AMC rules and regulations: What investors need to know

In the dynamic world of financial investments, Actively Managed Certificates (AMCs) have established themselves as attractive investment vehicles for discerning investors. However, as with all financial instruments, a solid understanding of the regulatory framework is essential. Especially in Switzerland, a global centre for wealth management, AMCs are subject to specific regulations that offer both protection and flexibility.

The most important facts at a glance

• AMCs in Switzerland are primarily subject to the Financial Services Act(FinSA) and the Financial Institutions Act(FinIA)
• FINMA acts as the central supervisory authority with extensive supervisory powers
• Issuers must ensure transparency with regard to fee structure, risks and investment strategy
• Governance requirements protect investors from conflicts of interest and operational risks
• Compared to traditional funds, AMCs often offer more flexibility with less regulatory burden

Legal framework for AMCs in Switzerland

The regulatory framework for AMCs in Switzerland is primarily based on the Financial Services Act (FinSA), which regulates the products and associated services, and the Financial Institutions Act (FinIA), which regulates the requirements for the financial intermediaries involved. These legal foundations, which came into force in 2020, have fundamentally modernised the regulatory landscape for financial products and financial service providers. Unlike collective investment schemes (funds), AMCs are not subject to the Collective Investment Schemes Act (CISA), which gives them certain advantages in terms of flexibility.

The Swiss Financial Market Supervisory Authority (FINMA) monitors compliance with these regulations and ensures that AMC providers have the necessary licences. In addition, the recommendations of the Swiss Structured Products Association (SSPA) play an important role as an industry standard, especially since the publication of comprehensive AMC guidelines in 2020.

In a global comparison, the Swiss regulatory approach to AMCs is perceived as balanced. It provides robust investor protection mechanisms without overly restricting product innovation. This differs from the stricter regulation under MiFID II in the EU, where comparable products are often subject to more complex requirements.

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Transparency and disclosure obligations

Issuers of AMCs must provide comprehensive product documentation. Depending on the target market, this includes a standardised key information document (KID), which presents all key product features, risks and costs in an easily understandable form. Unless an exception applies, these documents must be made available to prospective investors before they make an investment decision.

The documentation must contain precise information on the investment strategy, the permitted asset classes and any investment restrictions. Investors should pay particular attention to the level of detail of this information as it forms the basis for the assessment of investment suitability.

A critical aspect of regulation concerns the disclosure of costs. AMC providers must be transparent about charges, including:

• Management fees (typically 0.5% to 2% p.a. on the net assets in the product)
• Performance fees (often 10% to 20% of the excess return)
• Trading costs and spread fees
• Issue fees and redemption costs
• Indirect costs due to underlying investments

This transparency obligation enables you as an investor to make a well-founded assessment of the actual cost burden of your investment.

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Risk management and governance

Swiss regulations require AMC providers to have robust risk management systems. These must identify, measure and monitor the relevant risks. Those responsible must have sufficient qualifications and carry out regular risk assessments.

Clear responsibility structures between the issuer, asset manager and other service providers are particularly important. This separation of functions minimises potential conflicts of interest and strengthens control.

AMC providers are obliged to identify and manage potential conflicts of interest. This applies in particular to

• Transactions with related parties
• Proprietary trading activities of the persons involved
• Receipt of retrocessions or kickbacks
• Allocation of investment opportunities between different client portfolios

These governance standards form an essential protective shield for investors against possible abusive practices.

Investor protection for AMCs

An AMC is legally a debt instrument, meaning a claim against the issuer, not a share in a separate pool of fund assets. If the issuer defaults, investors face a partial to total loss, regardless of how the underlying asset performed. Collateralisation by pledge (COSI) can reduce this issuer risk.

The financial service provider must inform the investor of this risk.

Depending on the service, FinSA’s appropriateness or suitability assessment also applies. In the suitability assessment, the provider looks at the investor’s knowledge and experience as well as their financial situation and investment objectives, and judges whether an AMC fits them. The appropriateness assessment is limited to knowledge and experience. With professional clients, the provider may assume that they have the necessary knowledge and experience (Art. 13 FinSA).

If you have problems with AMC investments, there are various options available to you:

1. Direct complaint to the provider via established complaints procedures
2. Involvement of the Swiss ombudsman’s office for financial service providers
3. Complaints to FINMA in the event of suspected serious breaches of regulations
4. Civil law actions in the event of financial losses due to breaches of duty

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Tax aspects of AMCs

The tax treatment of AMCs in Switzerland differs from other forms of investment. The tax classification depends largely on the specific structure of the certificate and the underlying assets.

For international investors, specific regulations may apply depending on the double taxation agreement. Professional tax advice is recommended here, as the tax treatment can have a significant impact on the net return.

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Practical tips for investors

1. Check the full transparency of the fee structure
2. Analyse the detailed investment strategy and investment restrictions
3. Evaluate the qualifications and track record of the asset manager
4. Ensure clear responsibilities between issuer and manager
5. Understand the specific risks, including issuer risk
6. Review the liquidity conditions and possible restrictions
7. Consider the tax implications for your personal situation

Ask critical questions if information is missing or appears incomplete. Providers that offer complete transparency signal seriousness and compliance.

Reading tip: FinSA and FinIA in practice: rules of conduct for wealth managers

Developments in AMC regulation

The regulatory landscape for AMCs in Switzerland has undergone a remarkable transformation since its introduction in 2007. With the implementation of FinSA and FinIA in 2020, investor protection was strengthened and transparency requirements increased. The SSPA recommendations have also contributed to greater standardisation in the industry.

Looking back, it can be seen that regulatory development has always followed the balance between investor protection and market flexibility. The originally rather cautious regulation was gradually refined without stifling the innovative power of this investment instrument.

In the future, harmonisation efforts with international standards are likely to become increasingly important. This could facilitate cross-border distribution and make AMCs accessible to a wider audience.