Wealth managers in Switzerland face “great challenges” that may topple the country as the world’s biggest offshore center, the Swiss financial supervisory authority said.
Regulatory and tax changes threaten Switzerland’s 27 percent global market share, Patrick Raaflaub, chief executive officer of Finma, said today in an interview in Bern.
“It wouldn’t be a national tragedy for Switzerland if the quantity of cross-border wealth management were to decline,” he said. “Not everything a client would like you to do is possible.”
Switzerland is trying to shed its image as a haven for undeclared assets following a crackdown on tax evasion by U.S. authorities. In the future banks must ensure that foreign clients are tax compliant in their home countries, according to proposals last month by the Swiss federal government.
Raaflaub said he wants to send a message to the industry that “quality” in wealth management may mean offering transparent financial services that aren’t too expensive.
Switzerland has signed bilateral agreements with the U.K. and Germany that would impose new withholding taxes on the wealth of Britons and Germans banking in the Alpine country.
Some customers are repatriating money, cutting assets under management and trimming fees at Swiss firms as risks of keeping undeclared money intensify.
Switzerland is the biggest offshore market, ahead of the U.K., Hong Kong and Singapore, according to statistics that Finma attributes to the Basel-based Swiss Bankers Association. The nation’s banks and money managers oversaw 5.5 trillion Swiss francs ($6.1 trillion) in 2010, half of which came from foreign clients, Finma said.
More Transparency Needed
Many banks and asset managers realized too late a business model focusing primarily on untaxed wealth could result in their downfall, Raaflaub said, without naming individual firms.
In response to international pressure, banks will have to provide more access to data and face new due diligence obligations, while increasing exchange of information on both supervisory and tax issues, he said.
International standards should be applied fairly across jurisdictions, the CEO added. “We are well aware that banking secrecy is very much alive in the U.S,” he said.
Switzerland’s financial industries also suffered last year amid an “extremely torrid time” for financial markets that hasn’t seen sustained improvement, Finma said in its annual report today. The regulator said a more acute euro-region crisis would have a “major impact” on the Swiss financial industry.
Finma said it will “work intensively” this year to strengthen investor protection to meet international standards, including revisions to legislation on collective investment plans proposed late last year.
The proposals move beyond European Union standards and may deplete the industry in Switzerland, the Swiss Funds Association said in a statement this week. “Global fund distribution should not be constrained in an EU straitjacket,” said the Basel-based SFA CEO Matthaus Den Otter.
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