Swiss banks eye Chinese wealth opportunities

Switzerland's banking sector, facing the end of the secrecy that was once the bedrock of its business, is turning to China as it seeks new markets for the future.

Swiss banks eye Chinese wealth opportunities
Photo: AFP

"One of the first ports that the Swiss financial centre is steering for . . . is the port of China," Claude-Alain Margelisch, chief executive of the Swiss Bankers Association, told reporters in Geneva this week.
"Together with our member banks, we want to make Switzerland an international hub for the renminbi," also known as the yuan.
Switzerland will abandon its long-prized banking secrecy in 2017 when it starts automatically exchanging account details with other countries, and with it goes one of the main attractions of placing money in its banks.
For generations, investors have paid Swiss banks high fees to hide their money from tax authorities around the world, providing a lucrative stream of revenue for them.
But the global financial crisis prompted demands for a tougher regulatory environment. Switzerland was reluctantly forced to accept the new rules, leaving the banks facing an uncertain future.
Not only are private Swiss banks looking for new sources of revenue, but they have also faced probes and massive fines from countries accusing them of abetting tax dodging.
"The Swiss financial centre and the Swiss banks have recognized the need for action," said Margelisch.
"We have drawn the necessary conclusions from previous mistakes and introduced counter-measures."
In 2013, Switzerland still held 26 percent of global offshore assets, or $2.3 trillion, according to an analysis by Boston Consulting.
But Nicolas Pictet, president of the Geneva Financial Center, which represents hundreds of banks and financial companies, warned in October that the sector must wake up.
Pictet, a managing partner in his family's eponymous bank, said Geneva must stop "behaving like hedgehogs on a freeway" as they risked losing out to other financial centres.
Many now believe that China could be the answer.
Margelisch said relations between China and Switzerland were stronger than ever, noting a free-trade agreement signed in 2013 and which came into force this year.
Officials from both sides have met twice in the past year to discuss finance, while national banking associations held their first "financial round table" in June.
The Swiss National Bank and the People's Bank of China also reached a bilateral swap agreement —a currency exchange deal — in July.
Such moves were "small steps", said Margelisch, but he insisted that things were moving forward.
The next step would be for a Chinese bank to open a branch in Switzerland, he said, acknowledging that was a decision for the individual bank.
He also identified asset management as an area for growth — Switzerland is currently only a minor player in a sector dominated by London, New York and Hong Kong.
However, he acknowledged there may be visa issues, as many of the small teams who managed the wealth of pension funds and firms were from outside the European Union.
"We will ask for visas when the moment comes," he said.

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Switzerland’s banks remain among the world’s most secretive

Despite the progress made over the years, the Swiss financial sector continues to be one of the least transparent in the world. But there is good news too.

Switzerland’s banks remain among the world’s most secretive
Switzerland remains one of the world's least transparent nations. Photo AFP

Switzerland is in the third place in the 2020 Financial Secrecy Index released by the non-governmental organisation (NGO) Tax Justice Network (TJN), which rates 133 nations based on their financial transparency.

Two other European countries, Luxembourg and the Netherlands, are also ranked among the top 10 least transparent nations on the TJN’s list.

Despite being in the third place, Switzerland ranks better this year than it did in the previous edition of the Index, which is released every two years — it slipped from the first to third place. The Cayman Islands and the United States took the first and second spots, respectively.

Switzerland reduced its risk of being an offshore haven for tax cheats by 12 percent, “finally improving enough to move off the top of the index”, TJN said. 

READ MORE: Switzerland's strangest taxes – and what happens if you don't pay them

This improvement is mainly due to Switzerland extending its international network for the automatic exchange of customer information to more than 100 countries. 

Also, in a referendum held last year, Swiss voters accepted the Federal Act on Tax Reform and AVS Financing (TRAF). This legislation introduced major changes in the Swiss tax system by ending some preferential tax schemes and replacing them with new regulations which are in line with international standards.

This tax reform prompted the European Union to change Switzerland's status from ‘tax haven' to one which is EU-compliant, removing strict controls on transactions within the EU. 

So why, despite all the reforms, does Switzerland still rank among the world’s least transparent nations?

According to a Swiss NGO Alliance Sud, wealthy people from poor countries can still hide their money here from the tax authorities of their home nations.

Alliance Sud noted that despite the progress made in the past years by Swiss financial institutions, “the fight against tax evasion remains insufficient”.

Switzerland is the world’s biggest centre for managing offshore wealth, with a quarter of global assets invested here.

For years, it has been placed on various lists of tax havens where wealthy foreigners could park their money. Faced with widespread criticism for this practice, Switzerland passed an anti-money laundering law in 1997 and introduced strict regulations against tax evasion.