Trustee regulation: sea change in landlocked Switzerland

Switzerland has long been the world's premier private wealth management centre for international assets.

A total of $1.84 trillion of international assets were managed in Switzerland at the end of 2017. Switzerland continues to top the wealth management rankings when it comes to competitiveness size and performance thanks to its high levels of expertise political and financial stability and its competitive tax and regulatory frameworks.

It is therefore not surprising that the world's wealthiest families regularly find a home for their wealth with Swiss financial institutions. However what may be surprising is that trustee services an industry which forms an integral part of the wealth management ecosystem has until recently fallen outside the scope of regulation in Switzerland.

While trust companies in Switzerland have been subject to anti-money laundering rules and regulation the trust industry has lacked the type of regulatory oversight which is common in competitor jurisdictions such as the Channel Islands or Singapore.

This is all set to change with the recent introduction of the Swiss Financial Institutions Act (FinIA) and the Swiss Financial Services Act (FinSA) which form part of the Swiss parliaments drive to reinforce the general reputation and competitiveness of its financial centre and to boost the Swiss trust industry's quality integrity and accountability.

Given the large number of corporate trustees administering foreign trusts from Switzerland the legislator's concerns lie with ensuring that trustees meet certain professional standards. These standards aim at preventing the trustees from causing harm to those to who they are accountable to their counterparties other financial market operators or generally presenting a systemic risk to the financial markets. This led to the adoption of the new Acts.

The FinIA sets out the basic obligations for acting as a financial institution in or from Switzerland and harmonises the existing statutory provisions governing the supervision of these institutions whereas the FinSA outlines the basic requirements for providing financial services and governs the offering of 'financial instruments'. While FinSA is geared towards providers of services such as asset managers advisers and providers of financial instruments the former implements a regulatory regime for financial institutions which by its (broader) definition include trustees operating in Switzerland obliging them to obtain authorisation to carry out their activities.

It is hard to overstate the importance of this sea change in the Swiss trust industry and the profound impact it is expected to have. The regulatory regime will impose yet more obligations on the internal functioning of trustees. The heightened cost of compliance in an already high-cost jurisdiction is expected to result in consolidation within the industry and potentially push smaller players out of the market completely as the cost of compliance becomes overly burdensome.

PraxisIFM Group with its roots in the highly regulated Channel Islands has long been a proponent of effective regulation as a means to ensure the integrity and quality of the industry. A highest-common-denominator approach has been taken across the numerous offices which have been established across the globe since the Group's inception in 1972 including our Geneva office.

The PraxisIFM team in Switzerland is therefore completely familiar with operating to a regulated standard and has the internal controls and resources in place to ensure there is a smooth transition for our clients during the switch to a regulated environment. Should you or your clients be looking for a Swiss trustee which has embraced regulation and can offer an efficient informed and personal service please get in touch.

For more information please contact Hakim Berhoune.