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 to 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 Financial Market Infrastructure Act of 19 June 2015 ("FMIA"), 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 and Ordinance on Financial Institutions of 6 November 2019, entered into force on 1 January 2020, subject to two- to three-year transitional periods and have materially changed the Swiss regulatory landscape. The changes will affect 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 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. 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 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, 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 based on the Organisation for Economic Co-operation and Development ("OECD") CRS standard. 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 and anti-terrorism financing ("AML") 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 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 try to 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 approximately 27% (see Swiss Banking, Banking Barometer 2019: Economic trends in the Swiss banking industry, August 2019, available at www.swissbanking.org). Professional advice, top-quality services and sophisticated banking products are the traditional strengths of Swiss financial institutions.
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, Switzerland's global position 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.
Furthermore, Switzerland has positioned itself to become a hub for innovative financial technologies ("Fintech") and projects such as Libra, the envisaged global cryptocurrency, brought it into the focus of the spotlight of the public globally. As part of this effort, the Swiss regulatory framework is continuously being adjusted to address the needs of Fintech providers and to create a suitable environment for applications of distributed ledger technology ("DLT"). 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, Swiss Parliament amended the BankA with effect from 1 January 2019 to introduce a so-called Fintech licence as a new regulatory licence category geared towards limited deposit-taking activities, with less stringent requirements compared to the fully-fledged banking licence. Within the regulatory framework defined by federal laws and regulations, the Swiss Financial Market Supervisory Authority FINMA ("FINMA") aims to take a technology-neutral approach in its practice and revised several of its circulars to remove obstacles for technology-based approaches to financial services.
On 22 March 2019, the Federal Council presented a preliminary draft of a new Federal Act on the Amendment of Federal law in light of the Developments regarding Distributed Ledger Technology (DLT), along with an explanatory report. The deadline for the public consultation on the preliminary draft expired by the end of June 2019 and on 27 November 2019, the Federal Council released the draft Federal Act on the Amendment of Federal law in light of the Developments regarding Distributed Ledger Technology (DLT) for deliberation in parliament. The draft proposes a number of fairly fundamental changes to federal laws, in particular the Federal Code of Obligations ("CO"), the Federal Law on Debt Collection and Bankruptcy, the AMLA, and the FMIA. If passed into law as currently drafted, the act will in particular introduce a concept of DLT-based uncertificated securities (DLT-Wertrechte) into civil securities law pursuant to the CO, as well as a new stand-alone licence type under the FMIA for so-called "DLT Trading Facilities" (DLT-Handelssysteme), i.e., institutions for the multilateral trading in standardised DLT securities. It is expected that the draft DLT legislation is bound for an accelerated legislative process with the goal to finalise and enact the amended rules by the end of 2020.
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