Compliance

A New Regulatory Order For Switzerland's Trusts Sector - What We Know

Tom Burroughes, Group Editor, London, 8 July 2019

articleimage

Why is this regulatory change taking place and why is it necessary? Why has this change not happened before, given all the issues in financial services over the past decade?
Up to now, the system governing the financial industry (to the exception of banks and insurances submitted to the Insurance Surveillance Act, which were already bound by strict rules of organisation and, to a certain extent, protection of the consumers) was that of auto-regulation, exclusively centred on anti-money laundering regulations. As a consequence, there was a rather large disparity of offering in the industry and the consumer definitely had no guarantee of solidity, effectiveness or organisation and mitigation of risks.

The increasing complexity of financial instruments, the globalisation trend and the increasing amount of wealth created around the world, which all led to an increasing offer of services in the industry, rendered the changes compulsory. And this is not to mention the adoption back in 2004 of the first set of MiFID regulations, which Switzerland needed to raise its standards up to.

One of the reasons for Switzerland taking a fair amount of time in adopting the FINLA and FINSA probably resides in the almost immediate announcement after the MiFID regulations entered into force to revise them; it was most probably wise and prudent to await the new MiFID II set of rules to align Swiss standards to it. In addition, a number of rules intended for the protection of clients of banks and insurance companies were progressively enforced over the last decade, which indirectly also protected the clients of the financial intermediaries working alongside the banks for the same clients.

Does this regime only apply to Switzerland?
The FINLA and FINSA are indeed territorial only. However, some rules will naturally extend to international groups when one of the organisations it owns is based in Switzerland.

This said, given that the FINLA and the FINSA are essentially driven by euro-compatible standards, the level playing field is given.

Who is the head of SOWT?
No decision has yet been made. The leading organisations that will merge in the process (OAR-G and ASG) are presently more concerned by ensuring that the supervisory body under construction will meet FINMA’s requirements and that they will be able to offer their actual members a solid and competitive organisation to be affiliated to and supervised by.

In five years’ time, for example, what does SOWT SO-FIT hope the Swiss wealth industry looks like?
As indicated before, Switzerland’s reputation in terms of effectiveness, solidity and expertise in the financial industry remains, and the FINLA and FINSA will allow the demonstration that its leading position is well deserved.

The enormous advantage of taking the necessary time to adopt proper rules to govern the financial industry is that the said rules meet the purpose of protecting consumers, while not paralysing the system by heavy administrative burdens. This should overall increase the competitiveness of Switzerland in the financial services field and allow us to serve more clients.

Within the Swiss industry, these developments are discussed but they aren’t very visible overseas, with Brexit distracting attention. How do you hope the changes will gain more public awareness?
It is not so uncommon that those concerned by the adoption of new regulations would tend to wait for those rules to be in force before they make any move. On the other hand, at present, the candidates for the supervisory bodies are working on setting up their organisation before they more actively promote their services and offering as such.

Equally, those clients who will be offered this new extended protection probably do not feel that they are not already well protected; hence their lack of interest for the time being.

This being said, SO-FIT’s strategy definitely comprises a strong communication plan, which will be rolled out in the last quarter of 2019 and, of course, throughout 2020. Others will follow, and there is no doubt that in the future Swiss financial services will have a high level of professionalism, its structures will be solid, with the additional benefit of people preferring the Swiss financial industry to others in the world.

Switzerland’s financial sector links with the UK are likely to be even more important after Brexit. Can you talk about how the regulatory changes play into that?
They may or may not be more important. The fact of the matter is that, for the time being, no-one really knows how Brexit will turn out and how much of the European legislation will fall out of the UK’s reach. MiFID is one of them, although it seems very unlikely that the UK would suppress any part of the consumers’ protection it has been offering up to now within the European Union.

This said, it may rather well be that the UK will be seen as less stable and less of a welcoming financial centre, in light of its recent fall out of the European Union. On the contrary, Switzerland has always been out of the European Union, while showing a strong ability and success at negotiating with its European partners and adopting, when necessary, EU-compatible rules.

Are there other points you want to make?
It should be stressed that FINMA has announced its wish to see ideally three supervisory bodies set up in order to ensure a healthy competitiveness in the market, while streamlining the offering.

To date, in addition to SO-FIT, three candidates have announced their intention to apply for authorization as a regulatory body : OSFIN (to be born out of POLYREG – PolyReg Association Générale d'Autorégulation), FINcontrol (to be born out of VQF – The Financial Services Standards Association VQF) and OSIF (to be born out of ARIF – Association Romande des Intermédiaires Financiers).

SO-FIT’s leaders strongly believe that their decision to merge OAR-G and ASG and, in the process, partner with the two leading organisations of trustees, will show how important it is to put together the best of knowledge and experience, rather than pursuing the same target in isolation. There is no doubt that this association will demonstrate the virtue of two leading organisations challenging themselves in order to bring the best of the industry into the new supervisory body to be created under the name of SO-FIT.

The constitution of a supervisory body is an incredibly stimulating project to run, but it poses a number of constraints and requirements to tackle. The biggest one probably comes from the necessity for the organisation applying for supervisory body authorisation to continue offering its members the services rendered up to now as an auto-regulation organisation, during the three-year transition period.

There is no doubt that by putting their work forces and financial means together, ASG and OAR-G are best placed to overcome the difficulties that lay ahead. More so, by bringing into their organisation the expertise of STEP and SATC, SO-FIT will also be best placed to address the needs of trustees in the new framework.

Register for WealthBriefing today

Gain access to regular and exclusive research on the global wealth management sector along with the opportunity to attend industry events such as exclusive invites to Breakfast Briefings and Summits in the major wealth management centres and industry leading awards programmes