Independent managers facing Financial Services Act

17 Nov 2015

The community of independent asset managers (IAM) is undergoing deep changes. With the entry into service of the new Financial Services Act, IAMs will have no other choice but to adapt to these new constraints imposed.

Financial Services Act, the new  code of practice

The adoption of the Financial Services Act direcly impacts the costs supported by independent managers. In June 2014, the deployment of LSFin (Regulation of Financial Services) and LEFin (Regulation of Financial institutions) literally overwelmed wealth managers’ world.

However, the latter rapidly expressed some critics about this draft law, especially regarding the following points :

  • Install a policy of authorization and control
  • Extend the organisational requirements and conduct rules

What changes can IAMs expect ?

On November 4th 2014, when the draft law was submitted to the Federal chambers, IAMs clearly understood the imminent mutation. The activity of asset management is from now on governed by the following principles :

  • Wealth managers are subject to authorization and control, except investment advisors, family offices and IAMs with more than 15 year activity.
  • To apply for an authorization, IAMs have to certify their organisation is appropriate and that they apply risk controls as well as proving their financial solidity.

In other words, the Financial Services Act forces IAMs to respect a bunch of conduct practices such as collecting information about their client’s financial profile and scrupulously qualify it. In the event that IAMs don’t seriously respect these rules, the LSFin (Loi sur les Services Financiers) has the power to pennaly endorse any violation of the prescriptions.

However, since the Financial Services Act will only enter into force in 2017, IAMs benefit from a transitional period in order to comply with the new rules. The adoption of these laws will directly cause an increase of the charges supported by IAMs who will certainly have to adjust their business model : limitation of the activity to financial advisory, mergers, etc.

How can asset managers successfully face the situation ?

Some IAMs will easily adapt to these changes and they will be favorable to an international harmonisation. Others will bear additional costs due to less flexibily in their activity.

Anticipation and adaptation are critical to successly face this new deal, especially with the integration of automated controls and reporting tools. The ability to provide the proof of a compliant conduct in just a few clicks significantly lightens the workload related to the new regulation. In addition, it positions the IAMs as a reliable and transparent partner.

Our recent posts