That the veil of Swiss banking secrecy has been lifted, following concerted international pressure after a decade-long debate, there is no doubt. Swiss banks are unlikely to hold a pre-eminent position, based purely on unfair legislative advantage, ever again.
Following this dramatic reversal, there are now three key questions which the wealth management industry is keen to know the answers to: How will Swiss banks re-invent themselves to maintain a market leading position? Will key competitors in other countries benefit from the Swiss turmoil? Which other international financial centres are likely to reap rewards from the uncertainty?
“It is clear from the pronouncements at the G20 that the era of banking secrecy is finally over,” says Xavier Isaac, managing director of Investec Trust in Geneva.
There was a sense of shock across the Swiss banking and financial planning houses of Geneva and Zurich earlier in
the year, after the G20 let it be known in April that Switzerland, along with Singapore, was a prominent name on its ‘grey’ list, somewhere between the ‘black’ list of worst offenders against a transparent and honest global financial system, and the ‘white’ list of supposedly squeaky clean jurisdictions.
Going behind the scenes
But a careful look behind the headline impact of the G20 statement has some very good news for Switzerland, reports Mr Isaac, who believes the traditionally neutral mountainous country is being targeted by those jealous of its success in scooping up more than a third of the world’s so called ‘offshore’ wealth.
“There is a distinction between tax havens and other financial centres within the grey list,” says Mr Isaac. “Switzerland is categorised as a financial centre, not a tax haven. This is a very important element, and runs contrary to what surrounding countries have said about us.”
Both competing centres of Singapore and Luxembourg, an EU member, are included on the same list, so the playing field between Switzerland and these two has finally been levelled.
Moreover, Switzerland is also looking to demonstrate a global sense of responsibility by signing new agreements on exchange of certain information and taxation details to reach the 12-treaty threshold required to be a ‘model’ nation under OECD standards.
Banks in the nation will start to build “a slightly different Switzerland,” no longer relying on banking secrecy as the cornerstone of wealth management, but through consolidating their position as centre of expertise for handling the assets of wealthy families.
More business may even seek a Swiss home as private clients begin to question the fiscal stability of countries such as the UK.
“The initial reaction of a number of more typical Swiss banks was that the level of international pressure against them was unfair and that we were a scapegoat. Their first instinct was to fight for Swiss banking secrecy, but they very rapidly realised that it is a lost battle,” says Mr Isaac.
Larger Swiss banks have suffered some staff defections to other international institutions, in the belief they were not ready for the big change and far too complacent about their market leading positions. Yet the main players claim they saw the change coming and had adjusted their business models accordingly.
“Like many others in the industry, we have been fully aware, for many years of the globalisation of private banking. We adhere to all relevant rules and regulations in terms of servicing clients in the most appropriate manner,” says Paul Sarosy, head of product and sales management at Credit Suisse Private Banking.
Onshore focus
What Mr Sarosy sees, and banks like Credit Suisse and its competitors are incredibly keen to explore, is the new desire from clients to have their assets serviced ‘onshore’ in their own domestic markets. This domestic model of basing client relationship managers in regional offices is clearly the growing one, particularly with the traditional advantages of banking in Switzerland being virtually exhausted, although the old “offshore” model is far from dead, believes Mr Sarosy.
“What you will find is that the need for products that are being offered to a certain type of client living in a given geographic region must be transparent and regulated in that given market,” says Mr Sarosy.
“Have we been seeing a trend to handling servicing and delivery solutions to these clients onshore? Yes we have. Are we ignoring those clients on our Swiss plaform? No we are not,” he adds.
Rather than relying on tax-led products or services sold on confidentiality, Credit Suisse has been developing specialisations in discretionary and advisory private banking, through asset allocation led investment models, often incorporating investment banking products.
