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Swiss Regulator Says Bank Secrecy Can't Survive In Present Form

Osmond Plummer

2 December 2011

Swiss bank secrecy, which is coming under relentless international pressure from revenue-hungry governments, cannot survive in its current form, the Swiss financial regulator said at a meeting recently. 

Professor Anne Hértier Lachat, head of the Swiss Financial Supervisory Authority – or FINMA – spoke at a British-Swiss Chamber of Commerce luncheon in Geneva.

Whereas self-regulation for banks in terms of their risk models has been demonstrated to be ineffective over recent years, the Swiss self-regulatory model for anti-money laundering and compliance issues will remain in its current form for the foreseeable future, she said.

So the world is changing and Switzerland – ever reluctant to give up its sovereignty and accept pressure for change from abroad – has to change with it, she said. “Swiss private banking and wealth management has to be re-invented or re-imagined,” she said, and – in the first admission from a Swiss government official that your correspondent has heard, she said: “Swiss banking secrecy will not survive in its current form”.

That is quite a comment at a time when, for example, the consultancy Booz & Co recently argued that Switzerland is likely to see up to SFr47 billion (around $51.5 billion) leaving accounts in the Alpine state after tax deals with countries such as the UK and Germany. And as this publication recently noted, the squeeze on bank secrecy is mirrored by a squeeze on banking margins.

In a veritable tour d'horizon of the current environment for Swiss private banking, Lachat commented on the size of the two large Swiss banks, UBS and Credit Suisse (with combined assets of 600 per cent of the country’s gross domestic product) and the new legislation that addresses the capital requirements for these two (and any future) “Systemically Important Banks”.

Lachat referred to the increasing extraterritorial reach of various legal systems, referring to the recent deals with the UK and Germany in respect of undeclared assets and citing the US legislation known as FATCA as a unilaterally declared exchange of information treaty which will have many financial institutions effectively working for the US Internal Revenue Service.

It remains, according to Lachat, “difficult to assess the scope” of FATCA – a fact on which this publication has had much to say. (To view an example of the coverage, click here).

Lachat argues for increased regulation, noting that in some areas Switzerland is attracting business that other jurisdictions would regulate more strictly – the trust company business being one such concern to many of the reputable market players in the country.