Introduction
In the aftermath of the financial crisis of 2008/2009, Switzerland launched a massive overhaul of its financial regulations. These reforms followed several objectives. First, banking regulations were revised to ensure the stability of the financial system, in line with the recommendations of the Financial Stability Board ("FSB") and other international standard-setters. Second, Switzerland reacted to EU law in order to ensure equivalence and to be able to continue to access the European market as a third-party state. Therefore, the reforms also aimed to align Swiss law with EU regulations Directive 2014/65/EU on Markets in Financial Instruments II ("MiFID II") and Regulation (EU) No 600/2014 on Markets in Financial Instruments ("MiFIR") to ensure Swiss financial institutions' access to the European financial markets. Finally, the reforms were geared towards revising Swiss regulations from a patchwork of sectorial rules to a consistent regulatory framework.
The core of the new Swiss banking regulation consists of the existing Federal Act on Banks and Savings Banks of 8 November 1934 ("BankA"), the existing Federal Act on the Swiss Financial Market Supervisory Authority of 22 June 2007 ("FINMASA"), the Federal Act on Financial Market Infrastructures and Market Conduct in Securities and Derivatives Trading of 19 June 2015 ("FinMIA"), as well as the Federal Act on Financial Services of 15 June 2018 ("FinSA") and the Federal Act on Financial Institutions of 15 June 2018 ("FinIA"). The latter two, together with the implementing Ordinance on Financial Services of 6 November 2019 ("FinSO") and the Ordinance on Financial Institutions of 6 November 2019, entered into force on 1 January 2020, subject to transitional periods (with a few of them still running) and have materially changed the Swiss regulatory landscape. The changes have affected domestic financial service providers as well as foreign providers with a physical Swiss establishment, but – in a departure from the former liberal regime – also foreign providers that pursue their Swiss business on a cross-border basis only. All of these players had (or still have) to review the new regulatory requirements and adapt their business accordingly.
Banks in Switzerland have been facing pressure due to regulatory and legal developments, which have led to heavily increased reporting burdens. In addition, the tougher international capital and liquidity standards such as Basel III, issued by the Basel Committee on Banking Supervision ("BCBS"), or the new standards set by the FSB over the last few years, have led to increased costs of a bank's capital and long-term funding and other regulatory requirements including, e.g., new standards for resolution planning.
Besides these increased burdens, the major challenges currently lie in responding to strong competitive pressure, including from new entrants and business models coming from the technology sector, and more transparency on fees. These challenges are aggravated by the continued low (including negative) interest rates and the strong Swiss currency, which together have resulted in declining profitability.
Furthermore, the current environment has been characterised by a variety of related legal developments, particularly in international tax matters. Switzerland implemented the automatic exchange of information ("AEOI") based on the Organisation for Economic Co-operation and Development ("OECD") Common Reporting Standard ("CRS"). In this context, the Federal Act on the International Automatic Exchange of Information in Tax Matters of 18 December 2015 ("AEOI-Act") entered into force on 1 January 2017, and the Federal Tax Administration for the first time exchanged information with partner states in September 2018. In addition, in the course of the implementation of the revised recommendations of the Financial Action Task Force ("FATF") and the Global Forum on Transparency and Exchange of Information for Tax Purposes ("Global Forum"), several laws have been amended and further reforms are under way. Since 2016, aggravated tax misdemeanours constitute a predicate offence for money laundering. Furthermore, the legal framework on anti-money laundering ("AML") and anti-terrorism financing has also become more stringent. In addition, foreign regulations are a limiting factor for outbound Switzerland cross-border banking business.
The accumulation of these factors has forced many banks to scale back some of their activities in Switzerland and has consequently led to a trend towards consolidation in the Swiss banking sector in recent years (from 292 banks in 2014 to 252 banks in 2020 (FINMA statistics, supervised financial market participants 2020, https://www.finma.ch/ de/dokumentation/finma-publikationen/kennzahlen-und-statistiken/statistiken/aufsicht/). These tendencies towards consolidation are primarily seen with small banks and Swiss subsidiaries of foreign banking groups, while the latter in particular either close down their operations in Switzerland by liquidation or sale, or try to seek a critical mass of assets under management through acquisition or merger.
Global Legal Insights, Banking Regulation 2022, Ninth Edition
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