Switzerland’s financial sector is highly attractive for various financial activities, primarily due to its political and economic stability, currency stability, extensive expertise and excellent financial infrastructure, as well as the presence of leading financial companies. Unsurprisingly, the Swiss financial sector provides an ideal environment, primarily for domestic alternative funds, managers and investors. Consequently, the sector is comprehensively regulated through the interplay of various federal laws and complementary regulations.

In Switzerland, alternative investment funds (AIFs) are established as vehicles for investments in commodities and real estate. However, hedge funds and private equity funds, which are also very popular in Switzerland, can also be classified as AIFs. During times of inflation, investments in commodities, especially gold, are popular due to the crisis resistance inherent in their limited supply. Investments in sustainable and future-oriented infrastructure, such as renewable energy, are also highly popular, while real estate funds are most favoured by investors. Surprisingly, crypto-asset funds are under-represented, likely due to authorisation requirements imposed by the Swiss Financial Market Supervisory Authority (FINMA).

Swiss law allows AIFs to operate in the form of investment companies with variable capital (SICAVs) or contract funds (FCPs), structured as open-ended funds and run by management companies. Additionally, AIFs in Switzerland can take the form of investment companies with fixed capital (SICAFs) or limited partnerships for collective investment (LPCIs), structured as closed-ended funds.

The legal basis for SICAVs is found in the Swiss Federal Act on Collective Investment Schemes of 23 June 2006 (CISA). SICAV formation is subject to the Swiss corporate law provisions on the establishment of joint-stock companies, with certain exceptions specified in the CISA. Unlike SICAVs, FCPs lack their own legal personality; instead, legal personality is attributed to the operating management company. Investors enter into a fund with the management company (see Article 25 CISA).

SICAFs are designed as traditional joint-stock companies under Swiss corporate law: they do not have publicly traded shares, their shareholders need not meet the qualifications of Article 10(3) CISA, and their sole purpose is collective capital investment. LPCIs, which have a similar purpose, determine their legal form under the Swiss Code of Obligations (CO), with some special provisions found in the CISA. Unlike SICAFs, LPCIs have no legal personality. Lastly, under certain conditions, investment companies are subject only to Swiss corporate law and not regulated by the CISA – this sets them apart from SICAFs.

The structuring of AIFs mentioned in 2.1 Types of Alternative Funds is subject to a case-by-case assessment and cannot be determined in a blanket manner.

Apart from those organised entirely under private law, all AIFs require authorisation and approval from FINMA to be established and operate in Switzerland. These structures are also subject to various regulations; of particular relevance are the CISA, the Ordinance on Collective Investment Schemes (CISO) and the Ordinance of FINMA on Collective Investment Schemes (CISO-FINMA).

Other regulations imposing additional obligations, particularly those governing financial institutions and financial services, can also be applicable to AIFs. These may include:

• the Federal Act on Financial Institutions (FinIA) of 15 June 2018;
• the Federal Act on Financial Services (FinSA) of 15 June 2018; and
• the Ordinance on Financial Institutions (FinIO) of 6 November 2019.

The investment activities of AIFs must not exceed 600% of their net assets. The fund regulations may set lower investment thresholds (Article 100 CISO, in conjunction with Article 71 CISA).

In deciding whether to issue authorisation, FINMA considers numerous factors in a potentially time-consuming process. Therefore, no general statements can be made regarding the time needed to obtain authorisation; duration varies on a case-by-case basis.

In summary, AIFs are subject to comprehensive regulation in Switzerland. Only AIFs subject solely to Swiss corporate law have no obligations towards FINMA.

The Swiss legislature has enacted comprehensive provisions to ensure the transparency of investment offerings and that investor protection is upheld. These provisions distinguish between open-end and closed-end funds (see 2.2 Fund Structures).

Open-end structures (FCPs and SICAVs) must issue a detailed investment prospectus containing various information relevant to (potential) investors. Reflecting the high need to protect inexperienced retail investors, funds catering to this investor category must provide a Key Information Document covering various fundamental aspects (see Article 8 FinSA and Article 7 FinSO). Furthermore, regulations of these AIF structures must be approved by FINMA. Less extensive requirements can be prescribed by FINMA when an AIF includes only qualified investors. The rationale is that qualified investors have lower protection needs than retail investors.

Different provisions apply to closed-end structures: SICAFs must issue prospectuses including fund regulations and articles of association, while LPCIs are obligated to issue FINMA-approved prospectuses containing the partnership agreement (see the CISA). The same requirements apply to SICAFs, as they also require a Key Information Document.

Foreign AIFs without FINMA approval are not permitted to engage in investment activities accessible to retail investors, but may target qualified investors.

Article 89 CISA stipulates reporting obligations for LPCIs and open-end collective investment schemes, in particular the obligation to submit an annual and semi-annual reports to FINMA. Any change in an AIF’s organisation must also be reported to and, if necessary, approved by FINMA. Furthermore, open-end funds must regularly disclose the net asset value of their shares.

Foreign service providers offering services in the AIF industry from abroad but not having a physical presence in Switzerland are not subject to Swiss income tax. Under certain conditions, they may also be exempt from Swiss value-added tax (VAT). However, if foreign service providers have a regular physical presence in Switzerland, either through employees residing there or business trips, they may become subject to Swiss taxation.

The tax-related distinction applies in Switzerland, due to the tax treatment parity between domestic and resident foreign collective investment schemes, also to resident foreign collective investment schemes. They likewise require approval from FINMA.

For certain Swiss AIFs (FCPs, SICAVs, and LPCIs), the income generated from net assets is attributed for tax purposes to the individual investor. However, AIFs that directly hold real estate as part of their investment activities must pay annual capital tax on net assets and income tax on the income generated by real estate holdings.

The tax-transparent structures described above are subject to a withholding tax rate of 35%, though this tax is not levied on directly held real estate assets. The same tax rate applies to distributions from the very rare SICAFs and entities governed solely by Swiss civil law (the CO).

Swiss investors may, under certain conditions, request a refund of withholding tax, while foreign investors can seek an exemption under the conditions of the affidavit procedure. In this scenario, it is necessary to obtain a bank’s verification that the specified holdings are held in their custody for an investor residing abroad, and that the earnings are deposited into the investor's account. When an affidavit is provided, Swiss investment funds, with over 80% of their earnings originating from foreign sources, can distribute earnings to investors residing abroad without deducting Swiss withholding tax.

SICAFs and investment companies solely governed by the CO are subject to corporate and equity capital tax, equivalent to the taxation of legal entities in Switzerland.

For information on double-taxation agreements, please refer to 4.7 Double Tax Treaties.

In principle, AIFs in Switzerland are authorised to lend funds, as dealings with derivatives are generally permitted. However, such lending activities must not have adverse economic effects on the fund’s objectives and must conform with investment objectives specified in the fund regulations and prospectus. In practice, there are only a few such funds in Switzerland. This may be explained by the Swiss legal framework offering suboptimal conditions for AIFs engaging in lending activities. Like all other AIFs, those that provide loans are subject to approval by FINMA. However, they may also require a banking licence for lending under certain circumstances.

Investments by funds in non-traditional assets are generally permissible in Switzerland, provided that FINMA grants approval. Nonetheless, there are several aspects to consider.

Investments in digital assets generally encompass cryptocurrency funds. The Anti-Money Laundering Act of 10 October 1997 (GwG) encompasses the investment structures mentioned in 2.2 Fund Structures and supervised by FINMA. Since cryptocurrency and blockchain technology are often used for anonymous financial transactions, AIFs must be careful not to invest in technologies used for abusive purposes, which would violate GwG norms. They must also adhere to know-your-client (KYC) regulations. In 2021, FINMA approved the first cryptocurrency fund in Switzerland. FINMA follows the principle of “same risks, same rules”, meaning that cryptocurrency funds are not allowed to circumvent financial market rules. Approval for cryptocurrency funds is based on qualified criteria, including a banking licence.

Funds in Switzerland are permitted to invest in consumer loans and credit portfolios, subject to specific regulations, for instance concerning verification of borrowers’ creditworthiness and establishing interest rate caps.

Investing in cannabis or related assets is problematic in Switzerland since both cultivation and consumption of cannabis are permitted only for medical purposes. Therefore, only medically used cannabis may be the object of AIF investment. FINMA first approved such investments in June 2020.

Litigation-financing funds have also been established in Switzerland, with the first receiving FINMA approval in June 2023.

The establishment of subsidiaries solely for investment or strategic purposes is permissible in Switzerland. This allows a parent company to transfer more risky business activities into a subsidiary. Naturally, the establishment of subsidiaries is also a common practice for tax optimisation.

Articles 32 ff. FinIA and 49 ff. FinIO stipulate that fund management must be carried out by a Swiss corporation with its registered office and principal administration in Switzerland. It is important to note that the non-transferable, non-delegable tasks of the board of directors (see Article 716a CO) must be carried out in Switzerland. In the sense of overall leadership then, fund management is non-transferable, whereas subordinate management tasks may be delegated under certain conditions. Asset management may be delegated to entities domiciled in Switzerland or even abroad when they are subject to similar or equivalent high regulatory standards to Switzerland. Additionally, delegation must be approved by FINMA. Article 14 FinIA and Article 17 FinIO requires that the delegation must not cause significant detriment to the Swiss internal auditing body such that it cannot fulfil its responsibilities. There must also be effective communication between FINMA and foreign supervisory authorities.

The fund must in effect be managed from Switzerland. There is one exception to this rule. General directives and decisions relating to group supervision may be issued from an establishment abroad if the financial institution is part of a financial group that is subject to supervision by foreign authorities on an appropriate consolidated basis. Furthermore, the person entrusted with managing the fund must be resident in a place where they may effectively exercise such management, namely in Switzerland or a neighbouring area. Regarding other substance requirements, AIFs must have appropriate premises and suitably qualified employees to perform their business activities. Furthermore, an adequate risk management mechanism encompassing all business activities must be put in place to identify, assess, control and monitor all the main risks.

For AIFs in Switzerland, there are certain rules and considerations regarding the choice and location of service providers such as administrators, custodians, money laundering reporting officers (MLROs), and compliance officers.

Administrator

Administrators managing the fund must be resident in a place where they may effectively exercise such management, namely in Switzerland or a neighbouring area. The appointment of an administrator position is generally subject to the provisions of Articles 19 et seq. of the Federal Act on Foreign Nationals and Integration (AIG, SR 142.20), as in any other part of the job market. Additionally, the choice of the fund administrator may also be influenced by contractual agreements, investment fund regulations and the specific needs of the fund and its investors.

Custodian

Swiss AIFs are generally required to appoint a custodian bank or financial institution (under the CISA, CISO, and CISO-FINMA). The custodian is responsible for safekeeping the fund's assets and ensuring compliance with applicable laws and regulations (e.g. Banking Act, SR 952). A local or foreign entity may serve as custodian but must meet certain regulatory criteria to operate in Switzerland, as codified in the above-mentioned laws and in FinSA.

MLRO

In Switzerland, financial institutions including AIFs must appoint an MLRO to oversee and report transactions with suspected ties to money laundering and/or terrorist financing. The MLRO ensures compliance with Swiss AML laws. Operating under fedpol, the central Money Laundering Reporting Office Switzerland (MROS) receives and assesses suspicious activity reports and forwards them to law enforcement when necessary, as mandated by the GwG. Detailed tasks and procedures are outlined in the Ordinance on the Money Laundering Reporting Office (25 August 2004).

Compliance officer

Swiss hedge funds are generally required to have a compliance officer responsible for ensuring that the fund complies with all relevant laws and regulations, such as the GwG. This obligation derives from the CISA. The compliance officer may be an internal or external resource, and his or her role is to monitor the fund’s operations and implement necessary compliance measures. FINMA also has a supervisory role, ensuring compliance with legal, contractual, statutory, and regulatory provisions (CISA).

The fund must in effect be managed from Switzerland. There is one exception to this rule. General directives and decisions relating to group supervision may be issued from an establishment abroad if the financial institution is part of a financial group that is subject to supervision by foreign authorities on an appropriate consolidated basis. The fund management company must be a joint-stock company with its registered office and head office in Switzerland. Individuals responsible for managing the financial institution must reside in a location that enables them to effectively manage its affairs. These guidelines are stipulated by the FinIA.

The Swiss investment landscape is poised for an interesting future. It is anticipated that so-called Limited Qualified Investor Funds (L-QIFs) for qualified investors will enter the market when the revised CISA comes into force in March 2024. Notably, these funds will neither require approval from nor be supervised by FINMA. The impact of this liberal structure remains to be seen. Furthermore, a wider range of AIFs can be expected. For example, developments in the sustainability sector are bringing many new investment opportunities to the market. Since almost all AIF structures fall under FINMA’s purview, additional regulatory requirements and measures can be expected in the future, especially to address expansions in the AIF sector.

Promoters or sponsors of alternative funds established in Switzerland may originate from various jurisdictions, depending on factors such as the fund’s strategy, target investor base and regulatory considerations. Reflecting Switzerland’s well-developed financial industry, many alternative funds are sponsored and promoted by Swiss-based financial institutions, asset managers or private equity firms. Furthermore, owing to Switzerland’s geographic position and strong economic ties to the European Union, sponsors and promoters from EU member states (especially France, Italy, Germany and Austria) are heavily involved in alternative funds in Switzerland.

Under the Federal Act on Collective Investment Schemes, a fund management company must be structured as a company limited by shares. However, collective assets can be managed by a company limited by shares, a partnership limited by shares, a limited liability company, a general partnership or a limited partnership. In practice, companies limited by shares or limited liability companies are prevalent in Switzerland.

Swiss fund management companies are subject to an extensive licensing process by FINMA, the authority responsible for financial market surveillance. The licensing process is initiated by a preliminary discussion with FINMA, eventually leading to a licence application in which the applicant must demonstrate its compliance with regulatory requirements and explain its business model and investment strategy. The applicant must demonstrate that it fulfils all legal requirements set out in the FinIA, covering internal organisation, business conduct, governance, minimum capital, own funds, segregation of assets, risk management and other factors. Moreover, the applicant has to accept significant ongoing supervision by FINMA through regular reporting and audits. Managers have a duty of due diligence, the violation of which may incur civil or criminal liability.

Due to the federal structure of the Swiss State, alternative fund managers that are incorporated must pay corporate income tax at the federal, cantonal and communal levels on their net profit. Additionally, their net equity is taxed by the cantons and communes. However, there is no special fiscal status for alternative fund managers. Those organised in the form of a Swiss partnership do not pay corporate taxes; all partners are subject to individual income and wealth taxes.

A Swiss management company can oversee funds established outside Switzerland without a significant risk of creating a permanent establishment. Nevertheless, a fund that exhibits a strong Swiss presence in terms of legal substance (such as predominantly Swiss-resident board members and conducting meetings in Switzerland) may become subject to Swiss withholding tax on income from financial investments (interest and dividends paid to investors). The Swiss withholding tax is a levy on capital gains, lottery winnings, life annuities, pensions and insurance benefits. It is directly collected at the source. Concretely, the bank transfers 65% of the interest to the account holder and 35% to the Federal Tax Administration; next, the beneficiary of financial investments can obtain a refund of the withholding tax (35% of the interest) after fully declaring his or her income from bank accounts and securities. This allows the federal government to contain tax evasion by granting legal entities an incentive to declare their revenues and assets.

Switzerland does not apply a particular tax treatment to carried interest – it is simply subject to ordinary corporate and personal income tax. As previously mentioned, taxes are levied by three state entities: the Swiss federal government, cantons and communes.

The administration and management of Swiss AIFs must be conducted in Switzerland, but investment decisions can be delegated to third parties domiciled abroad provided they are subject to supervision by a recognised authority with which FINMA has a cooperation agreement. An example of such cooperation with EU jurisdictions can be found in the Directive on Alternative Investment Fund Managers. This directive allows competent authorities of European member states to exchange information with third states, such as Switzerland. In this context, competent authorities in the European Union are allowed to disclose information, request the cooperation in a supervisory activity and perform supervisory activities on behalf of a third state based on a previously established agreement.

AIF executive board members must effectively fulfil their managerial duties and oversee business operations. For this purpose, they must reside in Switzerland or neighbouring areas. Furthermore, executive board members and senior management must exhibit irreproachable behaviour and possess adequate professional qualifications. The particular degree to which alternative fund managers must conform to these requirements is determined on a case-by-case basis.

Regulatory concerns regarding mergers, acquisitions or similar transactions must be assessed in light of provisions of the Federal Act on Cartels and other Restraints of Competition. Among other matters, the Cartel Act regulates concentrations of undertakings. This primarily concerns the merger of two or more previously independent undertakings (companies) or any transaction, particularly the acquisition of an equity interest or the agreement for one or more undertakings to acquire direct or indirect control over one or more previously independent undertakings or parts thereof. If two undertakings (companies) want to merge, it must be notified to the Competition Commission before implementation. However, this obligation applies only if in the financial year preceding the merger the undertakings concerned reported a combined turnover of at least CHF2 billion globally or CHF500 million in Switzerland and at least two of the undertakings concerned reported individual turnover in Switzerland of at least CHF100 million. Regardless of these turnover thresholds, notification is also mandatory if one of the involved undertakings has been held in a final decision to be dominant in a market in Switzerland and the concentration concerns this market or one adjacent, upstream or downstream. The Competition Commission has authority to prohibit or apply conditions to any merger that would create or strengthen a dominant position susceptible to eliminating effective competition without sufficiently improving competition conditions in another market.

If a merger, acquisition, restructuring or any similar transaction would alter the degree to which certain entities or individuals exert control over an AIF, FINMA approval is required. This approval is typically necessary when the ultimate beneficial owner changes or in cases of significant change to management or the ownership structure.

The merger of two corporations also requires approval by at least two-thirds of the votes and the absolute majority of the par value of shares represented at the shareholders’ meeting.

The Swiss legislature is currently in the process of introducing a new, unregulated fund category reserved exclusively for qualified investors. The L-QIF will not be subject to authorisation or supervision by FINMA. However, an L-QIF must be managed by a FINMA-supervised institution. Qualified investors will typically be fund management companies (administration and portfolio management). This new fund category is destined to increase cost-efficiency and ensure the quick establishment of an investment fund. The legislation is expected to enter into force on 1 March 2024.

Investor appetite for alternative funds in Switzerland has increased notably. The simultaneous decline of two major asset classes, namely stocks and bonds, heightened the appeal of alternative investments. With the inflationary environment eroding the traditional safe-haven status of cash, investors are increasingly exploring alternative instruments, including alternative investments.

The market mainly comprises institutional investors, including private and public pension funds, insurance companies and financial intermediaries, all investing on behalf of clients in Switzerland and abroad. There is also a significant population of high net worth individuals, mostly Swiss, who invest directly in hedge funds or through family offices. Major Swiss banks and pension funds play the leading role. The investor base is mainly Swiss, as the tax regime applicable to foreign investors in Swiss funds (stamp duty and withholding tax) is not advantageous to major players seeking to reach an international investor base.

Retail investors are the most challenging for funds in Switzerland, being less financially sophisticated and sometimes requiring more comprehensive training and advice when considering alternative investments. In addition, regulations on the marketing and sale of alternative funds to retail investors can be more stringent, making it essential for fund managers to navigate these regulations carefully.

While Swiss law does not explicitly prohibit the use of side letters, they must adhere to general principles of ethical conduct. AIFs and their managers must maintain their duty of loyalty and treat all investors fairly when entering into side letter arrangements. Therefore, side letters are typically acceptable when serving legitimate purposes, such as facilitating commitments from anchor investors, without violating these principles. Providing detailed information to investors through side letters is generally acceptable as long as all investors benefit from increased transparency. However, it is typically not permissible to reduce fees exclusively for one investor or promise preferential liquidity terms without objective reason; this could lead to civil liability or administrative measures if the fund is negatively impacted.

Alternative funds can be marketed to both domestic and foreign investors in Switzerland. Local investors, including Swiss residents and entities, are permitted to invest in alternative funds established in their country. The marketing and distribution of these funds must comply with Swiss financial regulations, such as the CISA and FinSA. These regulations are designed to ensure transparency, investor protection and fair practices in the marketing of investment products, including alternative funds. However, many open-ended hedge funds are limited to qualified investors, particularly if FINMA grants exemptions from certain CISA provisions. With respect to retail investors, marketing by foreign hedge funds is only permissible if approved by FINMA. A derogation applies to retail clients who are party to an investment advisory or asset management contract with a regulated Swiss or foreign financial intermediary; foreign hedge funds can be marketed to such retail clients without FINMA approval.

Swiss investors can access various alternative investment opportunities, provided that funds meet the necessary regulatory requirements and are appropriately disclosed and marketed.

Marketing of Swiss AIFs does not require FINMA licensing but is subject to FinSA provisions on conduct rules, registration of client advisors and ombudsman affiliation. Special risks of alternative investments must be disclosed in marketing materials. The marketing of certain AIFs to non-qualified investors may be restricted.

Foreign AIFs need licenses only when targeting non-qualified investors. Otherwise, they can be marketed to qualified investors or retail clients through regulated financial intermediaries. However, high net worth individuals or private investment structures that qualify as investors require a Swiss representative and paying agent. There are no additional restrictions on marketing to government entities and pension funds. Government entities with professional treasury operations are considered qualified investors, but financial service regulations may apply to such marketing.

As marketing is classified as a financial service, providers must adequately document the financial services they have agreed and provided to clients, along with various other pieces of information. The provider must structure the documentation in a way that allows them to account for the financial services provided to clients, typically within ten business days (under FinSA and FinSO).

The use of placement agents is common in Switzerland. Any Swiss and foreign persons assisting in the fundraising process, such as placement agents or other intermediaries, must comply with swiss federal law (such as FinSA) if targeting investors in Switzerland.

Fund Manager Compensation

Fund managers, also known as general partners for AIFs, typically receive management and performance fees. The latter are usually paid only if the fund achieves a minimum return (the “hurdle rate”). Details of these fees, including the calculation method, must be clearly defined in the fund’s documentation. The manager’s personnel may have different compensation structures, which are usually detailed in employment contracts or management company agreements.

The CISA provides the legal framework for investment funds in Switzerland, including AIFs. Further compliance requirements are detailed in guidelines issued by the FINMA (FinIA, FinSA).

Resident Investors

Resident investors are typically subject to income tax on accrued or distributed income from AIFs. However, individual investors who privately hold AIFs are not taxed on income from capital gains or direct real estate holdings. Additionally, income from Swiss AIFs is subject to withholding tax, which resident investors can reclaim by reporting their income in individual tax returns.

Non-resident Investors

Non-resident investors, by contrast, do not pay Swiss income tax but are subject to withholding tax paid by the AIF. Full or partial recovery is possible if domestic law or a double-taxation treaty allows this and the necessary conditions are met.

Domestic Pension Funds

Tax-exempt domestic pension fund investors are not subject to income tax and can receive a full refund of withholding tax deducted by the AIF. Furthermore, if an AIF’s investors exclusively comprise tax-exempt domestic pension fund institutions, the AIF may apply to use the group declaration procedure for withholding tax.

Foreign Pension Funds

For foreign pension funds and sovereign wealth funds, certain Swiss double-taxation treaties enable full refunds of withholding tax on distributions from AIFs. Additionally, foreign states and occupational pension institutions are exempt from securities transfer tax.

Target investors may influence the structure of AIFs, but target investments (with the exception of real estate) do not generally impact fund structure.

In most cases, tax-transparent funds such as SICAVs, contractual funds and LPCIs are not eligible to benefit from the double-tax treaties signed by Switzerland. This is because these funds are considered fiscally transparent and not recognised as residents. There are exceptions when the bilateral agreement extends treaty benefits to alternative funds. Under such agreements, Swiss funds may qualify for a full or partial reduction or refund of foreign withholding taxes on behalf of their Swiss tax-resident investors. Conversely, SICAFs and non-regulated investment companies incorporated in Switzerland are entitled to the same double-tax treaty protection as any other Swiss tax-resident companies.

FATCA

Implementation of FATCA, based on Model 2, began in Switzerland on 2 June 2014, with the corresponding implementation act effective since 30 June 2014. Under Model 2, Swiss financial institutions disclose account details directly to the US tax authority with consent from the US clients involved. When US clients do not provide consent, the United States must request these data through regular administrative assistance channels. On 8 October 2014, the Federal Council approved the mandate for negotiations with the United States on switching to Model 1, which provides for the automatic exchange of information. The negotiations for a model change were initiated years ago but have not been concluded yet.

Furthermore, since 20 September 2019, FATCA group requests can cover cases dating back to 30 June 2014. On 8 October 2014, the Federal Council approved a mandate for negotiations with the United States to transition to Model 1, which includes provisions for automatic information exchange. However, a specific date for concluding this new agreement with the United States has yet to be determined.

The FATCA Qualification Committee aims to enhance collaboration among relevant stakeholders and address implementation-related issues. This Qualification Committee is composed of representatives of the State Secretariat for International Financial Matters, the Federal Tax Administration, the Federal Social Insurance Office as well as the Swiss Bankers Association, the Swiss Pension Fund Association, the Swiss Insurance Association, the Asset Management Association Switzerland, SwissHoldings, the Association of Swiss Asset Managers and SIX Group. It reviews questions arising regarding FATCA agreement implementation. Nevertheless, Switzerland must coordinate with the United States in certain cases, as interpretative authority over the agreement is shared. The body’s opinions reflect its viewpoint after consulting with the relevant US authorities, if necessary.

CRS

Switzerland has established the necessary legal framework for implementing the CRS; the national legislation took effect on 1 January 2017, enabling the collection of relevant data. Switzerland typically follows CRS guidelines outlined in the Multilateral Competent Authority Agreement on the Automatic Exchange of Financial Account Information. To facilitate automatic information exchange, international agreements between countries are essential. Switzerland has entered into such agreements with various nations, including EU member states, Japan, Canada and Australia. In total, Switzerland has established over 100 agreements aligned with these regulatory standards.

Switzerland’s AML and KYC regime is robust and aligns with global standards to deter illicit financial activities and safeguard the integrity of its financial sector:

• Regulatory framework: AML and KYC requirements in Switzerland are established by the GwG, with FINMA responsible for enforcement.
• Criminalisation of money laundering: the Swiss Criminal Code includes provisions that criminalise money laundering.
• Customer due diligence (CDD): Swiss financial institutions are mandated to execute comprehensive CDD procedures such as verifying client identity, gaining insights into their business activities and assessing the risk of potential money laundering or terrorist financing.
• Enhanced due diligence: these measures are applied when dealing with high-risk clients, transactions or countries. They involve more rigourous scrutiny and ongoing monitoring to ensure compliance and prevent illicit activities.
• Reporting obligations: financial institutions operating in Switzerland must promptly report any suspicious transactions to the MROS. This proactive reporting mechanism is crucial to effectively combating money laundering.
• Record keeping: Swiss financial institutions are required to maintain comprehensive records for a specified duration. This practice ensures transparency and accountability, facilitating regulatory oversight.
• International cooperation: Switzerland actively collaborates with international organisations and foreign counterparts in the global fight against money laundering. The country engages in sharing information on suspicious financial activities, thereby fostering cross-border cooperation.

In summary, Switzerland’s AML and KYC framework, coupled with stringent criminalisation of money laundering in the Swiss Criminal Code, underscores its commitment to deterring illicit financial activities and upholding the integrity of its esteemed financial sector.

The Swiss Federal Act on Data Protection Act (FADP) entered into force in September 2023, substantially amending data protection regulations. Key points of this regime are as follows:

• Legal foundation: data protection in Switzerland is rooted in civil law, specifically in constitutional and legislative provisions protecting individuals’ rights.
• Privacy protection: the Swiss Constitution safeguards privacy rights in personal, family and home life. The revised FADP 2020 further defines and governs personal data protection.
• Criminal liability: the Swiss Criminal Code includes provisions on data protection and privacy, including defamation protection and laws against the unauthorised recording of private conversations.
• Sector-specific requirements: sectors like financial services may have additional data protection regulations that supersede general FADP provisions. One example is FINMA’s data processing ordinance for financial entities.
• Cantonal regulations: Switzerland’s 26 cantons each have their own data protection laws applicable to cantonal and communal public authorities and certain public funds.
• Financial Market Supervision Authority: on 1 September 2023, FINMA implemented a fully revised data processing ordinance applicable to financial sector businesses.
• Territorial scope: the FADP’s territorial reach is based on the principle of effects and thus applies to data processing activities with actual or potential effects in Switzerland, regardless of activity location.
• Anonymous data: the FADP does not cover the processing of anonymous data, which cannot reasonably be linked to identified or identifiable individuals.

In summary, fund managers in Switzerland must navigate a comprehensive data protection and privacy regime rooted in constitutional, civil and sector-specific laws, and focused on respecting individuals’ privacy rights and ensuring data security.

The European Union’s General Data Protection Regulation (GDPR) is not directly applicable in Switzerland. However, it could apply in practice to Swiss companies that process data from people residing in the EU in order to offer goods or services in the EU, or if such data are used to observe people’s behaviour, for example by analysing the data of EU-based visitors to a website or users of an application. We have published detailed guidance on the GDPR and its impact on Switzerland.

L-QIFs are a new category of investment fund scheduled for introduction in Switzerland in March 2024, when the revised law and corresponding ordinance come into force. Unlike other funds, L-QIFs do not require prior approval from FINMA and are quicker and cheaper to set up. They are, however, accessible exclusively to qualified investors. The conditions for obtaining this status will be laid down by law. L-QIFs offer qualified investors the opportunity to invest in sustainable financial products aligned with environmental, social, and governance principles.

These funds also provide greater investment flexibility, allowing investors to explore various asset classes, including non-traditional investments such as real estate, private equity and crypto-assets. They are subject to the same tax rules as other Swiss funds, making them attractive to Swiss institutional investors, high net worth individuals domiciled in Switzerland and clients of portfolio managers. This new regime will considerably alter the investment possibilities for hedge funds.