Extinction looms for small Swiss fund houses

More than 1,000 small Swiss fund houses and wealth managers could be forced to close or merge as a result of tighter regulation in the alpine country, industry figures fear.

Under legislation that came into effect last month, asset management companies managing or distributing collective investment schemes with assets of more than SFr100m ($105m) in open-ended funds or SFr500m in closed-ended ones now need to be regulated by Finma, the Swiss financial watchdog.

From 2017, other private-client and wealth managers will also need to register with Finma, rather than operating as self-regulatory organisations.

Some smaller groups will struggle to comply with the far more onerous capital, staffing and compliance requirements the regulations will impose on them

"There is a huge expense of putting people in place. There will be any number of companies that are simply not able to comply immediately because of lack of resources or people," said Jeremy Leach, chief executive of Managing Partners Limited, a boutique asset manager.

Mr Leach, who put the cost of compliance at a minimum of €1m a year, said those unable to meet this cost would have to sell or liquidate their fund operations.

Jacques Leuba, managing director of SMT Swiss Mutual Trust, a service provider, estimated that of the 2,600 registered asset managers in Switzerland, three-quarters of which have five or fewer staff, about half would have to merge or close.

"There is quite a bit of screaming and shouting in the independent sector," he said.

Guy Huet, chief executive of Huet & Cie, a Geneva-based asset manager, said: "It will reduce the number of managers by at least 50 per cent. I can have five people doing compliance, but it will eat away all the revenues. It is regulatory overkill. It's alright if you are Deutsche Bank and have thousands of people working for you, but not if you are 12."

Despite the feared turmoil, Mr Leuba believed the regulations, designed to bring Switzerland in line with the EU, would ultimately prove beneficial.

Both Finma and the federal department of finance declined to comment.

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