The European Union and Switzerland have signed an agreement aimed at preventing EU citizens from hiding money in the Alpine state.

The future of bank secrecy in Switzerland looks increasingly bleak after the European Union and the Alpine state signed a deal aimed at preventing EU citizens from hiding money in Swiss bank accounts. The move follows the US-Swiss agreement on disclosure of potential wrongdoings signed in August 2013, and which has already led to a number of Swiss banks reaching non-prosecution deals with Washington.

"Today's agreement heralds a new era of tax transparency and cooperation between the EU and Switzerland. It is another blow against tax evaders, and another leap towards fairer taxation in Europe. The EU led the way on the automatic exchange of information, in the hope that our international partners would follow. This agreement is proof of what EU ambition and determination can achieve,” Pierre Moscovici, European commissioner for economic and financial affairs, taxation and customs, said in a statement.

Switzerland and the EU will automatically exchange information on the financial accounts of each other's residents from 2018. The names, addresses, tax identification numbers and dates of birth of residents with accounts in Switzerland will be passed to national authorities, as well as other financial and account balance information.

The EU is understood to believe that as much as €1 trillion of potential tax revenue is lost each year as a result of tax evasion.

“Under the new EU-Swiss agreement, member states will receive, on an annual basis, the names, addresses, tax identification numbers and dates of birth of their residents with accounts in Switzerland, as well as other financial and account balance information. This new transparency should not only improve member states' ability to track down and tackle tax evaders, but it should also act as a deterrent against hiding income and assets abroad to evade taxes,” the European Commission said in a statement earlier this week.

It added that the pact is “fully in line” with the strengthened transparency requirements that EU member states agreed amongst themselves last year. It is also consistent with the new OECD/G20 global standard for the automatic exchange of information, it said.

The EU is concluding negotiations for similar agreements with Andorra, Liechtenstein, Monaco and San Marino, which are expected to be signed before the end of the year.

Relations between Switzerland and neighbouring EU states have been difficult in recent years, as governments have sought to track down tax evaders. In the case of Germany, the country has even made use of data stolen from Switzerland to go after alleged wrongdoers, raising questions about respect for due process of law. As far as the US is concerned, it has already reached settlements with UBS about its provision of offshore accounts to wealthy Americans, while Wegelin, Switzerland's oldest bank, has ceased to operate in the US and its remaining non-US operations have been restructured into another country.

The demise of the Swiss bank secrecy model - which at one time had been a key reason for the sector's reason for existence - has put pressure on industry leaders to reinvent how they operate and add value. This will be a discussion topic - along with others - at the forthcoming WealthBriefing Summit in Zurich on 18 June 2015. For more details, see here.