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Banks ordered to split research and banking

The SBA has called for the creation of "Chinese Walls".


Swiss banks will be forced to separate research from other banking activities to avoid possible conflicts of interest.

The Swiss Bankers Association (SBA), which issued proposed new regulations on Wednesday, said the measures were designed to ensure that financial analysis remained "independent and credible".

The SBA says the rules been drafted to international standards and are aimed at protecting investors.

"The main purpose of the guidelines is to reduce and eliminate the possibilities for conflicts of interests," said the SBA in a statement.

"Creating transparency will ensure that all consumers of financial analysis products are treated equally."

The announcement comes a fortnight after one of Switzerland's biggest private banks, Pictet & Cie, revealed it was splitting its research and investment banking arms, and setting up a distinct brokerage unit.

The new SBA rules do not go that far, but they call for the creation of so-called "Chinese Walls" to be established between a financial institution's research department and other business areas.

Chinese Walls are designed to effectively separate a bank's organisational and operational activities.

According to the SBA, firms would have to ensure compliance by monitoring exchanges of information between internal departments.

Code of ethics

The text also establishes a code of ethics for financial analysts, prohibiting them from investing in companies which they assess.

The guidelines also stipulate that analysts' salaries should not depend on how much business they drum up for the bank, reducing the danger of biased analysis.

"We wanted a clear set of minimum rules that are still state of the art internationally," said SBA spokesman Thomas Sutter.

The Federal Banking Commission is currently examining the guidelines, which require its approval before they can come into force.

It will then be up to financial auditors appointed by the commission to check compliance.

The Swiss banking sector has been hit by a number of scandals concerning alleged dubious advice given by financial analysts.

AOL shareholders recently brought a class-action lawsuit against the Credit Suisse Group, claiming they were wrongly advised.

The shareholders say analysts at the bank's investment arm, Credit Suisse First Boston (CFSB), recommended the purchase of AOL shares even though the bank's investment arm was sceptical about their value.

CSFB and UBS Warburg are both facing multi-million dollar fines in the United States for allegedly misleading investors.


In brief

Swiss banks will be obliged to separate research from investment banking to avoid possible conflicts of interest.

The new measures - issued by the Swiss Bankers Association - will bring Switzerland into line with international standards.

A code of ethics has also been put forward for financial analysts, which will prevent them from investing in companies they have assessed.

The Federal Banking Commission is currently examining the guidelines.

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