September 5, 2018 / 3:30 PM / 2 months ago

Switzerland borrows from Luxembourg to streamline fund rules

* Swiss aim to streamline rules governing funds

* Critics fear Swiss financial centre losing ground

* Luxembourg’s 2016 RAIF law is role model for proposed changes

By John Miller

ZURICH, Sept 5 (Reuters) - The Swiss government plans to streamline rules governing some funds to speed their time to market, on concern Switzerland must boost its appeal in a lucrative investment area where Luxembourg and Ireland have become European leaders.

The government on Wednesday set a mid-2019 deadline for the finance ministry to complete draft regulations, although it may take a year beyond that before changes take effect, Swiss fund industry officials said.

Luxembourg’s Reserved Alternative Investment Fund (RAIF), created in 2016, is a model for the effort in Switzerland, where critics including some in parliament have complained current rules make setting up funds here too slow, forcing business to go elsewhere.

“As a globally important financial centre, Switzerland could make even greater use of its potential in the area of collective investments,” the government said in a statement, adding it “wishes to improve Switzerland’s competitiveness relative to competing foreign financial centres.”

Luxembourg is Europe’s largest home for investment funds, with assets topping 4 trillion euros ($4.63 trillion). In the two years since RAIF was enacted, 335 alternative funds have been created under the law as of March 2018.

While Switzerland is the world’s largest private banking centre, its funds industry trails well behind the leaders at 1.13 trillion Swiss francs ($1.03 trillion) as of July, according to the Swiss Funds & Asset Management Association.

Under current rules, Switzerland requires both fund managers and their fund products to be approved by the Swiss financial industry watchdog FINMA, a time-consuming process.

Under proposed changes, so-called “Limited Qualified Investment Funds,” or L-QIFs — to be sold exclusively to professional investors like banks, securities traders, pensions and insurers — would no longer have to get FINMA approval.

FINMA, which would still oversee the fund managers, could later authorise making funds available to the wider public.

FORCED ELSEWHERE

Markus Fuchs, the Swiss Funds & Asset Management Association’s manager director, said time-to-market is often of utmost importance for alternative funds.

He estimated the time it takes for an alternative fund to go to market could “easily be three months faster than today” with the proposed changes.

“So far, Swiss pension schemes and insurance companies were in some cases forced to set up an investment fund structure in Luxembourg or somewhere else,” Fuchs said.

“With this new option, they will have the possibility of setting up the fund in Switzerland,” he added. “And there are indeed some investors who prefer Swiss structures, due to many reasons.”

The United States has the world’s largest mutual fund industry, with some $19 trillion in net assets. ($1 = 0.8637 euros) ($1 = 0.9746 Swiss francs) (Editing by Michael Shields)

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