From guidance to action: FINMA's tightening stance on asset management practices

In a nutshell

FINMA Supervisory Communication 03/2026 (the “Communication”), and the enforcement decision published on the same day, confirms a clear supervisory focus on conflicts of interest that may arise in discretionary wealth management and investment advisory relationships, in particular where in-house products are used.

The FINMA Communication, which must be read in the light of FINMA Circular 2025/02 which entered into force last year, highlights the regulatory expectations regarding the use of financial products in discretionary portfolio management and investment advisory services, focussing on the three following aspects:

1. conflicts of interest and transparency vis-à-vis clients;
2. product suitability; and
3. governance and risk management;

These private and public law principles, already rooted in Swiss mandate law and embodied in the Swiss Financial Services Act (“FinSA”), are of practical relevance in particular in client relationships characterised by a high degree of reliance on the financial services provider, such as discretionary wealth management services.

In such client relationships, financial service providers must be able to demonstrate that investment decisions are guided by the client's interests, including where both direct and indirect forms of remuneration are involved. This requires, on the one hand, appropriate organisational measures – such as an objective product selection process, the removal of incentive structures that may bias investment choices, and functional separation between product development and distribution. On the other hand, it requires meaningful client disclosure of both the existence of conflicts of interest and their potential economic impact, including financial cost implications.

In practice, issues such as share class selection or “double dipping” illustrate the concrete compliance challenges arising from these requirements, particularly where in-house products are used within investment solutions. This was also highlighted in the June 3, 2026 enforcement decision against an EAM.

Topic 1: conflicts of interest and transparency – the challenge of in-house products: not a prohibition, but heightened expectations

FINMA mentions shortcomings in the measures implemented to mitigate conflicts of interest arising from the use of in-house products. Where portfolio managers use both in-house and third-party financial instruments, they must implement appropriate measures to identify, prevent and manage the conflicts of interest in accordance with the hierarchy of measures enshrined in Article 25 FinSA:

(i)    Conflicts of interest should be avoided in the first instance through appropriate organisational safeguards.

(ii)   If these measures are not sufficient, financial service providers must ensure that clients do not suffer any disadvantage.

(iii)  Where the risk of a disadvantage to the client cannot be eliminated, the conflicts of interest must be adequately disclosed to clients in a clear and  transparent manner.

Among the deficiencies mentioned by FINMA were non-transparent remuneration structures involving multiple layers of fees, incentive schemes favouring in-house products, excessive portfolio concentrations in clear contradiction with clients' risk profiles, and the absence of documented product selection processes based on objective and industry-standard criteria.

• Lessons learned for the financial industry: The use of in-house products is, and will remain, a particular area of regulatory focus for FINMA. FINMA expects the use of in-house products to be supported by robust governance and effective conflict-management procedures. Financial service providers should therefore be able to demonstrate that the product selection is driven by client-focused, objective and recognised industry criteria. In this context, particular attention should be paid to remuneration structures (which should not create incentives favouring in-house products over alternative investment solutions) and (ii) risk concentration in in-house products at client portfolio level.

Importantly, FINMA's Communication also confirms that transparency alone will rarely be sufficient where conflicts could have a material impact on investment decisions. Financial service providers should therefore ensure that conflict prevention and mitigation remain at the core of their governance framework, with meaningful disclosure serving as a measure of last resort rather than a substitute for conflict management.

Topic 2: product suitability

FINMA also noted weaknesses in the due diligence performed in relation to products lacking Swiss-equivalent prudential supervision (such as foreign alternative funds, AMCs, structured products or products issued or structured by foreign unregulated entities), in particular where retail clients were invested in such products.

Beyond deficiencies in the initial suitability assessment, FINMA also identified shortcomings in the ongoing monitoring of product-related risks.

• Lessons learned for the financial industry: Product suitability should not be viewed as a one-off onboarding exercise. Financial service providers should be able to demonstrate both an initial assessment of the compatibility of a product with the client's risk profile and investment objectives and an ongoing review of whether the product remains appropriate throughout the life of the business relationship. Particular caution is warranted in relation to less liquid or lightly supervised products.

Topic 3: outsourcing of the risk management and compliance function

FINMA also observed that smaller institutions (typically EAMs) frequently outsourced risk management and compliance functions to external service providers. In a number of cases escalated to FINMA, such outsourcing resulted in standardised control frameworks that were insufficiently tailored to the institution's specific activities, risk profile and product offering. For example, product-specific and business-related risks associated with portfolio management were not always properly identified, assessed or monitored.

• Lessons learned for the financial industry: This Communication offers a useful reminder that outsourcing does not relieve financial service providers of their regulatory supevisory responsibilities. Financial service providers remain accountable for ensuring that risk management and compliance functions are appropriately designed, implemented and supervised. Outsourcing arrangements should clearly allocate responsibilities, outline reporting and escalation procedures.

Impact for Swiss banks

FINMA's Communication and recent enforcement practice reinforce a broader supervisory focus on conflicts of interest, product governance and suitability in discretionary asset management and ongoing advisory relationships. The concrete implications for banks are twofold:

• First and foremost, banks should take the principles recalled in this Communication into account when providing discretionary wealth management and investment advisory services to their clients.
• In addition, this Communication may also be relevant for banks acting as custodians for assets managed by EAMs. From a purely contractual standpoint, the primary responsibility for the wealth management (or investment advisory) services rests with the EAM. Nevertheless, FINMA expects custodian banks to maintain a certain level of control frameworks in relation to the EAM business line as well.

Overall, FINMA’s Communication and recent enforcement practice send a clear message: firms active in discretionary asset management and investment advisory services must ensure that conflicts of interest, product governance and suitability are addressed through robust governance, not merely through formal policies or disclosure language.

Legal Note: This publication is of a general nature and does not constitute legal advice.