Swiss PE market threatened by regulatory reform

Switzerland is currently reviewing its collective investment law, known as KAG (Swiss Collective Investment Schemes Act). The revision of KAG aims to bring tighter regulation to the management, custody and distribution of assets in a bid to protect investors, in line with the AIFM Directive. Critics such as the Swiss Association of Independent Securities Dealers (SVUE) say the regulator is trying too hard and too much, introducing regulations that are harsher than EU standards and will affect private equity, hedge funds and others. In addition, SVUE predicts the planned changes will not yield the results desired by the government and regulator, instead limiting sophisticated investors who do not require such a high level of protection.

However, Switzerland's financial lobby will be relieved by recent developments among the country's various legislative arms, with large parts of the national Bundesrat's draconian proposals for the reform of the KAG being overthrown by the locally-focused Ständerat's economic committee. The law now needs to make its way through the second stage in Switzerland's two-tier political system, the Nationalrat.

Felix Haldner, partner at Partners Group and member of SECA, the Swiss private equity association, said: "We've got a much improved draft that is going to be submitted to Parliament. But the next step will be an important battle round where the ministry of finance and the regulator Finma will try their best to restore the law to its original form. The sector and politicians will have to fight hard to ensure this current draft, which is an acceptable compromise, gets pushed through with integrity."

One GP told unquote" that the inexperience of the regulator Finma is proving problematic: "Investment managers in Switzerland were not regulated up until now. The challenge is that there is now a regulator who is relatively new and came from the banking sector and who has not had much to do with regulating funds and fund managers."

But Finma says it has to consider a variety of different factors when drafting regulations. A spokesperson for the regulator said: "Various financial sectors have different ideas of what they want to see in the final version. Even in the private equity sector there are disparities. Large asset managers want different rules to smaller ones."

The only thing that seems certain in Switzerland's private equity market is that the industry will face more and tougher regulations in the future. But whether new rules will help protect investors or see whole business areas disappear in the country – as critics fear – remains to be seen.

KAG's current draft is in the process of being finalised by the drafting commission and is expected to be voted through the Ständerat in June. It will then face the Nationalrat at the end of summer and is expected to come into force in the beginning of 2013.

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• Topics
• DACH
• Regulation
• Switzerland
• AIFM Directive