Swiss banking faces unpredictable legal change plus assaults from Europe and the US, so it must craft its regulations to stay competitive, the chairman of the Swiss Private Bankers Association has said.

“We find the latest European, as well as American, legislative initiatives worrying. An undeniably protectionist trend is emerging, Nicolas Pictet, chairman of the SPBA, told an annual meeting in Geneva last week.

He cited legislative and regulatory moves such as the European Alternative Investment Fund Managers Directive – which some people fear will penalise non-EU hedge and private equity funds – and the US FATCA Act. The latter act tightens compliance checks on foreign institutions handling expat Americans.

In a bluntly-worded speech, Pictet, a scion of the eponymous Pictet private banking dynasty in Switzerland, warned against what he called Switzerland’s zeal in adding more layers of compliance on top of internationally-agreed rules.

“Competitive legislation means also being understandable to foreigners, compatible with international standards but no more than that. Let us curb our oh-so-Swiss zeal that has been named `Swiss finish’, an expression used even in the international press,” he said.

Contribution to GDP

Explaining why the stakes are high for Switzerland in crafting competitive rules, Pictet said that the private banking industry generated a gross income in 2010 (the last year for which such data were available) of SFr30 billion (around $31.5 billion), more than half the total revenue of Swiss banks, while the country’s overall financial sector has contributed more than a third of gross domestic product over the past 20 years.

The financial sector generates a total creation of value of almost SFr90 billion, almost a fifth of the overall Swiss economy, he said, citing figures from BAKBASEL, the research institute. Net average growth for the financial sector, over the past 20 years, has been 3.5 per cent per year, compared with 2.4 per cent for the Alpine state as a whole.

To date, the response of Swiss policymakers had been disappointing, he said. “With regard to domestic taxation, parliament was merely presented with a badly prepared reform of the withholding tax (which was refused) and a more than disappointing report on stamp duties. The same applies to the regulatory aspects: in the field of investment funds, the revision of the Federal Act on Collective Investment Schemes gives us a unique opportunity not only to comply with European legislation but also to strengthen our competitiveness. This objective appears to have generally eluded those drafting the legislative bill being debated by the Federal Chambers,” he added.