The Federal Act on Investment Funds (IFA) is to be revised in view of certain changes to pertinent EU directives. At present, the investment companies quoted on the Swiss stock exchange and incorporated as joint stock companies (Aktiengesellschaften) pursuant to Article 620 et seq Swiss Code of Obligations do not fall under the scope of the IFA. The Federal Banking Commission (FBC) intends that this revision should be taken as an opportunity to enlarge the scope of the IFA. The IFA governs assets which are managed under a collective investment contract and excludes assets that are managed in a different form, particular in corporate form (Article 3 para 1 and 2, IFA). The FBC takes the position that this provision contradicts the principle of "same business, same rules". Furthermore, the existing legislation contains an unequal treatment of Swiss closed-end investment funds on the one hand and foreign funds on the other hand. Pursuant to Article 3 para 3, foreign investment funds whose units are distributed in Switzerland are governed by the IFA regardless of their legal structure.
The change in attitude is based on the analysis that the FBC no longer considers the rights of a shareholder sufficient to protect the investors of Swiss closed-end investment funds. There have been cases of conflicts of interest between the investment manager who holds a substantial part of the shares of the investment company and the shareholders of this company.
One of the pillars of the IFA is the right of the investor to withdraw from the investment contract at any time and to request the redemption of his share in the investment funds for cash (Article 24 para 1 IFA). All investment companies which are organized as joint stock companies are necessarily closed-end funds. The revised IFA would have to find a new solution which deviates from the principle of the fixed share capital laid down in the Swiss Code of Obligations. The IFA would also allow a corporation to have a variable share capital comparable to the SICAV (Société d'Investissement à Capital Variable) which are widely used in France, Belgium and Luxembourg.
It is to be expected that Swiss closed-end investment funds quoted on the Swiss exchange will attack the plans of the FBC to close an unregulated loophole which has been marketed in the past with a particular emphasis on the discretion to define investment policy and the remuneration of management and advisers as the closed-end funds see fit.
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