Banking secrecy has been struck another blow by the OECD’s Declaration on Automatic Exchange of Information in Tax Matters. Perhaps its most surprising participant was Switzerland. Patrick Brusnahan speaks to leading industry figures to investigate how the changes will impact one of the world’s oldest banking traditions.
The Declaration on Automatic Exchange of Information in Tax Matters, endorsed by all members of the Organisation for Economic Co-operation and Development (OECD), as well as other countries such as Singapore and Brazil, implements a new global standard on automatic exchange of information.
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The standard, which also received approval from G20 financial ministers last February, obliges countries and jurisdictions to obtain and exchange all financial information automatically on an annual basis.
Switzerland’s surprising endorsement
While Switzerland’s involvement may seem unexpected at first glance, it has been a long time coming. Ever since the global financial crisis of 2008, the inner workings of banks have been under immense scrutiny. The US is in the middle of a major investigation into American tax dodgers using Swiss secrecy laws to their advantage.
Ray Soudah, founder and chairman of Millennium Associates AG, an advisory firm specialising in financial services, says: "It has been long-expected and, not surprisingly, happening sooner than expected. The sooner the market gets used to it, the better it will be for client services. In the long term, this has to be seen as a very positive thing. It will clear out uncertainties that have plagued the industry for some years."
As a result, Swiss banks such as Lombard Odier, Mirabaud and Pictet, are beginning to reject the traditional Swiss banking regime. These three banks have formed a more transparent ‘corporate partnership’, similar to a limited liability company, as a reaction to an ‘evolving regulatory and governance framework on a global basis’.
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By GlobalDataSpeaking to PBI, Lionel Aeschlimann, managing partner of Mirabaud SCA, says: "The change from an unlimited partnership to a limited liability company at the bank level was a natural decision, in order not only to adapt to a governance model that is more in line with today’s regulatory requirements, but also to protect the sustainability of our business model, and thus the interests of our clients in the long run."
The endorsement of the new OECD regulation could be an opportunity to regain some credibility. The Swiss Bankers Association says: "It is no surprise for the banks in Switzerland that our country will join the OECD declaration on the automatic tax information exchange. Banks in Switzerland are willing to adopt the automatic exchange of information along with other financial centres, provided that the exchanged information is only applied for tax purposes. The banks also expect fair solutions for untaxed assets of the past in order to implement the standard with each country."
A step in the right direction
On the topic of Swiss authorities joining in such an international agreement regarding transparency, Soudah notes: "It is a very logical first step to have a common methodology amongst the countries and will reinforce the trend towards transparency in client handling.
I don’t think it is an isolated matter but it has been adopted through the OECD to get wider coverage. People will conform because they want to be on the right side of the world. I thought it was notable that both Singapore and Switzerland accepted on the same day. I think it’s a very welcome outcome."
Willingness to adapt
Banks have also been eager to prove themselves as eager to participate. For example, representatives from UBS say: "UBS is committed to international standards and welcomes the Swiss government’s engagement in the OECD process. For UBS, we have strict rules in place around tax compliance for our clients."
Asked how this will change the way private banks conduct business, Soudah says: "It is simply going to induce people to seek their core value as opposed to benefitting from hundreds of years of a protected market. Now they have to compete for their business. It will cause a challenge to the banks to show their true USP."
On whether banks will choose to leave the market in light of these new regulations, Soudah adds: "Firms committed to the business in the long term will adapt but, on the other hand, several will exit or reduce the markets that they cover. There is no question about that."
Whether the new developments in banking regulation are enough remains to be seen. However, the days of banking secrecy in Switzerland has come to an end, and the industry is beginning to wake up to its wider implications.
