Despite all the discussions about consolidation on the Swiss private banking scene – an evolution that is in fact under way and is likely t...

Despite all the discussions about consolidation on the Swiss private banking scene – an evolution that is in fact under way and is likely to continue for some time – Swiss private bankers are in an upbeat mood. This was apparent in January, at this year's traditional annual press conference of the Swiss Private Bankers Association. Of course, the positive evolution of the stock market (especially in Switzerland) helped to put smiles on their faces. But there is other good news to be reported, notably on the legislative and regulatory side. First, relations with the European Union have improved. Two risky referendums were held last year on issues not directly linked to the financial sector (Switzerland's participation in the Schengen Treaty and the extension of the free movement of persons to the new EU member states). Their positive outcome (which made Swiss voters look more "European" than their French and Dutch counterparts) has eliminated a number of political uncertainties. Of greater importance, as far as banks are concerned, was the implementation of the bilateral agreement on the taxation of savings income (the Swiss equivalent to the EU Directive on the same subject). Of course, this new piece of legislation has been difficult to negotiate and costly to implement, but the system seems to be working without disrupting business. For many years, this issue has strained relations between Switzerland and the EU. The fact that it has now been settled at the political level does not mean that all problems have been resolved once and for all. But one has reason to hope that, from now on, the debate will be less emotional and will focus on the technical workings of the agreement. Another positive piece of news is the fact that the Swiss political class (i.e. the Government and the Parliament) is finally listening to the repeated complaints by bankers that something must be done about regulatory overkill. The first positive sign was the "pause for thought" ordered last June by the Swiss finance minister, Hans-Rudolf Merz, after the heavy criticism directed at a bill related to the implementation of the 40 FATF Recommendations on money laundering. It is too early to say what will result from this reflection, but the industry's warning, supported by leading parliamentarians and the majority of political parties, seems to have had a salutary impact on the administration. The publication, in September, of a set of "Guidelines for effective and proportionate market regulation", is an important good omen. Drafted by the Finance Ministry together with the leading Swiss financial regulators, these Guidelines aim at improving the effects of regulation and making sure it is worked out and implemented in the least disruptive way. Although it remains to be seen how these good intentions will be put into practice, the fact that the regulators now openly admit that a problem exists is already a small victory. The Swiss private bankers particularly welcome the interest in more frequent recourse to cost-benefit analyses (which were desperately lacking in the past) as well as the demand for differentiated regulation according to the size and activities of the various players in the financial centre. They have also expressed the view that these principles should not only be respected by state regulators but should also apply to self-regulation. At a more fundamental level, two major bills directly related to the financial centre have been recently submitted to the Federal Parliament. Both go in the right direction. The first deals with a new law on collective investments. It has been welcomed, on the whole, by the industry although some improvements are still expected during the parliamentary phase. The first decisions made by the relevant parliamentary commission are encouraging. So is its willingness to speed up this revision as much as the inherently slow system of legislation allows. This is a positive sign, as Switzerland badly needs to modernize its legislation in this field. The second bill was presented by the Swiss government on 1 February. It is a new law on the supervision of financial markets that intends to merge the Swiss Federal Banking Commission, the Federal Office of Private Insurance and the Money Laundering Control Authority in order to create an integrated financial supervisory authority called FINMA. Compared to previous drafts, this bill has been improved in various ways: the new authority will enjoy an autonomous status, its staff will be hired on a private basis (which will allow for increased flexibility) and the sanction system will be more realistic than the proposals that had been tabled earlier. Last but not least, the creation of the Swiss Finance Institute must be mentioned. It is the result of a merger between two existing organizations: FAME in the field of research and the Swiss Banking School in the area of executive education. Thanks to substantial funding provided by the banking and finance community, as well as the support of several Swiss universities and of the Swiss State Secretariat for Education and Research, it should become in the medium term a leading research and teaching organization in the area of banking and finance. Switzerland as a financial centre is currently in a favourable position, business-wise as well as politically. Far from resting on its laurels, it is working hard to make itself more competitive in a world where nothing can be taken for granted. It is encouraging to see that all the relevant actors seem to have understood this much.