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, 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 also tried to revise the regulations from a patchwork of sectorial regulations to a consistent regulatory framework.
The core of the new Swiss banking regulation will consist 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 Financial Market Infrastructure Act of 19 June 2015 (entered into force on 1 January 2016; "FMIA"), the planned Federal Financial Services Act ("FinSA") and the planned Financial Institutions Act ("FinIA"). It is currently expected that the FinSA and FinIA will enter into force in 2019 at the earliest.
Furthermore, the current environment has been characterised by a variety of legal developments, particularly in international tax matters. Switzerland has implemented the automatic exchange of information. In this context, the Federal Act on the International Automatic Exchange of Information in Tax Matters ("AEOI-Act") entered into force on 1 January 2017, and data on foreign customers of Swiss financial institutions has started to flow. 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, serious instances of tax fraud constitute a predicate offence for money laundering. Furthermore, the anti-money laundering and anti-terrorism financing ("AML") framework has also become yet stricter. Out of the banking world, acquirers of non-listed shares (except for shares in the form of book-entry securities) have to report to the issuing company, the acquirer of bearer shares and any person beneficially owning 25% of the share capital or voting rights through registered or bearer shares. Correspondingly, the issuing companies have to keep a register of bearer shareholders and of beneficial owners. On 17 January 2018, the Swiss Federal Council launched a consultation on the recommendations of the Global Forum on Transparency and Exchange of Information for Tax Purposes ("Global Forum"). The bill proposes, among others, a mandatory conversion of bearer shares into registered shares for non-listed companies, as well as a system of criminal sanctions for breaches of the duty to report and record beneficial owners of shares in non-listed companies. Banks in Switzerland are facing pressure due to these regulatory and legal developments. They 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 Financial Stability Board ("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 coming from the technology sector. These challenges are aggravated by the continued low (including negative) interest rates and the strong Swiss currency, which together have resulted in declining profitability. The accumulation of these factors has forced many banks to scale back some of their activities in Switzerland and consequently led to a trend toward consolidation in the Swiss banking sector in recent years. These tendencies toward 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 seek a critical mass of assets under management through acquisition or merger.
Despite this currently challenging environment, Switzerland is still a very attractive financial centre, as it combines many years of accumulated expertise, particularly in private banking and wealth management. In particular, the Swiss financial centre is the global market leader in the area of assets managed outside the owner's home country with a global market share of 24% (see Swiss Banking, Banking Barometer 2017: Economic trends in the Swiss banking industry, August 2017, available at www.swissbanking.org). Professional advice, top-quality services and sophisticated banking products are the traditional strengths of Swiss financial institutions. Furthermore, a good educational and training infrastructure guaranteeing a reliable stream of qualified staff, political and economic stability, a flexible labour market and good infrastructure are also convincing arguments to build up Swiss banking presences. Moreover, the global position of Switzerland for currency trading has been further strengthened, since the Peoples' Bank of China authorised the Zurich Branch of China Construction Bank to act as a clearing bank for the Chinese currency Renminbi in November 2015.
Looking forward, Switzerland has positioned itself to become a hub for innovative financial technologies ("Fintech"). As part of this effort, the Swiss regulatory framework was adjusted to create an appropriate environment for Fintech providers. As a first measure, the Swiss Federal Council adopted amendments to the Federal Ordinance on Banks and Savings Banks of 30 April 2014 ("BankO") that entered into force on 1 August 2017 (see below). In addition, the Swiss Parliament is currently preparing changes to the BankA with the aim to introduce a new regulatory licence category with less stringent requirements as compared to the fully fl edged banking licence. The Swiss Financial Market Supervisory Authority FINMA ("FINMA") has, furthermore, revised several of its circulars that specify the practice of the regulator under the current legislation, to render them technology-neutral.
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Previously published by Global Legal Insights
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