Compliance

Swiss Private Bankers Express Concerns

Contributing Editor, 14 January 2005

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The Swiss Private Bankers Association says its members are facing high regulatory costs and fear further anti-money laundering controls. ...

The Swiss Private Bankers Association says its members are facing high regulatory costs and fear further anti-money laundering controls.

The association president Niklaus Baumann, who is also a senior partner the Geneva-based private bank bearing his name, Baumann & Cie, said expenses linked to regulation already eat up an average of 9.8 per cent of overall expenses for small private banks, more than double for those of big commercial banks, which average 4.1 per cent.

The Swiss government has recently said it would begin looking at legal changes to beef up controls in line with recommendations by the 33-nation Financial Action Task Force, which fights money-laundering.

“The meekness with which Switzerland modifies its laws as rapidly as possible to conform to international norms and other standards also has perverse effects,” said Mr Baumann said at the annual press conference of the Swiss Private Bankers Association. “We always want to be the best.”

New recommendations from the Paris-based FATF expand the list of suspicions about clients that banks have to report to authorities, including counterfeiting, trafficking of migrants, insider trading and exchange-rate manipulation.

Mr Baumann warned that high costs were undermining the profitability of small private banks and leading to consolidation. “It will certainly come to mergers and takeovers” for small banks, he said.

“An over-regulated economy generally stagnates,” said Mr Baumann. “And an over-regulated banking sector paralyses the entrepreneurial spirit in other branches of the economy.”

Pierre Darier, partner in Geneva-based private bank Lombard Odier Darier Hentsch, said the difficult conditions would lead to intense competition among banks with similar sizes and similar strategies.

“There will be a war of elephants and a war of pygmies,” Mr Darier said, speaking on the sidelines. “We will be in the war of pygmies.”

Nicolas Pictet, partner in Geneva-based Pictet & Cie, said the current environment of low inflation and low interest rates would likely remain for years to come, aggravating pressure on profits and pushing some banks to consolidate.

Low inflation deprives companies of pricing power in the marketplace and may entice some managers into risky business decisions as a result, Mr Pictet said.

“For the wealth management industry, lasting low rates risk corresponding to a period of stagnation,” said Mr Pictet. “I'm worried that the wealth management industry will see margins erode in the coming years.”

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