Germany and Switzerland are significant investment fund and pension markets, respectively. Because of the local regulatory environment, the full potential of these markets historically remained closed to outside banks and asset managers. Switzerland is a mature market with the highest rate of funded pension schemes in Europe. Germany has an underfunded pensions market but a well established institutional and mutual fund market of more than $1.7 trillion in assets. With more than $1 trillion invested in Germany’s fund and pension markets and $600 billion in Switzerland, both countries have become a prime interest for international asset gatherers. The compound annual growth rate (CAGR) of funds under administration has been 8% for Germany and 12% for Switzerland in recent years.

Strong new regulation has forced both local and global institutional investors, and global asset managers, to rethink their local infrastructure needs. These are usually based on the product capabilities of the local depotbank (global custodian with local regulatory and fiduciary responsibilities) in both countries.

Both countries have introduced single market regulators, which set out the rules and regulations for the insurance, pension and investment fund sectors.

Market Regulation and Supervisory Authorities

Switzerland

The Swiss Financial Market Supervisory Authority (FINMA) became fully operational on January 1st 2009, with the aim of combining government supervision of banks, insurance companies, stock exchanges, securities dealers and other financial intermediaries under one authority—merging three previously separate organizations.

Its core responsibilities include:
• System protection
• Depositor protection
• Protection of insured persons
• Investor protection
• Protection of reputation
• Competitiveness of financial center

Pension and global asset managers operating in the Swiss market are subject to the following regulations:

Federal Act on Investment Schemes (CISA)
To protect investors, ensure transparency and the proper functioning of the market, CISA governs collective investment schemes irrespective of legal status (FCP, SICAV, SICAF, Swiss Limited Partnership), and all parties responsible for managing them and safekeeping their assets (fund managers, asset managers, custodian banks).

Ordinance on Collective Investment Schemes (CISO)
CISO defines the capital requirements and investment restrictions for collective investment schemes, as well as the roles of fund management companies, representatives, asset managers and their auditors. This ordinance also contains provisions concerning the content of the sales prospect and simplified prospect.

FINMA Ordinance on Collective
Investment Schemes (CISO-FINMA)
CISO-FINMA includes regulations for the scope of investment techniques (securities lending, repurchase agreements and derivatives), as well as financial accounting and audit.

Ordinance on Occupational Retirement, Supervivors’
and Disability Pension Plans (OPP2)
The Swiss Federal Law on Occupational Retirement, Survivors’ and Disability Pension Plans, in conjunction with the Swiss Federal Old-Age and Survivors’ Insurance/Disability Insurance Scheme, is designed to enable elderly persons, survivors and disabled persons to maintain their standard of living following an insured event (retirement, death or disability). OPP2 covers the principles governing pension plans as well as asset management.

Germany

Germany’s Federal Financial Supervisory Authority (BaFin) supervises banks, financial services providers, insurance companies and securities trading. BaFin resulted from the 2002 merger of the former Supervisory of Banks and the Insurance Regulator, with the objective of integrated financial supervision ensuring the proper functioning, stability and integrity of the German financial market.

Core responsibilities of BaFin:
• Solvency supervision
• Market supervision
• Investor protection

Pension, insurance and global asset managers are governed by the following laws and regulations:

German Investment Act
The German Investment Act forms the legal basis for investment funds and governs both public mutual funds and special funds. The act strengthens the protection of investors and rules, particularly the legal relationship between capital investment companies and investors, the appointment of a custodian bank and its function, permissible assets and investment limits, as well as the minimum content of contractual terms and conditions.

Insurance Supervision Act
The Insurance Supervision Act lays out the government’s supervision of insurance companies and pension funds. The act provides guidelines for German insurance companies regarding the investment of their premium reserve funds and other restricted assets.

Regulation on the Investment of Restricted Assets of Insurance Companies (Investment Regulation)
The Investment Regulation contains rules on eligible financial instruments as well quantitative and issuer-related investment limits. This catalogue of eligible investment vehicles and restrictions is mandatory for clients subject to the respective provisions of the Insurance Supervision Act (i.e., insurance companies and pension funds).

BaFin also collaborates with numerous European bodies in creating a single European financial market. Additionally, it helps to shape regulatory standards in other international committees and, by doing so, represents the interests of Germany as a financial marketplace.

Local Services for Local Needs

With strong regulation in the German and Swiss market, it has been an essential objective for J.P. Morgan to become a “local” bank—to seamlessly provide services based on local regulations, embedded into the firm’s global infrastructure.

Providing local pension funds with individual reporting based on the pension and insurance guidelines has become a core service offering across the region, helping global asset managers meet the needs of their local clients.

In both countries, J.P. Morgan operates out of local legal entities: J.P. Morgan AG in Frankfurt and J.P. Morgan (Schweiz) AG in Zurich. This has allowed us to engage with our client base at a local level, providing tools such as Views Portfolio Reporting in both German and Swiss German language, in addition to English, consistent with the requirements of BaFin and FINMA.

Taking this a step further, our local approach not only allows us to act as a local bank in Germany and Switzerland, but it also enables us to seamlessly pool the assets of multinational pension funds and corporates across a number of jurisdictions.

By working with a provider with these capabilities, clients in the German and Swiss markets get the best of both worlds: the services, support and expertise of a local depotbank, with an open door to the full resources of a leading global custodian, asset servicer and investment bank.