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Regulatory compliance and confidentiality are key considerations when choosing a legal representative

As of 1 March 2015, it has become mandatory for fund managers distributing their products in Switzerland to commission a Swiss legal representative and paying agent. Regulatory compliance is the name of the game when it comes to the service provided by UBS. 

"Our offering is designed to cover the current regulatory requirements, monitor distributors,  contract with  managers as well as distributors and guide them with respect to changes in the regulatory environment of distribution", says Beat Blattner (pictured), Head Representative Services at UBS Global Asset Management. "In addition, we support managers with market intelligence of the Swiss regulatory environment and the Swiss fund industry. We do not, however, raise capital for them as we see a potential conflict of interest with our duties as a representative. In our experience, managers want to have their own distribution team as they know their products best. For the majority of blue-chip managers we work with, regulatory compliance is their primary consideration, followed by confidentiality,” says Blattner. 

UBS has been in the representative services business for many years and it was thus a natural and logic step to expand its offering to alternative investment funds ("AIFs"). Therefore, the firm made the necessary preparations early and has now a very comprehensive offering in place. The services are offered to managers who already have an existing relationship with UBS. UBS aims to support clients with a one-stop solution and to keep the distribution market open for its clients or their funds from a regulatory compliance perspective.

UBS has been managing its on-boarding over the last 12 months, opening up internal channels to inform managers regarding the changes in regulations ahead of the 1 March 2015 deadline to avoid any potential gaps or compliance issues in their Swiss distribution activities.

“We’ve been very busy over the last couple of months, providing our clients with a reliable onboarding process and working through the different steps in a structured fashion", says Beat Blattner. The quality of service, providing early communication, getting a structured pipeline in place ahead of the deadline: these have all been important considerations. "The closer we got to the deadline, it was key to be very transparent with regard to our capacity as we do not make compromises in terms of quality. We are glad to say that our pipeline is very good at the moment. Our team is committed to the onboarding process to meet clients' expectations. We are very conservative with our planning to avoid any disappointments.” 

UBS takes a holistic approach, assessing the complexity of the funds, the quality of the fund manager and its service providers. From there the team goes into detail to identify any potential operational risks because, as Blattner points out, “you need to know exactly whom you are contracting with, especially for the ongoing monitoring component with respect to the requirements on the distribution side according to the Collective Investment Schemes Act "CISA".

One frequent question according to Blattner is about distribution rules. If a manager relies on reverse solicitation, execution-only, discretionary mandates then he doesn't need to appoint a representative. But “for AIFs, the question is not to focus on active versus passive distribution, but on distribution according to CISA versus private placement, which is qualified as non-distribution," Blattner explains.

Under the so called private placement regime („non-distribution“) without legal regulation, it is possible to rely on exemptions from the term «distribution» and thus from the requirement to appoint a Swiss representative and paying agent. This is possible if the activity is solely addressing regulated financial intermediaries such as banks, securities traders, fund management companies and asset managers of collective investment schemes, as well as central banks and regulated insurance institutions. 

Other options under the private placement regime are activities carried out based on unambiguously documented reverse solicitation, a written investment advisory agreement concluded between the placing entity and the investor or a written discretionary investment management agreement. 

“When understanding the full context of the regulation, documentation requirements and remaining uncertainties to rely on such exclusions, most of the managers want to avoid doubts on compliance and will rather appoint the representative than try to work through the narrow exclusion scenarios,” says Blattner.

When a manager appoints UBS, they are provided with a single point of contact. This keeps the process streamlined and allows the relevant representative services specialist to establish a clearly defined workflow over all on-boarding streams. 

“We will coordinate the whole process. We don’t want managers to have to deal with a broad range of different contacts." Blattner says that when managers approach UBS, the focus is:

• To clearly understand whether their activities are in scope (for example with respect to qualification of their investors, transition period, classification of closed end funds)
• To give the client an accurate understanding of the level of interaction with the representative (on an ongoing basis) and
• To determine whether we have a bundled offering, including both the representative and the paying agent function.

“Our goal is to help managers work in a proactive, rather than reactive fashion, when distributing their funds in Switzerland. Neither our clients nor we want to make compromises when it comes to regulatory compliance. Before contacting a potential Swiss representative, fund managers should define their Swiss distribution strategy, assess with their internal compliance team whether their products and activities are in scope of the new legislation, which level of support they need and what service quality is expected. Then they should get in touch with a legal representative in Switzerland to review the assessment and define the way forward,” concludes Blattner


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