Trust Estate

Private Wealth Industry Talks Transparency, Brexit And Privacy

Tom Burroughes Group Editor London 10 March 2017

Private Wealth Industry Talks Transparency, Brexit And Privacy

The Swiss Alps formed a breathtaking backdrop for wealth industry practitioners to discuss the challenge - and opportunity - of demands for more transparency at a recent STEP conference in Interlaken.

A buzzword of today’s wealth management world is “transparency”. And the drive for more openness about financial affairs – its pitfalls and benefits – was a hotly debated topic at the recent inaugural Alpine conference of the Swiss & Liechtenstein STEP Federation.

Delegates and speakers gathered at the Congress Centre Kursaal, Interlaken, to witness talks spanning the high frontier of space; the activities of “whistleblower”/alleged spy Edward Snowden; concerns about assaults on legitimate financial privacy; the compliance implications of storing fine art in “freeport” warehouses, and the implications of Brexit. Even the Zika virus made an appearance.

Kicking off the two-day conference, in spacefaring fashion, was Professor Claude Nicollier, who has been up into space four times with the NASA space shuttle programme, is a former test pilot and military aviator, and who is an honorary professor at the Swiss Federal Institute of Technology in Lausanne. He spoke about how spaceflight delivers lessons about the need for total attention to detail, flawless execution and teamwork – qualities that should be taken to heart by members of the Society of Trust and Estate Practitioners. 

Partners at the conference were headline sponsor Peritus Investment Consultancy; bronze sponsors - BDO; Stonehage Fleming and ZEDRA Trust Company; lunch sponsor – Lombard International Assurance; drinks reception - Mirabaud; and gala dinner sponsor - Schellenberg Wittmer. Other partners were Schroder & Co Bank, Froriep, Dohle Corporate and Trust Services, Thatcher Mackenzie, Touchstone, Rawlinson & Hunter, LGT Bank, Bonhote, STEP Worldwide, Jackson Hole Trust, Industrie-und Finanzkontor ETS, J Stern & Co. The conference was organised by the Beehive Partnership and the media partner was WealthBriefing.  

Understandably, given the setting, the first panel discussion focused on the “changing profile of Switzerland” and how the country’s financial services industry will adapt after banking secrecy, at least in an international context, is at end. Discussing this topic was Xavier Isaac, head of Salamanca Group Trust & Fiduciary; Dr Ariel Sergio Goekmen, executive board member of Schroder & Co Bank in Switzerland; and Daniel Zappelli, founding partner, VSZ Law Firm, and former attorney general of the Republic and Canton of Geneva.

Zappelli challenged what he saw as the perception in some quarters that Switzerland is slow to embrace change in the rules. “My impression is that we have gone quicker and quicker to adapt ourselves to other countries’ will,” he said. He noted, for example, that since the late 1980s, anti-money laundering laws, enacted to combat organised crime globally, have turned into a system through which countries have targeted jurisdictions such as Switzerland to hunt for revenues. He argued that in some respects, Switzerland moved “too quickly” to go along with international wishes. “The issue is whether Switzerland has been ready for such a quick change,” he said. There was little doubt that the changed legal framework has affected Swiss financial services, Zappelli said.

Salamanca’s Isaac noted that the Swiss trust industry faces new domestic financial regulation, moving from self-regulation towards an authorisation approach that might not be easy for all participants. The trust sector also faces automatic exchange of information requirements taking force from 2018, he said. 

One change is clear, Isaac said: “No-one should come to Switzerland any more for undisclosed money. That is good in terms of reputation of the financial centre. For high net worth clients, they’re looking for stability, a well-regulated, multi-lingual and professional centre, with skills covering legal, tax, fiduciary services and banking...We’re  a proper country and understand asset protection and security." 

An important development for Switzerland's trust sector, in a country that does not have a common law heritage, was the the recognition of the Hague Convention on recognition of trusts, which came into force in 2007 and was transformative, Isaac said.

Discussing how Switzerland’s financial industry has changed, Schroders’ Goekmen said that a decade ago, banks sold a wide variety of services and products to clients, but now specialisation is much more the order of the day. “Now, you fulfil real needs only in your areas of competence,” he said. 

On Brexit, the panellists suggested that Switzerland’s own experience as a non-EU country, with its issues of market access, made it a good example of the benefits and costs of being outside the bloc. 

A subsequent session, entitled “Excessive Transparency: Public Register of Trusts and Foundations”, involved HSH Prince Michael of Liechtenstein giving a strongly worded critique of the drive for ever more information about the financial affairs of the rich. He argued that public registers of trusts and other structures was part of an international agenda, or “witch hunt”, against private wealth. It was dangerous, he said, because such transparency threatened legitimate financial privacy. He even put up a photograph on a screen of Russian Communist leader Lenin to illustrate what he thought of such a campaign. All these campaigns for full disclosure, he said, “ignore the human right to privacy and the right to financial privacy. Property rights are eroded, and it creates envy,” he added.

Fellow panellist Natacha Polli, founder, PAZ Consultants in Geneva, warned that the word “transparency” can be used as a pretext to pry into private matters; she also warned of the “pseudo-transparency” efforts of organisations such as Wikileaks and the targeting of certain individuals with information release, and the “weaponisation of transparency”. A contrasting example, she said, was the case of former HSBC Private Bank IT worker Hervé Falciani, who claimed to be a whistleblower and said that privacy had been abused. 

“Full transparency is a fantasy but it relates to the purpose of what you want to do with all this data,” she said. 

The third panellist, Filippo Noseda, co-head, private client department at Withers in London, looked at how certain rulings, from bodies such as the European Court of Human Rights, and others, sometimes contradicted, or blocked, efforts by governments and international bodies to get hold of private financial information. He noted how there are double standards by certain countries in terms of transparency: the US, for example, has not signed up to the Common Reporting Standard. The CRS, he said, with its regime of encouraging transfer of data in pursuit of alleged tax dodgers, resembles the mosquito borne Zika virus – “99 per cent of it is like a normal mosquito but 1 per cent of it is very, very dangerous.” He said that the actions of Snowden, who claims to have exposed domestic spying on US citizens by the US National Security Agency, have helped fuel worries about threats to privacy on a number of fronts.

In the third main panel of the first day, Marc-Andre Renold, professor and attorney-at-law, University of Geneva, and Marc Weber, partner at Lanter, discussed recent developments among what are called freeports – storage facilities for objects such as fine art, sculpture, jewellery, gold and other valuables. The duo illustrated how potential clients must behave to avoid falling foul of laws, given growing interest by the authorities in this area.

Family offices
On the second day of the conference, panellists considered issues around creating family offices in Switzerland, picking through the specifics of creating such structures, hiring suitable staff - at an affordable price - and dealing with the thicket of rules as set by FINMA and other bodies. Speakers on this panel were Thomas Kaufmann, head of tax, BDO Zurich; Christopher Potter, senior counsel, Societe d’Etudes Techniques et Economiques, and Mark McMullen, partner, CEO, family office, Stonehage Fleming Group. Kaufmann said that in his experience, his clients “always had some links to Switzerland”. Potter said the tax treatment of family offices was a “window into the affairs of Swiss families”.

Potter said regulations fell into cases of the “good, the bad and the ugly”. For a family office, regulations could have the effect of forcing it to disclose payments of private bills, the equivalent of having to disclose information about a person’s shopping habits. “That’s unacceptable from a family perspective,” he said. 

Switzerland had the benefit, Potter said, of having multilingual workforce to draw on – a very important attraction for international families using the country. On the downside, he said, are the costs of doing business in Switzerland, which are “very substantial”. Costs will increasingly push conversations about what can be done in-house or outsourced to lower-cost places, he said.

Asked about the international geopolitical situation, Kaufmann joked that he doubted many people will be heading to Switzerland because of the election of Donald Trump in the US. For all the talk that America erecting walls will “benefit Switzerland”, Potter said recent evidence suggested conventional wisdom on geopolitics has been wrong, giving the cases of Brexit and Trump.

The audience heard that one issue in Switzerland is the lack of a specific supervisory regulatory framework for family offices.

A subsequent panel addressed “Reform Efforts In the Field Of Swiss Succession Law”, with presentations from Professor Dominique Jacob, ordinary professor of private law and director, Center for Foundation Law, University of Zurich; Julien Perrin, attorney-at-law; Kinga Weiss, certified specialist SBA inheritance law, and partner, co-head private client team, Walder Wyss. Other panels addressed issues such as “Six Months After The Brexit Vote” (Charles Gothard, partner, Macfarlanes; David Wallace Wilson; partner, Schellenberg Wittmer; Andrew McCallum, partner, Rawlinson & Hunter). 

The Brexit panellists wrestled with the issue of how far a UK departure from the EU will affect the UK as a financial centre and the UK economy. Gothard said that a large change already under way is the end of the notion of being a permanent non-domiciled resident in the UK, and that this change was happening regardless of Brexit. After some concerns about a negative impact, the UK property market has settled down, he said. Firms such as Apple and Google are moving into new London headquarters, which hardly suggests Brexit is a blow. There are, however, worries from among European Union citizens living in the UK about their future residency status, he said.

Wilson stressed that the “four freedoms” of the EU Single Market were “non-negotiable”. He said Brexit will change some aspects of the relationship between Crown Dependencies, such as Jersey and Guernsey, and the EU, and also raise questions about the status of Gibraltar, given that it borders an EU member in the form of Spain. “I would be looking for alternatives to holding a trust in Gibraltar,” Wilson said.

Gothard argued that some “cautious optimism” has arisen in the UK in the months since the Brexit vote, and to that end he cited the example of a stronger UK stock market and the relatively solid state of the economy when contrasted with that of much of the eurozone.


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