• SWI CDBF issued comment on Federal Court's ruling 2C_546/2020 of 18 August  2022.
• The ruling clarified the terms of application of the standards on the disclosure of participations in collective capital investments under provisions of art. 120 of LIMF.

Background

• The first financial service company (the controlled company), based in the US was active in wealth management, creation, distribution of collective investment schemes.
• The second (the controlling company), located in CAN, held 94.65% of the voting rights of the controlled company, thus, being the parent company of the group.
• At the end of 2017, the two companies required SWI FINMA to clarify their legal situation in regard to their respective reporting obligations within Switzerland.
• It was a question of who of the controlled or controlling company is subject to the art 120 of LIMF reporting obligation for interests held by collective investment schemes.
• In the case where they are managed by the controlled company and its subsidiaries.
• Breach of this obligation leads to a fine up to CHF 10mn if the violation is intentional.
• SWI FINMA and later Federal Administrative Tribunal rejected the firms' arguments.

Ruling

• The Federal Court recalled that art. 120 LIMF establishes two separate reporting obligations, aiming at ensuring transparency of the chain of holding of voting rights.
• The first obligation under art. 120 par. 1 LIMF, falls to the person who actually controls the voting rights, including bearing the economic risks associated with participation.
• The second obligation under art. 120 par. 3 LIMF falls to any entity who freely exercises the voting rights linked to equity securities, including dominating entities.
• In collective investment schemes, the management doesn't bear economic risk, but still retains voting rights' ultimate control, thus SWI FINMA applies a specific provision.
• That is that under art 18, para 1 OIMF-FINMA the reporting obligation within the meaning of Art. 120 par. 1 LIMF falls in the responsibility of the authorization holder.
• For foreign collective investment schemes which aren't independent, but which form part of a group, this obligation is fulfilled within the group under art. 18 OIMF-FINMA.
• It falls to controlling company, as parent company of group, to fulfill this obligation.
• Therefore, the notification obligation of art. 120 par. 1 LMIF falls to the controlling company; the one of art. 120 par. 3 LIMF falls on the controlling or controlled firm.

Comment

• In this ruling the Court recognized a wide scope of application for art. 120 par. 1 LIMF.
• Its purpose is to be able to take into account the operations affecting voting rights.
• The activity of collective investment schemes must be able to be taken into account.
• SWI FINMA therefore does not appear to exceed the scope of its power delegation by providing for a specific provision for investment schemes for this goal to be achieved.