Previous audits placed greater focus on the formal existence of directives and documents. The update takes a holistic approach geared towards the risk in the client relationship. This covers the entire life cycle, from client segmentation and suitability and appropriateness assessments to the monitoring of risk profiles, the documentation of recommendations and the governance of institutions. The revised version examines whether portfolio managers are not only aware of their FINMA obligations, but have also anchored them in their processes, documented them and ensured they are covered with a functioning internal control system.
A key element of the changes is the enhanced scrutiny in terms of information requirements. One significant update in the circular is that portfolio managers must inform their clients of any cluster risks in accordance with precisely defined thresholds. By specifying the information requirements, the supervisory organisations have significantly increased the depth of their audits. Among other things, auditors now assess whether risk warnings, cost information, details of economic ties and information on market offerings have been communicated correctly, in a timely manner and in full. In addition, audits now include a careful review of the labelling of advertising, including digital channels. Compliance with the requirements for basic information sheets is also now systematically assessed.
In addition, the regulations on conflicts of interest, which were interpreted and specified in detail in Circular 2025/2, form an essential part of the new audit practice. In future, audit firms will scrutinise even more closely whether institutions ensure an objective selection of financial instruments, whether remuneration models lead to misguided incentives, how retrocessions are disclosed and passed on and whether proprietary products are used transparently, comprehensibly and without undue incentives. These elements were less clearly defined in previous audits. The circular and the audit processes derived from it significantly raise the expectations in terms of transparency, traceability and neutrality of interests.
Concerning appropriateness and suitability, there is also a close link to Circular 2025/2, which defines, among other things, minimum requirements for gathering information on client knowledge and experience. With regard to portfolio management and portfolio-related investment advice, these requirements go beyond the mere FINMA guidelines, which allowed for a looser interpretation in this area. The new audit programme addresses this issue and expands the scope of the audits accordingly. For the first time, for example, audits will examine whether institutions use internal methods to classify financial instruments according to risk and whether they carry out suitability assessments systematically and regularly. Random checks in sample portfolios and client accounts supplement this in-depth analysis.
Documentation and accountability are also being significantly expanded as part of the new FINMA audit programme for portfolio managers. The new audit steps reflect the expectation that institutions will record the advisory situation, the reasons for recommendations and the relevant client information in a clear, complete and comprehensible manner. Accordingly, audit firms are now also focusing on whether the content and quality of documentation meet the minimum standards.
Finally, the audit requirements relating to organisation and governance are being expanded. This concerns, for example, the obligation to systematically record suitability risk cases, to ensure the involvement of senior management, to guarantee the functionality of internal control systems and to maintain an appropriate level of independence for control bodies.
Overall, the changes therefore lead to a significant expansion of the FINMA audit. Portfolio managers would be well advised to critically review their directives and processes in light of Circular 2025/2, strengthen their documentation practices and define their internal control mechanisms more clearly. When advising their clients, portfolio managers should pay particular attention to informing clients about cluster risks and dealing with conflicts of interest when using their own products.
Note: This article was first published in Newsletter No. 27 of the Association of Swiss Wealth Managers (ASWM).
