Switzerland as a financial centre: caught between regulation and freedom of choice

Stricter capital requirements resulting from the Credit Suisse debacle are currently holding back the financial centre from scoring fully in the international competition for new assets. There is also room for improvement when it comes to making wealth management more efficient by incorporating new technologies.

The Swiss financial centre is struggling to maintain its position in the international market structure. The collapse of Credit Suisse did not exactly help the reputation of the local banking landscape. At the same time, it has strengthened the position of foreign banks in Switzerland. They are benefiting from the fact that Swiss companies with strong international business operations were forced to reorganise their banking relationships in order to avoid cluster risk.

While regulations in competing financial markets are tending to be relaxed in the current environment, the Federal Council wants to score points with the strictest regulations in the world and correspondingly strict capital requirements. However, if this ‘quality feature’ impairs the international competitiveness of the local financial centre and restricts its innovative strength, it is unlikely to be effective. Accordingly, UBS is seeking a compromise on the planned tightening of capital adequacy requirements following the integration of Credit Suisse.

Just as vehemently as the media speculate against this backdrop that the global bank could relocate its headquarters to the United States in order to avoid capital requirements, UBS never tires of reaffirming its commitment to Switzerland. Most recently, it received support for its proposal from a group of conservative members of the Council of States. In a compromise proposal, they advocate a more moderate adjustment of the regulations. In their opinion, foreign subsidiaries should also be fully backed by own funds, but not exclusively with hard capital, as demanded by the Federal Council. Up to half of the capital requirements could also be met by AT1 bonds, which can be converted into equity or written off in the event of a crisis. It remains to be seen whether this will help to bring the supervisory authority and the big banks closer together.

The media coverage of the dispute between the supervisory authorities and UBS has somewhat overshadowed the traditional values that continue to define Switzerland as a financial centre. Political and legal stability, proven expertise and a long tradition of serving foreign clients have lost none of their appeal in recent times. On the contrary, given the increasingly fragile security situation around the world, Switzerland has been able to further strengthen its position as a ‘safe haven’ for foreign assets. Assets under management in this country are at an all-time high, half of which come from abroad. Switzerland has moved up to third place in Europe.

However, there is no reason to rest on one's laurels. The new financial centres in Asia and the Middle East are growing rapidly and offer enormous growth opportunities. Swiss financial service providers are present on the ground to attract new assets. However, under the new regulatory provisions, growth in assets under management ties up a large amount of capital, thus limiting the ability to invest in the technological development that is equally necessary. When it comes to new forms of investment and the use of new technologies, the wheel is turning very quickly worldwide. Experts see particular potential in the area of more efficient wealth management.

Finding a healthy balance between sensible risk prevention and sound, broadly based asset growth is essential if Switzerland wants to successfully defend and strengthen its position in the international arena. And becoming a beacon of efficient wealth management through the skilful use of new technologies should also be an incentive for the local financial centre.