Switzerland: A Global Financial Center in a Globalized World
Switzerland is world-renowned as a leading international financial center. Its long history as a major banking hub with a stable political system and great openness to trade continue to attract investors from around the world.
The financial sector is an important contributor to the prosperity of the Swiss population and provides 10% of all jobs in Switzerland.
Big Changes in Swiss Banking
While the famed Swiss bank account continues to capture the public imagination, hiding one’s millions in secret accounts in the small alpine republic is a thing of the past.
Switzerland is the world’s largest offshore wealth center, with an estimated $2.2 trillion in assets (more than 3 times its GDP of $632.2 billion). Under its deal with the OECD in 2014 to help fight tax evasion, foreign tax authorities can ask Switzerland’s banks to release information about their clients. Switzerland agreed to exchange data with 60 other countries, including the G-20 states, thereby essentially ending its historic banking secrecy.
Under the Foreign Account Tax Compliance Act (FATCA) passed by the U.S. Congress in 2010, all non-U.S. financial institutions must report information about accounts held by U.S. taxpayers directly to the IRS. Switzerland signed a FATCA agreement with the U.S. in 2013.
Financial institutions, including those in Switzerland, continue to struggle to implement this law without violating their countries’ privacy laws, and some have declared that they will no longer provide services to U.S. citizens. The high compliance costs are, of course, passed on to clients and consumers—that is, the larger economy. (For more about how FATCA works, and about the movement to repeal it, see ASF’s briefing on “Tax Reform and FATCA.”)
Due to the compliance burdens of FATCA, so many Swiss banks stopped accepting U.S. clients, that U.S. Ambassador to Switzerland Suzi Levine made a public plea to Swiss banks in 2016 to accept U.S clients.
Privacy concerns about data exchanges in general are mounting, and in 2017, the Swiss Bankers Association voiced strong concerns for plans to extend automatic data transfer to 43 additional countries, including China, Russia, and Saudi Arabia.
Nevertheless, clients from all over the world continue to entrust their money to Swiss banks, not for purposes of mystical secrecy, but for unrivaled know-how and reliability: Switzerland has a long history of political and financial stability, a strong tradition of fiscal discipline, and centuries of banking expertise.
Switzerland has one of the most stable, modern, and highly developed market economies in the world. It also has a long history of dedication to free trade and open capital markets. The country has a long-standing tradition of neutrality in foreign policy, and has been a constitutional democracy since 1848. The Swiss franc is one of the world’s strongest currencies, with the Swiss National Bank successfully controlling inflation since World War II. For many decades, consistent monetary policy and historically high savings rates have contributed to a growing capital pool.
Of course, since Switzerland’s banks operate in a globalized and interdependent world, its financial institutions are affected by international banking trends.
Trends in International Banking
Though strongly advocated by some, a full repeal of the Dodd-Frank Wall Street Reform and Consumer Protection Act seems unlikely in the near future. Financial experts do expect a “less zealous” regulatory environment, and hence, lower compliance, audit, risk, and legal (CARL) costs.
Banks around the world are investing massively in digitizing their services. When it comes to payments, consulting firm Deloitte expects a faster and more customer-friendly system: “Now that in-app and mobile wallets have become ubiquitous payment tools, their operability will likely see frequent and transformative software and maybe even hardware upgrades throughout the year.”
Ever-growing digitization presents ever-growing security threats: As is the case for governments, cyber security will be an absolute top priority for banks. Still, bank clients should expect security breaches.
In order to fund the digital transformation, banks will have to become more disciplined about resource allocation. “Only ‘high value’ clients will command the best and brightest resources.”
Banks will employ artificial intelligence—even taking over advisory roles.
Blockchains—many banks currently have prototypes—are most likely here to stay.
Providers of specialty financial services are on the rise.
One thing will remain constant: change. Regardless of any new development, banks and financial institutions will need to say on their toes. When it comes to the regulatory environment, for instance, Deloitte cautions banks against overestimating positive benefits from overturned regulations: While some may be overturned, others could be enacted in their place.
There is general agreement among those in the financial services industry that turbulent times lay ahead. The bottom line: “When you can’t see what the future holds, you have to be ready for anything.”
Components of Switzerland’s financial system:
Swiss National Bank: Conducts Switzerland’s monetary policy as an independent central bank. It is obliged by the Swiss constitution and by statute to act in accordance with the interests of the country as a whole. The bank focuses primarily on maintaining price stability and fostering an environment conducive to economic growth.
Financial Market Supervisory Authority (FINMA): Established in 2009 as successor to the Swiss Federal Banking Authority (SFBC), the Federal office of Private Insurance (FOPI) and the Anti-Money Laundering Control Authority (AMLCO) to strengthen financial-market supervision in Switzerland. FINMA is the main regulator of the financial services industry in Switzerland, tasked with protecting investors, creditors, and policyholders and ensuring that the Swiss financial market functions properly. In accordance with its statutory mandate, FINMA publishes financial information, issues public warnings, and considers complaints about financial-services providers.
SIX Swiss Exchange: Switzerland’s leading stock exchange, currently with 256 listed companies. SIX offers comprehensive services for securities trading, clearing, and settlement, as well as financial information and payment transactions on a global scale.
Banks: Switzerland is home to banks small and large, national and international, including key global players, such as UBS, Switzerland`s largest bank and the world`s largest wealth manager, and Credit Suisse. Bank operations fall under FINMA supervision.
Insurance/reinsurance: Switzerland is home to insurers and reinsurers small and large, national and international, including key global players, such as Zurich Insurance Group and Swiss Re, the second-largest reinsurance company in the world. Insurance and reinsurance operations fall under FINMA supervision.
Financial Center Zurich: One of the six most competitive financial centers in the world, Zurich’s financial center is by far the most important branch of industry in the Zurich region. The Zurich financial center plays a central role as an employer, a provider of vocational training, and a promoter of cultural institutions and events. In the Zurich region, one in every five Swiss francs of value added is generated, and one in ten jobs provided, by the financial industry.
Geneva Financial Center (GFC): Geneva was ranked fifteenth in the Global Financial Centres Index 2016. Created in 1991 by the 80 banks that were then members of the Geneva stock exchange, the GFC is the umbrella association of Geneva’s financial sector. It promotes the regional banking interests of the Geneva region.
Swiss Bankers Association: Aims to achieve the best possible operating conditions for banks in Switzerland. It is the largest banking association in Switzerland.
Association of Foreign Banks in Switzerland: Founded in 1972 by Swiss banks with a majority of shareholders living abroad and Swiss branches of foreign banks. It is the second-largest banking association in Switzerland.
Association of Swiss Private Banks: Currently consists of nine member banks with about 7,500 employees around the world. The association’s primary mission is to represent the business interests of privately owned Swiss banks that specialize in wealth management.
Swiss Insurance Association: An umbrella organization that represents the private insurance industry. Its members are around 80 national and international, small and large insurers and reinsurers, employing more than 50,000 people in Switzerland.
Swiss Funds & Asset Management Association: Represents the Swiss fund and asset management industry. Its members include all major Swiss fund management companies, many asset managers, and representatives of foreign collective investment plans.
Reading and resources:
2017 Banking Industry Outlook, The Financial Brand
Global Banking Outlook 2017, EY
Automatic Exchange of Information, OECD
Insurance and reinsurance in Switzerland, Thomson Reuters
A guide to banking in Switzerland
Financial system as driver of green economy
Secrecy ending for Swiss bank accounts
Swiss Banks Providing Services to U.S. Person Clients