Interview with Lisa Desjardins and Christian Wolf, directors and partners of CLARITIS SA
Interview published on February 21, 2022 on Point de mire
Among the requirements facing self-employed managers as part of their affiliation, there is one that raises many questions: the requirement for the company to be made up of two qualified managers, and the possibility for smaller companies to outsource the deputising of the qualified manager.
We describe these requirements below, and offer some food for thought based on our recent experience.
What is the definition of a qualified manager?
The Financial Institutions Act (LEFin) introduces a new concept for independent asset managers, that of qualified manager. This term merges two initially distinct notions: that of manager, i.e. company director, and that of qualification, i.e. expertise in the field of asset management. With regard to this second concept, any person with five years’ experience in asset management and at least 40 hours’ training in the same field is deemed qualified. These 40 hours don’t have to have been done recently. For example, holders of the CFPI or CFA diplomas, or those who have studied finance as part of their curriculum, meet this requirement.
The fact that the management team is made up of qualified executives is a feature not to be overlooked. Indeed, an organization in which the management is made up entirely of people “unqualified” in the field of asset management (for example, a strategic director and a Chief Operations Officer) is not a priori possible. In fact, the law stipulates that there must be at least two qualified directors of an asset management company. The purpose of this requirement is to ensure business continuity in the event that one of the directors is unable to fulfill his or her duties (due to illness, death, etc.).
What are the exceptions to the rule?
Firstly, the law provides for the possibility of derogations concerning training and experience criteria.
qualified executives, when circumstances warrant. Where applicable, the request is made by the asset manager when filing his authorization or as part of a modification request. Finma then decides on this aspect as part of its analysis of the file. However, there is not yet enough time to know exactly what Finma will consider to be circumstances justifying a derogation, and what kind of derogations will be accepted.
There is also an exception, which has been enshrined in law (LEFin art. 20, para. 2): the possibility for the management board to be made up of a single qualified person when it can be shown that continued operation is guaranteed. We analyze this second exception in the section below.
Guarantee of continued operation
The purpose of the going concern condition is to protect the interests of customers by ensuring continuity in the services provided, and in particular portfolio monitoring, even in the event of total incapacity of the sole qualified manager. As part of our authorization process, we worked on three possible responses to this condition.
Ensuring continuity over the long term: the principle is to appoint an external person who must be authorized by Finma, or to conclude a mandate directly with an authorized financial institution, to deputise for the qualified manager. In this case, a real, long-term return to business can be envisaged in the event of the qualified manager’s long-term incapacity or death. This solution has been considered by a number of asset managers, for example by setting up a two-way partnership (each company acting as the other’s deputy). It is also possible to conclude an agreement with the customer’s custodian bank. However,
such an arrangement would only be feasible if the assets under management were deposited with a single bank, or a limited number of them.
Continuity ad interim: in this case, the deputy ensures continuity without taking over the activity.
for all that. In the event of permanent incapacity or death, the company has the option of looking for a new employee who would then become the new qualified manager. This solution implies that the company does not limit its decision-making power to qualified executives alone – for example, by appointing additional directors or extending its management to executives who are not qualified within the meaning of the OEFin. They would then be responsible for finding and hiring a new, qualified executive. In this case, both the deputy and the new qualified manager would have to meet the requirements of the OEFin, i.e. a minimum of five years’ experience in asset management and 40 hours’ training.
Continuity leading to liquidation of the company (winding down): this is not a continuity plan that we have used for the time being in our authorization application files, although a continuity plan consisting of a gradual cessation of activities is also possible. In this case, the deputy will need to be able to manage the logistical aspects of such a scenario. Obviously, the question of portfolio management during wind-down arises, and will need to be specified in the continuity plan, since the aim of these legal requirements remains the protection of the customer’s interests.
Consistency of the continuity plan
Whichever solution is chosen, the essential aspect that Finma will analyze is the coherence of the continuity plan.
An asset manager with just one person acting as sole director and sole officer will find it difficult to opt for a continuity solution ad interim, since in the event of death or long-term incapacity, he will no longer be able to appoint or hire a successor.
Similarly, an investment manager planning to deputize ad interim or on a long-term basis will need to plan how the deputy will be able to take over account management (access to portfolios; authorization to send orders to the custodian bank).
Finally, logistical aspects will also need to be considered: in the event of incapacity, how will the deputy have access to the company’s IT systems, premises and customer files? How will customers be notified of the change?
Possibilities to suit everyone
In contrast to European laws, which spell out every obligation in great detail, the LEFin generally remains relatively succinct on how financial institutions must fulfill their duties. The organization of the company and its qualified managers is no exception. This leaves a great deal of scope for asset managers, but may in some cases reduce the certainty that the system put in place will be validated by Finma.
In any case, the Swiss regulator does not turn down files without making proposals on what needs to be changed. Thus, the fact that the solution chosen by the company is not ultimately validated by Finma does not affect the rest of the dossier, but does imply modifications to the proposed organization.
