The editor looks at two stories of recent days – the regulatory tussle between UBS and the Swiss federal government, and the recent European Commission report stating that Monaco is a "high-risk" jurisdiction in terms of AML and counter-terrorist financing controls.

With all the disruption to global supply chains that have been caused by the pandemic, tariffs, military conflicts and other forces, high net worth individuals who also own operational businesses need help from their banks. And it also seems clear that they will need lenders with sufficiently robust balance sheets to help with the capital-raising and liquidity to carry them through any changes that need to be made.

Also, as HNW and ultra-HNW individuals re-think where they want to live and spend part of their lives – for example, as is happening with such persons moving from the UK amidst tax changes – banks must pivot to capture the shifting flows of capital.

What all this amounts to is that there seems to be a benefit for a bank in having a rock-solid balance sheet, lots of on-the-ground experts to guide clients, multiple booking centres, and best-in-class technology. None of this comes cheap. 

Which takes me to the recent outpouring of angst in Switzerland after the Alpine state’s federal government proposed changes to regulatory capital requirements. 

Swiss capital rule changes could mean that UBS would have to hold $24 billion more Common Equity Tier 1 capital on a pro-forma basis, adding to CET1 changes it has already communicated, taking such capital it must hold to $42 billion, it said in a statement earlier in June. (CET1 capital is a shock absorber against a market crash, and the ways it is set and calculated have changed before and after the 2008 crisis.) The added capital includes money related to the full deduction of UBS AG’s investments in foreign subsidiaries.

The issue about foreign subsidiaries is a crucial point – UBS is an international bank, and it makes a big deal – rightly – about the advantage of having such a wide footprint. Its competitors, such as Citigroup and Deutsche Bank, for example, do the same in stressing an international reach. But if Swiss regulations, designed for the entirely understandable reason of stopping future taxpayer bailouts, bite too hard, then UBS is at a competitive disadvantage. It also means that UBS’ optimum ability to serve clients needing to finance businesses is going to be constrained. 

The Swiss government proposals have been in the works for some time, and UBS has previously warned that it could be hit. While riding the wave of a rising level of wealth in regions such as Asia, the bank also, like its peers, faces continued regulatory costs, demands for more technology, and uncertainties of the global economic and geopolitical climate. As reported in April last year, the Federal Council wants systemically important Swiss banks – such as UBS – to hold significantly more capital against their foreign units. UBS, Raiffeisen Group, Zürcher Kantonalbank and PostFinance are deemed systemically important lenders.

How all this will play out is difficult to guess at this stage. UBS and the Swiss Bankers Association (see here for the SBA's comments) have made their objections felt. UBS is, two years after absorbing Credit Suisse in an emergency acquisition, now the sole universal bank in Switzerland, and by far the country’s largest financial institution. There is a certain loneliness at the top. Sergio Ermotti, CEO, knows that UBS cannot afford to stumble – it must be as financially solid as possible. But with shareholders seeking the best possible returns, keeping shareholders and capital-hungry business clients happy is going to be a difficult feat. 

Monaco is dubbed "high risk," but hard evidence would be nice
On a separate tack, as had been trailed in parts of the media, the European Commission of the EU announced last week that it had placed Monaco, among others, on a high-risk list of jurisdictions in terms of anti-money laundering and the countering the financing of terrorist regimes. (On the flipside, Panama, the UAE and Gibraltar, among others, were taken off it.) The updated list considers the work of the Financial Action Task Force (FATF) and, in particular, its list of “Jurisdictions under Increased Monitoring.”

Your correspondent decided to dig into the 13-page document the EC produced to explain why Monaco is deemed high-risk. Disappointingly, it did not give concrete examples of the sort of deficiencies that led it and the FATF to designate Monaco in the way it did. 

The statement, full of acronyms, does not really give specific cases of where something has gone wrong. For sure, it is important to take out real names when cases are legally active, for example, but it would be good for policymakers taking such a step to give examples. As we journalists like to say, “show don’t tell.” For example, if a client was onboarded by a bank without sufficient checks, then say so. 

This is important because the EU, and other bodies, like to bang the drum for clarity and transparency, and woe betide those who fall short. In issuing its pronouncements, the Commission should be more thorough in spelling out the kind of problems that have come to light. Maybe, in due course, examples will come out, and it would be good for all sides, including those trying to ensure that matters are restored, to provide them. 

This is what the Commission said on page 10 of its document (C(2025) 3815 final). 

“Monaco made a high-level political commitment in June 2024 to the FATF and to the Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism of the Council of Europe (MONEYVAL), which is its FSRB, to strengthen the effectiveness of its AML/CFT regime. Since the adoption of its MER in December 2022, Monaco has made significant progress on several of the actions recommended in the MER, including by establishing a new combined FIU and AML/CFT supervisor, strengthening its approach to detecting and investigating TF, and implementing TFS and risk-based supervision of NPOs. 

(WealthBriefing acronym-buster: “NPO” is non-profit organisation; “FSRB” is Financial Action Task Force-Style Regional Body; “FIU” is financial intelligence unit; “MER” is mutual evaluation report; “STR” is suspicious transaction report; “TFS” is target financial sanctions.)

The document continues: “Monaco will continue to work with the FATF to implement its action plan by: strengthening the understanding of risk in relation to ML and income tax fraud committed abroad; demonstrating a sustained increase in outbound requests to identify and seek the seizure of criminal assets abroad; enhancing the application of sanctions for AML/CFT breaches and breaches of basic and beneficial ownership requirements; completing its resourcing program for its FIU and strengthen the quality and timeliness of STR reporting; enhancing judicial efficiency, including through increasing resources for investigative judges and prosecutors and the application of effective, dissuasive and proportionate sanctions for ML; and increasing the seizure of property suspected to derive from criminal activities. While recognising and welcoming the commitment and progress made by Monaco so far, and encouraging further efforts, the Commission concludes that Monaco has not yet fully addressed the concerns that led to its addition to the FATF’s list of ‘Jurisdictions under Increased Monitoring.’ Monaco should therefore be considered a high-risk third country.”

As always, if you wish to comment or message the editor about these views or other topics, please email tom.burroughes@wealthbriefing.com