Reversal of FINMA's interpretation

The Supreme Court recently ruled on the interpretation of the term 'public solicitation' with regard to collective investment schemes in or from Switzerland. The decision will have a significant impact on private placement rules which are applicable to the public offering of foreign investment funds and structured products in Switzerland.


Article 3 of the Collective Investment Scheme Act, which entered into force on January 1 2007, defines 'public solicitation' as any marketing activity which is directed towards the public. However, advertising is not deemed to be public if it is directed exclusively towards 'qualified investors' (Article 10(3)).

Since the enactment of the new law, the interpretation of 'public solicitation' by the Financial Market Supervisory Authority (FINMA) has been restrictive and applies to "any offer/sale of units/shares of a collective investment scheme which is not addressed exclusively to qualified investors" (see Circular 08/2008 on public solicitation, November 20 2008). FINMA based this interpretation on the argument that, under the act, only the 'qualified investors' criteria had to be taken into account in order to determine whether a 'public solicitation' was deemed to occur, as opposed to the so-called 'limited circle of persons' criteria which was used by FINMA until the enactment of the act.

As a result of this approach, a public offer made to a single non-qualified investor could be seen as a form of public solicitation. If a public offer was made to a limited circle of investors which did not meet the 'qualified investors' test, or if the relationship existing with those investors did not meet the criteria, an exemption could no longer be justified for the offer of non-registered funds in or from Switzerland (or, as the case may be, of registered funds by non-authorised distributors).

FINMA's interpretation, which was widely criticised by legal scholars, also applied to the public offering of structured products.

Reversal of FINMA's interpretation

The Federal Administrative Court ruled against FINMA's interpretation of 'public solicitation' on December 14 2009. The court's judgment was based on the following points:

  • FINMA's interpretation of the term 'public' was contrary to the literal, historical and systematic meaning of the term given in Article 3.
  • Article 3, which states that "public advertising pursuant to this Act is defined as any advertising that is directed towards the public", does not allow the conclusion that the Swiss legislature had at any time intended to change the legal framework before the act entered into effect. As a result, under the act (as under the previous legislation), both the 'qualified investors' and the 'limited circle of persons' criteria must be taken into account in order to determine when a public solicitation occurs.
  • Based on the court's interpretation of Article 3, advertising directed towards only a 'limited circle of persons' could lead to the conclusion that in certain circumstances public solicitation did not occur, even though the offer could also have been made to non-qualified investors.

Therefore, the court ruled against a previous FINMA decision and concluded that an offer made to a limited number of non-qualified investors could not be interpreted as a 'public solicitation' under Article 3.

FINMA challenged the administrative court's decision before the Supreme Court. In a long-awaited decision, the court upheld the administrative court's ruling on February 10 2011. The court ruled that both the 'qualified investors' and the 'limited circle of persons' criteria could prove relevant when determining whether a public solicitation has taken place. In this context, the approach to a limited circle of persons - which has both a qualitative and a quantitative component - does not constitute public solicitation per se (even if those persons would not qualify as qualified investors under the act). However, the court did not specify the maximum number of non-qualified investors that can be approached without rendering the relevant offering a public solicitation.


The Supreme Court's confirmation of the administrative court's decision will reintroduce the flexibility which existed in Switzerland before the act entered into effect - not only with regard to qualified investors but also to the limited number of so-called 'unprivileged investors'. The question as to when the circumstances of a specific case allow the conclusion that an offer is made to a 'limited number of persons' remains to be confirmed. One may expect that the 'rule of thumb', derived from banking law, whereby an offer to 20 or fewer investors (quantitative element) can be considered as an offer to a limited circle of investors will become relevant once again. However, this remains to be confirmed and market participants are expected to follow a prudent approach until more guidance is provided.

Finally, within the context of the announced overhaul of the act in connection with the EU Alternative Investment Fund Managers Directive, FINMA is expected to propose a more restrictive approach to the category of 'qualified investors' than the Swiss legislature. Therefore, it is likely that the Swiss private placement rules applicable to the distribution of funds in or from Switzerland will undergo further developments in the near future.

For more information please contact François Rayroux or Alexandre de Boccard at Lenz & Staehelin by telephone (+41 58 450 7000), fax (+41 58 450 7016) or email ([email protected] or [email protected]).