Rising regulation, in
particular the looming US Foreign Account Tax Compliance Act, is
causing concern for the Swiss private banking industry. Nicholas
Moody speaks to the Swiss Private Bankers Association’s Michel
Dérobert about rising regulation and why Switzerland welcomes the
legalisation of untaxed assets.
Go deeper with GlobalData
The
US Foreign Account Tax Compliance Act (FATCA) remains the biggest
concern for the Swiss private banking industry, says the head of
the Swiss Private Bankers Association (SPBA).
SPBA secretary general Michel
Dérobert said although FATCA was not solely a Swiss problem, it
remained the biggest question mark without an obvious solution for
the Swiss industry.
“FATCA is one of our big worries
because we do not know what to expect,” he said. “We want to know
more about it, but we do not want any more bad news about it.”
Dérobert said the short
implementation date is part of concerns surrounding the US-driven
legislation. FATCA is scheduled to come into force in 2013, yet
little detail of what banks will have to do to comply has been
given.
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By GlobalData“The implications of FATCA are not
clear and when European banking groups discuss it with Americans,
there is a strong feeling that everybody knows it is going to be
very difficult but exactly what [American regulators] will do is
uncertain,” he said.
In a report this month, the Swiss
Federal Department of Finance said “a large number of uncertainties
remain regarding the application of [FATCA].”
The potential cost of FATCA
compliance is causing real concern. Industry estimates suggest
implementation costs could potentially rise as high as $1trn
globally.
One wealth consultancy spoken to by
PBI had estimated the costs for one client, a large global
bank, could be as high as $200m alone.
The head of the Swiss industry
group said basic questions also remain over whether the Swiss
government will allow banks to exchange information with the US
Internal Revenue Service. Dérobert said an article in the Swiss
penal code currently restricts banks from sharing information with
foreign authorities.
Rising regulation remains a
key concern
Dérobert’s comments support findings in a report into the
Swiss banking sector from consultancy Ernst & Young
(E&Y).
The inaugural E&Y 2011 Bank
Barometer of 20 Swiss private banks found banks ranked the
regulation of cross-border activities (61%) and tax treaties and
fiscal transparency (28%) as the two regulatory issues to have the
greatest impact on their operating models in the medium term.
About 73% surveyed agreed increased
regulation would have a negative, or somewhat negative, impact on
their bank’s operational model in the next six to twelve
months.
The general rise in regulation is
of concern to the SPBA as it attempts to convince the Swiss
Financial Market Supervisory Authority (FINMA) to keep the cost of
regulation at an acceptable level.
“We agree with regulation but think
regulation should be geared differently. Different entities should
be treated differently; different risks should be treated
differently,” said Dérobert.
“It is true that UBS and Credit
Suisse in Switzerland present a systemic problem, but a small
private bank, if it is sold or shut down, is not a major problem
for the country. Most SPBA members have been around for centuries
anyway.”
Swiss industry welcomes tax
transparency
The E&Y research also found 85%
of private banks saw the possible introduction of withholding tax
and the legalisation of untaxed assets as beneficial to
Switzerland’s position as a financial centre.
Dérobert is unsurprised by the
findings. He said banks have been aware of banking secrecy and
withholding tax for a long time and for most new clients they were
very aware of their regulatory obligations.
“There is a strong sense in
Switzerland that this question must be solved at a medium-term
level. We hope to come to an agreement with Germany and the UK by
the end of the year which, we hope, will get the ball rolling with
other countries and get this problem solved once and for all.
“This has been a worry for many years and we think it is good to
put this behind us,” said Dérobert.
See also: Getting out of Swiss banks?
