In Switzerland, the regulatory requirements for family offices depend on the specific activities they perform rather than their institutional classification. A family office may need a FINMA license if it engages in certain financial services, while other activities remain outside the scope of licensing requirements. This post addresses when a family office requires a FINMA license, what types of licenses are needed, and which activities do not require licensing.
For expert assistance in setting up your Swiss family office, contact us at [email protected].
Activities Not Requiring a License
Swiss family offices providing non-financial or lifestyle services typically do not require a FINMA license. These services include:
- Lifestyle Management: Organizing travel, dining, and entertainment.
- Personal Property Management: Overseeing residences, including maintenance and security.
- Art Collection Management: Handling acquisitions, insurance, and cataloging.
- Education: Offering training for future generations on non-financial matters.
- Luxury Asset Management: Managing assets like yachts, jets, and cars.
- Household Staff Management: Coordinating household employees.
- Relocation Services: Managing logistics and administrative tasks for family relocations.
- Philanthropy Management: Overseeing charitable contributions and donations.
These activities focus on personal and lifestyle needs rather than financial management, making them exempt from licensing requirements.
Activities Requiring a FINMA License
When a family office engages in financial activities, a FINMA license may be required. The type of license depends on the scope and nature of these services:
1. Swiss SRO (Self-Regulatory Organization) Supervised License
Often chosen for its flexibility, an SRO-supervised license is ideal for family offices offering a mix of financial services without full-scale wealth management. Activities under this license include:
- Receiving and Holding Client Funds: Up to 60 days for specific purposes like real estate or precious metals investments.
- Money Remittance and Exchange: Facilitating global transactions for clients.
- White-Labeled Debit Cards: Issuing branded debit cards for family office clients.
- Escrow Services: Managing secure transactions for real estate or cryptocurrencies.
- In-House Financial Advisory: Providing tailored financial advice aligned with clients’ goals.
- Referral to Wealth Managers: Partnering with asset management firms or private banks, earning fee-sharing revenues without managing assets directly.
This option balances regulatory compliance and operational simplicity, making it a practical choice for most multi-family offices.
2. Portfolio License for In-House Wealth Management
A portfolio license is required if a family office wishes to manage client wealth internally. This license permits:
- Discretionary Portfolio Management: Managing client investments and portfolios.
- Investment Advice: Offering asset allocation and risk management strategies.
- Fund Management: Leveraging the “de minimis” rule for limited fund management:
- Leveraged Funds: Up to CHF 100 million in assets under management.
- Unleveraged Funds: Up to CHF 500 million with no redemption rights for five years.
This license suits offices with a significant volume of managed assets, providing greater control over investment strategies.
Why Family Offices Often Avoid In-House Wealth Management
Many Swiss family offices choose not to manage client wealth directly, opting instead to partner with external banks or asset managers. This approach has two primary advantages:
- Cost Efficiency: Maintaining an in-house wealth management team is viable only for portfolios exceeding CHF 500 million. Below this threshold, outsourcing is more economical.
- Risk Mitigation: External management reduces liability for investment performance, safeguarding client relationships and the family office’s reputation.
By outsourcing, family offices can focus on oversight and strategic coordination while leveraging external expertise for superior financial outcomes.
Licenses for Advanced Financial Services
If a family office plans to expand its operations, additional licenses may be required:
Trust Management (FINMA Trustee License)
- Management of trust assets in accordance with the trust deed.
- Fulfillment of the trust’s purposes.
- Acting in the best interests of beneficiaries.
- Compliance with each trust’s terms.
- Managing conflicts of interest to ensure fair treatment of each trust.
- Fiduciary duties requiring trustees to manage assets for beneficiaries’ benefit.
CISA Fund License (Collective Investment Schemes Act)
- Management, distribution, and administration of collective investment schemes.
- Limited Qualified Investor Funds (L-QIFs):
- No FINMA approval required, reducing costs and accelerating time to market.
- Access to a broad investor base, including qualified retail investors.
- Tax-efficient fund structuring under Switzerland’s favorable tax regime.
Requirements for Shareholders and Directors
Family offices requiring licenses must meet certain requirements for shareholders and directors:
Shareholder Requirements
- Valid passport and proof of address.
- Background check and source of funds declaration.
- No financial or professional qualifications required.
Director Requirements
- Valid passport, proof of address, and CV.
- Relevant experience in finance, law, accounting, or IT.
- Clean criminal record and good online reputation.
- Must not be politically exposed persons (PEPs) or have a history of bankruptcy.
Conclusion
Determining whether a family office in Switzerland requires a FINMA license depends on the activities it performs. While non-financial services remain unregulated, financial services necessitate compliance through appropriate licensing. Whether you need an SRO-supervised license for financial advisory and fund holding or a portfolio license for direct wealth management, the Swiss regulatory framework offers tailored solutions to meet your needs.
For assistance in setting up your Swiss family office, contact us at [email protected]. Let us guide you through the process to ensure compliance and operational success.
