FinSA Obligations in Focus: What Asset Managers Need to Consider Now

 

What breaches did FINMA identify at the institutions concerned?

In the proceedings against Wendelspiess Partners AG, FINMA identified serious breaches of the rules of conduct. The focus was, among other things, on inadequately disclosed conflicts of interest in connection with a fund initiated and managed by the company. The investigation revealed that economic and personal relationships existed that had not been disclosed to clients, or had only been disclosed inadequately. At the same time, clients were not adequately informed about the risks associated with the investment, even though they generally had relatively limited financial knowledge and a low risk appetite. In addition, the legally required suitability assessment was not carried out at all. Nevertheless, a substantial proportion of client assets was invested in the fund in question, which also involved a significant concentration of risks. In FINMA’s assessment, this resulted in the interests of clients being systematically subordinated to the institution’s own interests, constituting a serious breach of the rules of conduct under the FinSA. FINMA withdrew the company’s licence and imposed multi-year bans from practising the profession on the persons responsible.

In the proceedings against Swiss Fund Management AG and BZ Berater Zentrum AG, FINMA likewise identified serious breaches of the rules of conduct. The investigation showed that substantial amounts – around CHF 200 million – had been invested in illiquid bonds that were closely interconnected and whose value was uncertain. These investments were linked to property development projects and, in some cases, also served to finance companies under the influence of the persons involved. FINMA also found that the existing conflicts of interest had not been adequately disclosed to clients. At the same time, the statutory obligations relating to appropriateness and suitability assessments were seriously breached. Overall, FINMA concluded that client assets had been channelled into undiversified products that were unsuitable for the investors, and that the interests of the investors had been subordinated to the interests of the institutions and individuals involved. As a consequence, FINMA withdrew the fund manager’s licence, rejected a licence application, imposed a ban from practising the profession and confiscated unlawfully obtained profits amounting to millions of Swiss francs.

 

Which FinSA obligations are the focus of FINMA’s enforcement?

The cases illustrate the central importance of the rules of conduct under the FinSA and demonstrate that FINMA is increasingly taking decisive action where these obligations are not complied with. Compliance with these obligations is of considerable importance, as breaches may not only result in supervisory measures but may also entail criminal consequences within the meaning of Art. 89 et seq. FinSA.

FINMA has already specified its expectations in Circular 2025/2 on the rules of conduct under the FinSA/FinSO and further clarified them in Guidance 03/2026 with regard to the risks associated with the use of products in individual asset management. For asset managers, the key obligations relate in particular to conflicts of interest, suitability assessments and risk disclosure.

 

How can conflicts of interest be effectively avoided and appropriately managed?

Asset managers are required to act in the best interests of their clients. As a general rule, conflicts of interest must be avoided through appropriate organisational measures. This follows in particular from Art. 8 para. 2 lit. b and c and Art. 25 FinSA in conjunction with Art. 9 to 10 and Art. 24 to 28 FinSO.

Particular attention is required where proprietary and third-party financial instruments are considered simultaneously within the investment universe. Financial service providers must transparently disclose whether they consider exclusively proprietary financial instruments, exclusively third-party financial instruments, or both proprietary and third-party financial instruments. Where proprietary products are concerned, appropriate measures must be taken to prevent conflicts of interest. This includes, in particular, a documented selection process based on industry-standard and objective criteria. Proprietary products must not be favoured on the basis of remuneration incentives. If conflicts of interest cannot be completely avoided despite appropriate organisational measures, they must be disclosed to clients.

 

What needs to be considered when conducting appropriateness and suitability assessments?

The cases in question also illustrate the central importance of the appropriateness and suitability assessment under Art. 11 and 12 FinSA and Art. 16 and 17 FinSO. This assessment involves not only an obligation to obtain information but also an independent obligation to assess that information. Asset managers must obtain all information necessary to establish an appropriate risk profile. This includes, in particular, clients’ knowledge and experience in relation to the respective investment categories. In asset management and portfolio-related investment advice, this knowledge and experience must not be assessed solely with regard to individual transactions, but in relation to the investment strategy selected and the types of products used. A general question about experience in the financial sector does not satisfy the statutory requirements. Rather, knowledge and experience must be established in a differentiated manner.

Information on income, assets and financial obligations must likewise be collected. Merely obtaining information on net assets is generally insufficient. Although financial service providers may, as a rule, rely on the information provided by their clients, obvious inconsistencies must nevertheless be queried and clarified.

 

How should concentration risks be identified and addressed?

The information requirements under Art. 8 para. 2 lit. a FinSA and Art. 7 para. 2 FinSO also include informing clients about the risks associated with a financial service. These expressly include risks arising from insufficient diversification. Concentration risks may arise where individual securities or individual issuers account for a significant proportion of a portfolio. According to FINMA’s explanations, concentrations of 10 per cent or more in individual securities or 20 per cent or more with individual issuers may indicate concentrations of risk that are unusual in the market. Concentrations within collective investment schemes that are subject to regulatory risk diversification requirements are excluded.

For asset managers, this means that concentration risks must not only be taken into account when constructing portfolios, but must also be actively discussed with clients and documented. This applies in particular where an investment strategy results in a significant concentration in individual assets or issuers.

 

Are Your FinSA Processes Still Compliant with Supervisory Requirements?

The current enforcement proceedings clearly demonstrate that asset managers should critically review their FinSA processes and the associated documentation. In particular, the design of processes and their comprehensive documentation in the areas of conflicts of interest, suitability and appropriateness assessments, and client information should be reviewed regularly and adjusted where necessary to ensure compliance with supervisory requirements.