Switzerland is gearing up for a world after bank secrecy, but a conference has heard that some jurisdictions are not getting the transparency message.

Swiss banks have, with some exceptions, moved away from secrecy and towards a more compliant business model but they operate in a world where the world’s largest economy, the US, does not always obey the rules it calls for, a Breakfast Briefing heard recently.

The event, called Switzerland – will it remain a key centre of wealth management?, focused on how the financial industry of the Alpine state has had to adjust, and what challenges it faces in the future. Topics such as the impact of financial technology and rising client expectations were given an airing. 

The briefing was held a month before financial markets and the political world was shocked by the UK vote to leave the European Union; as a non-EU nation (although with access to the EU’s Single Market), Switzerland’s banking industry has looked upon the UK development with close interest. Another saga that has affected the private client wealth management sector, has been the “Panama Papers” affair; there was some discussion of the issues around the leak of a vast trove of documents from Panama-based law firm Mossack Fonseca earlier in the year.

Panellists were Chris Hamblin, editor of Offshore Red and Compliance Matters (sister news services to this one); Christine Ciriani, managing partner and head of Switzerland for Capco Consulting; Jean-François Bunlon, market head, managing director Swiss domestic, Geneva location head, HSBC Private Bank; Jorge Yui, vice president, digital banking strategy advisor, JP Morgan; Osmond Plummer, managing director, Wealthcoaching.ch. The panel was chaired by your correspondent. The event was sponsored by ERI Bancaire.

“The number of wealthy clients around the world keeps growing and Switzerland remains the place to be,” Yui said in a confident assessment of the country’s staying power as a financial force. 

One major issue, however, Yui said, was that as a result of rising regulations such as around know-your-client (KYC) and checks for politically exposed persons, it can take on average two months to take on a new client, a situation not seen in any other field of commerce. A big challenge, which technology can help with, is to improve the client experience. While technology can help resolve some issues such as to do with onboarding clients, it can also cause new complexities, he said. “JP Morgan has put in a very expensive system to onboard clients,” he said.

Asked about the recently-concluded US Department of Justice programme with Switzerland, through which 80 banks reached non-prosecution and related agreements with US authorities, Capco’s Ciriani said the programme has taken on “negative connotations”. Banks have become tax collectors for governments. “Unfortunately, the way the Swiss government handled the matter meant it looked uncoordinated and the US prosecutors adopted a 'guilty until proven innocent' attitude during the subsequent examinations," she said.

Hamblin noted that in the changed atmosphere, some private banks have moved away from their old unlimited liability family structures (such as Pictet, Lombard Odier and Mirabaud). “That is a lack of confidence that banks have in themselves and evidence of the aggressiveness of US action,” he told the briefing.

Capco’s Ciriani said the Swiss government probably was unaware of the full extent of the impact of the US tax programme on both the global reputation of Switzerland and financially on the banks. However, following the financial crisis, when banks such as UBS were receiving bailouts, the public mood at the time was that banks should be reined in.

Playing field
Hamblin spoke about how the US had imposed FATCA on other countries but, as far he could ascertain, was failing to hand over data to foreign governments in accordance with the inter-governmental agreements it had signed, even though it had begun to receive it.

Plummer said that in his experience, some Swiss-based organisations are trying to push best practice in terms of complying with the rules but others are still being slow to pass on information when asked. 

HSBC’s Bunlon said that it remained a “dangerous game” for people to be hopping around from one booking centre to another in the hope of finding a more liberal regime. With the Common Reporting Standard, there was an increasing number of countries that have signed up for full tax transparency, he said. 

In the new era, many traditional strengths of the Swiss banking model remain, he added, such as the clusters of skilled professionals, a neutral political jurisdiction, political stability and strong property rights. “You have also got a country with one of the strongest balance sheets on Earth,” he said. “The average tier one bank capital ratio in Switzerland is the highest in the world,” he said.

“Today clients don’t come to Switzerland for tax reasons but for something else...The world is still very unstable. Switzerland has a lot to offer and can do even more to market Swiss banking,” Bunlon said. 

Switching to IT challenges in private banking, Bunlon added: “I’ve the impression that we are in very early days. Firms are investing a lot in technology but more needs to be done to bring technology together so as to improve the client experience.”

Plummer said the banking industry should seek inspiration from the Swiss watch sector, which at one stage in the 1970s appeared old-fashioned but was of very high quality, and was then revolutionised by the arrival of news brands (Swatch, Hublot). “What the industry needs is in adding capacity and attention in managing assets. It needs to focus on providing asset management that outperforms rather than buries returns in an environment of secrecy. With increased transparency, there is a need for more performance,” Plummer said.

JP Morgan’s Yui said one strength of the Swiss industry is that “we have learned to deal with complexity”. Swiss banks are used to dealing with people from across the world, able to handle those from varied legal and cultural situations, he said.

Hamblin said governments of the offshore world could have teamed up and presented a package of reforms and ideas to the onshore world; had this happened, the offshore centres would have been in a better position today than having ended up with a data transfer regime such as the Common Reporting Standard.

“In Switzerland, people respect the authorities and leave a lot of space to institutions,” Yui said. “This is because traditional institutions are quite responsible and know what they are doing. When FINMA says something, everyone stops and has to reply in 24 hours.” Ciriani noted how in the case of the US tech giant Apple, its CEO refused to give the US security agencies the ability to use its encrypted code, contrasting with how Swiss authorities have behaved over account details. 

Another issue, Ciriani said, is that people often do not perceive the Swiss as inventive, which is unfortunate, because a lot of global financial markets technology companies are in fact headquartered in Switzerland, a fact that many people do not appreciate. “A lot of Swiss players are expanding globally.”

Yui said that in terms of IT spending, many firms are focused more on “what they have to do rather than what they should be doing [to make money]".

M&A
Plummer said bank mergers and acquisitions will continue as cost pressures bite, but there will remain a desire among staff of large banks to launch their own firms. HSBC’s Bunlon noted a figure from a consultancy saying that to operate a private bank required a minimum of SFr10 billion ($10.2 billion). He also noted there are as many AuM deals as there are mergers of actual businesses, in part as firms rejig booking centres and focus business on the most profitable segments and markets.