The Swiss private banking system has been a mainstay for over two hundred years, despite its flaws. However, three key players, Pictet, Lombard Odier and Mirabaud, have decided to make some revolutionary changes to the way they operate.
Traditionally, the Swiss private banking sector had rules which made wealthy managing partners personally responsible for their clients’ money. If the bank fell into trouble, these wealthy partners could lose the entirety of their assets, not just those invested in the operation. Private banks are not required to publish their results, not listed on the stock exchange and the preserves of a closed circle of clients. Unlimited responsibility has long been a huge selling point for wealthy private clients who prefer the comfort that this guarantees.
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On the other hand, there has been tougher and more widespread regulation ever since the global financial crisis and in the wake of scandals such as the Madoff fraud case and the fall of Lehmann Brothers. Moreover, Switzerland’s common banking secrecy has been slated as governments and regulators begin to close in on tax cheats who store cash abroad. Swiss banks had until the end of 2013 to decide whether to take part in a come-clean programme designed by the United States to settle past wrongdoing. This could avoid many lengthy and costly lawsuits, but cause huge fines in proportion to the amount of money involved. Research has shown that many banks believe the proposed solutions are actually damaging towards business and that it could lead to the absolute end of banking secrecy.
Pictet, Lombard Odier and Mirabaud have decided to recast themselves in a ‘corporate partnership’, similar to the ‘limited company’ structure in Britain, a status that allows them to be compared with larger, fully-listed Swiss players such as UBS and Credit Suisse. This reform makes sure that the only things at risk are the funds invested in the company rather than all of their personal assets. This also means that banks will now have to publish their results.
Another consequence is the hiring of outside individuals. Pictet, which manages assets of 372 billion Swiss francs have added two to their board. Lombard Odier, with 174 billion Swiss francs AuM, and Mirabaud, with 25 billion Swiss francs AuM, have both brought in three new members each. The three have withdrawn from the Association of Swiss Private Banks and others are predicted to follow.
In conclusion, the era of the super secretive Swiss banks is slowly coming to an end. Banks are beginning to reject the old, traditional ways towards a more modern approach. While it may end some of the privacy they once had, it may just save face, and more importantly, their clients.
