative be the same for foreign CIS distributed only to QI (and not requiring a FINMA approval) as for those distributed to NQI (and requiring a FINMA approval), it is crucial that these points be clarified in the CISO. It will be necessary to clearly distinguish between the obligations of the representative in each of these instances. The obligations of the representative with respect to CIS which are distributed to QI should be kept as lean as possible in order to ensure that the promoters of these CIS will still have a sufficient interest in accessing the Swiss market.

4 Distributors

Under the revised CISA, in order to distribute foreign CIS to QI, a financial intermediary must be subject to appropriate supervision either in Switzerland or in its home jurisdiction.

Although the wording of the new law is unclear, our understanding is that if a financial intermediary is not subject to supervision abroad, it will need to apply for a FINMA distributor license to approach both QI and NQI.

5 Qualified Investors

5.1 Definition

Under the new CISA, high net worth individuals are no longer automatically considered to be QI. However, they have the option to request in writing to be treated as such. The relevant amount of assets to be held as well as, if any, the professional knowledge required to be able to "opt-in" is not addressed at the level of CISA and will be dealt with in the implementing ordinance. It is to be expected that the threshold of assets will be substantially increased from the currently required CHF 2 million of financial investments.

Clients who have entered into a discretionary asset management agreement with a regulated (or, under certain conditions, unregulated) asset manager continue to be considered as QI. However, under the revised CISA, they can "opt-out" to be treated as NQI by means of a written declaration and, thus, enjoy a higher level of protection.

Otherwise, the definition of QI has not been changed.

5.2 Differentiated regimes for Qualified Investors

As mentioned above, foreign CIS must, under the new rules, appoint a representative and paying agent in Switzerland even if their shares are only distributed to QI.

Accordingly, if no distribution as defined by the new legislation is at hand, it should not be necessary to appoint a representative and a paying agent.

Since the offering of CIS to regulated financial intermediaries is not deemed to constitute distribution, it should not be necessary to appoint a representative or paying agent in such a case. The same should apply for the acquisition of CIS on the basis of a discretionary mandate.

Contrarily, it would not be admissible to offer such shares to e.g. high net-worth individuals who have "opted-in" as qualified investors, to pension funds or undertakings with professional treasury unless a representative and paying agent has been appointed.

6 Asset Management

6.1 New license requirement

All asset managers of Swiss and foreign CIS in Switzerland must obtain a FINMA license. De minimis rules allow for a license exemption if the investors are QI and

- the assets under management do not exceed CHF 100 million (including assets purchased with leverage) or

- the assets under management of the CIS consist of non leveraged CIS which are not redeemable for five years and do not exceed CHF 500 million or

- the investors are part of the same group as the asset manager.

Exceptions can be made at the ordinance level if the asset manager is already subject to equivalent supervision.

6.2 Swiss branch of Foreign Asset Managers

Under the revised CISA, a Swiss branch of a foreign asset manager will be eligible for a FINMA license if (i) appropriate supervision takes place in the home jurisdiction and (ii) a cooperation agreement with the home regulator is in place.

7 Transitory Provisions

Numerous transitory periods to adapt to the new legislation are foreseen in the revised CISA.

In particular, asset managers of foreign CIS must notify FINMA of their activity within six months of the entering into force of the new law. Within two years, they must have adapted their structure to comply with the new requirements and have filed an application for authorisation.

Also, distributors of CIS which now fall within the scope of CISA must notify FINMA of their activities within six months of the entering into force of the revised law. They too must adapt their structure and apply for an authorisation within two years.

III Outlook

It can be expected that a certain consolidation will take place in the field of asset management of CIS in Switzerland. Small enterprises which do not fall within the de minimis exemptions may not have sufficient means or sufficiently substantial structures in Switzerland to qualify for a FINMA license. Also, some family offices which manage CIS may fall within the scope of these new rules and will need to adapt their organization accordingly.

Further regulation of managers of other assets (non CIS) is currently in preparation in a new Swiss Financial Service Law (also referred to as Swiss MiFID).

One positive effect of these new regulations of asset managers may be seen in a higher level of confidence in the market participants which are licensed and FINMA supervised.

Regulating distribution of CIS also to qualified investors is likely to result in a reduction of the number of CIS offered in Switzerland. To which extent this will take place still largely depends on the concrete tasks to be undertaken by the representative in Switzerland. These are being foreseen in the implementing ordinance of the Federal Council. The first draft of the ordinance is expected to be published within the next few weeks.

IV Disclaimer

This newsletter highlights certain aspects of the revision of the CISA. Issues pertaining to foreign funds and cross border activities are the main focus. It does not provide a comprehensive summary of all changes made to the CISA. The implementing ordinance has not yet been finalized and will impact the application of the new legislation.

Although this newsletter has been compiled with care, Bär & Karrer AG cannot accept any liability pertaining to any use made of the information setout herein without further advice. The information provided above is intended to be general and cannot be regarded as advice. Should you wish to receive any further information regarding the revision of CISA, please let us know. We will be happy to assist you.