switzerland, capital of wealth management

Comfort and discretion are two of the keys to Swiss private banking success Keystone

Banking secrecy has helped Switzerland become the leading financial centre for asset management, but the industry is under fire from competitors.

Swiss banks currently manage more than one third of the world’s private wealth. Investment banks have adapted to new laws by opening branches abroad.

The first Swiss private banks were established at the end of the 18th century. After initially concentrating on commercial transactions, they went on to specialise in wealth management, which developed from the end of the First World War.

Wealth management encompasses asset investment and portfolio management, as well as estate, inheritance and tax planning advisory services.

Over the years Switzerland has become a key player in this sector, especially after banking secrecy was written into the 1934 Swiss Banking Act.

Its neutrality, political stability, strong currency, legendary

discretion and lack of exchange control mean that Switzerland attracts ever-increasing amounts of foreign capital.

Swiss bankers have acquired an unbeatable banking expertise.

Important relationship

In wealth management the client-banker relationship is of paramount importance.

The Swiss are well known in the international banking world for their high-quality service, the solvency of their banks and their honesty.

Swiss banking establishments currently manage around SFr4,000 billion – or one third of the world’s private “offshore” wealth [funds

placed outside the country of origin] and this tempting share of the cake inevitably arouses competitors’ envy. Since the 1990s, Switzerland and its banks have suffered a barrage of attacks.

The European Union, the Organisation for Economic Cooperation and Development (OCDE) and the United States have each tried to force Switzerland to give up banking secrecy, which they claim allow criminals worldwide to launder money in Switzerland almost with impunity.

The Swiss tax system has also been criticised internationally.

Unlike most other countries, Switzerland does not consider tax evasion to be a crime and banks do

not have to provide tax authorities with information on their clients’ fortunes. Many foreign governments are critical of the kind of legislation that allows their rich taxpayers’ money to be stashed away in Swiss banks.

Measures

In the face of such criticism, the Swiss government has had no choice but to introduce a number of measures.

Since 1998 Switzerland has one of the tightest money-laundering legislations in the world. Both Swiss banks and the authorities now track money resulting from criminal or terrorist activities.

There are always exceptions that

manage to slip through, but whenever a major case of money laundering comes to light, the incriminating bank accounts are immediately blocked. Such diligence is certainly not found in other EU countries, especially in Britain.

But attacks against Swiss financial institutions – moral and ethical arguments, or calls for help in the fight against terrorists – have continued.

“It’s a strategy to weaken the position of the Swiss banks; a battle of economic interests,” claims Carlo Lombardini, a lawyer from Geneva.

Brussels has introduced a system for automatically sharing tax information between member country tax authorities to

harmonise savings tax within the EU.

After a long struggle, the Swiss authorities will introduce a withholding tax levied on the Swiss-held savings of EU residents and transfer the funds to the account holders’ home countries.

Anonymous

The system is designed to guarantee anonymity and ensure banking secrecy.

“This generous solution is a world-first; no other country collects taxpayers’ money for other states,” said Ivan Pictet, a partner from Pictet & Cie bank.

Tax amnesties adopted by Italy and

Belgium have resulted in tens of billions of euros being transferred back into the coffers of both countries’ banks, mainly from Switzerland.

To try to stem the flow, various Swiss banking establishments have started “on shore” wealth management in the client’s home country.

Since the Italian amnesty, UBS has become one of the largest banks in Italy.

UBS – the world leader in wealth management – and Credit Suisse have been international players for some time.

But over the past few years numbers of private banks have

adopted this strategy by setting up branches in the main foreign capitals.

The result has been a distinct upturn in the amount of assets managed by all Swiss banks.

swissinfo, Luigino Canal

Key facts

The Swiss banking sector is responsible for 14% of GNP, 5% of jobs and 18% of Swiss tax receipts.
UBS manages SFr1,700 billion of the SFr4,000 billion in private wealth controlled by Swiss banks.

In brief

Banking secrecy is defined as a commitment of discretion that employees have to make to their clients’ business, which is intended to protect the client rather than the bank; the client is the only one who can relinquish banking secrecy.

Violating banking secrecy is automatically punishable by law – a fine or imprisonment.

Banking secrecy is not absolute: over the years it has adapted with the times. Derogations are foreseen in law.

During a money-laundering enquiry, for example, the judge overseeing the case can request and obtain the lifting of banking secrecy.