FINMA regulation as an opportunity

Translation of the latest article on Allnews by Eugen Koch, Head of the EAM Team in Zurich:

FINMA rules pose a challenge for independent Swiss asset managers, but also offer opportunities for clients seeking high-quality advice.

The Swiss financial industry is facing a new challenge as the regulatory framework for external asset managers (EAMs) has changed. The new regulation places higher demands on EAMs and requires them to meet certain standards in order to survive in the market. Despite an initial consolidation process, more EAMs than expected have risen to the challenge.

However, obtaining the FINMA license is only the first step. In a second step, the new standards must also be put into practice. It can be assumed that, as a result, the number of EAMs will still decline somewhat, but the assets managed by EAMs are likely to remain relatively stable. This means that, according to current studies, the EAM market will remain an important pillar of the Swiss financial industry.

The new regulatory framework for EAMs puts them on a par with many private banks, but the complexity of the framework continues to increase. The question for EAMs is therefore whether they want to cover the additional complexity internally or rely on specialized providers. Outsourcing compliance activities, for example, or even a centralized, independent CIO office could be possibilities.

Another possibility is for smaller EAMs to join existing platforms and thus also gain access to important IT or compliance resources. All of these steps mean a certain cultural shift for EAMs, which in the past have placed a lot of emphasis on autonomy, toward more cooperation with other EAMs, platforms, or service providers.

The mergers expected as a result of the new regulatory framework have so far failed to materialize. The reason for this is probably the often extremely different EAM cultures, which also make future mergers seem rather unlikely. By cooperating at different levels, EAMs could largely preserve their own culture.

Interestingly, in the last few weeks, the courage to change could be observed in particular among the larger EAMs, with well-known names selling their majority of shares to strategic partners, with whom they can, however, still exist independently in the market. The goal of such transactions is usually synergy effects in the IT and administration areas or the development of additional competencies.

Such collaborations could also be beneficial for custodian banks. After all, EAMs and custodian banks form a partnership that is also about working together as efficiently as possible. This partnership could then also be extended to various service providers. It is precisely here, however, that a certain cultural change and interest in developing joint synergies is also required on the part of the banks.

With increasing complexity in the management space, it is important for EAMs to be able to evolve. To be successful in the current environment, EAMs must be allowed to think entrepreneurially and develop innovative solutions. For simple client relationships, the EAM can easily find a variety of custodians. But as the complexity of the client relationship increases, the number of possible bank partners decreases. This means that EAMs need a banking partner who is willing to provide the required support and is not afraid of complexity.

The new regulatory framework is a challenge for EAMs. But it also offers many opportunities, both for the EAMs and for the various service providers and custodian banks. With the right partners and collaborations, EAMs can take advantage of the new opportunities and continue to grow in the Swiss financial industry.

Banque Heritage's aspiration is to be a sparring partner at eye level for EAMs, never starting a conversation with a "no" if possible. Originating from a former family office, we understand the importance of the entrepreneurial approach for the further growth of EAMs and are ready to support them constructively. With our cultural responsiveness and local knowledge, the variety of languages we speak (French, English, Spanish, German, Arabic, Portuguese, Italian...) and our teams based in Geneva and Zurich, we as a bank for EAMs are ready to take up the challenge and support EAMs in their growth.

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