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March 19, 2009updated 05 Jun 2017 11:40am

No endgame despite concessions

Switzerlands decision to ease its banking secrecy rules is unlikely to placate its international counterparts for long, with more political pressure on the country expected, particularly in the US But the head of the Swiss Private Bankers Association says the country is used to being in the firing line.

By PBI Editorial

Switzerland’s decision to ease its banking secrecy rules is unlikely to placate its international counterparts for long, with more political pressure on the country expected, particularly in the US. But the head of the Swiss Private Bankers Association says the country is used to being in the firing line.

Michel Derobert, secretary general, SPBAThe Swiss financial system is unlikely to ever be free from outside political pressure on banking secrecy and taxes, according to the head of the Swiss Private Bankers Association.

Michel Dérobert, secretary general of the association, said he cannot see a political endgame that did not involve Switzerland caving in completely to outside demands – something he believes the country will not do, despite the recent relaxation of bank secrecy rules.

“I don’t think we will ever reach that point,” said Dérobert, who has worked at the association representing Switzerland’s most elite private banks for 19 years.

“Maybe when we promise the big players in the world economy we will implement all of their rules in the country and do exactly what they want, then they will be happy. But we will never do that – no self-respecting country would.”

Dérobert says there has been little change in this stand-off during his near two decade tenure at the Swiss Private Bankers Association (SPBA). While campaigns from the EU and US against tax evasion and banking secrecy have gathered steam recently, Switzerland has faced pressure on its status as the world’s largest offshore centre for the last 20 years and beyond.

But the combination of the usual political wrangling with an international financial crisis has posed new challenges.

“We have had a very good period for private banking in recent years and that’s coming to an end,” Dérobert said. “We are in an unprecedented financial crisis not just for private banks but also the rest of the industry.”

The general financial malaise has so far been felt less painfully by the type of organisation the SPBA represents. Its 14 members are unlimited liability partnerships, which also tend to be small and specialised private banking entities.

Dérobert warned a year ago (see PBI 236) that Swiss bankers, the term for traditional Swiss unlimited liability businesses, faced reputational damage from the business and political problems being endured by UBS, most notably in the US. But he now believes the associations’ members have benefitted from a shift to structures where client and bank incentives are better aligned.

“They have probably – and I think this is a sad point – they have benefitted from the problems of UBS because the concept of unlimited liability and long term planning is being viewed as more attractive, and people are becoming more aware of the conflict of interests which are being exposed at the larger players,” he said.

“We thought we were behind, but now we have realised we were in advance of the industry in this way – the concept of private bankers is becoming extremely modern. There are no issues with salary bonuses and that kind of thing – private bankers take the benefits but they also bear the brunt of the responsibility for what happens too.”

Dérobert said a classic example was the model pursued by E Gutzwiller & Cie.

“They have four partners. They share the same nice but not particularly fancy office with four desks, one placed after the other,” said Dérobert.

“You can imagine these partners are talking to each other all day; they know what is going on in the business and what issues each of their colleagues are dealing with. You look at this kind of set-up, and it is something you might have seen in the 19th century, but they have perfect governance. It is like they are in a permanent departmental meeting.”

REGULATION

‘Time for US and EU to hold up a mirror’

The US and the EU were accused of making Switzerland “a scapegoat for their own mistakes” in a scathing attack by Swiss Bankers Association president Dr Konrad Hummler.

Hummler, a managing partner at St Gallen-based private bank Wegelin & Co, claimed economies in the US and EU were floundering and as a result they were attacking Switzerland on its tax rules and banking secrecy in an attempt to distract from their own problems. PBI has selected some of the comments from his extraordinary statement.

• “The very parties perpetuating the myth of Switzerland as a hub of evil financial dealings are tight-lipped about their own trusts on the British Channel Islands and in the Caribbean. The US would do well to drain financial swamps in its own backyard [Delaware and Florida] before embarking on crusades against Switzerland.”

• “Does it not strike people as odd that the otherwise so aggressive American justice system is pussyfooting around the Madoff case? They have thus far managed to locate just a measly fraction of the $50 billion that have been ‘lost’ and have not even bothered to go after former beneficiaries of these vast sums.”

• “Participants of the G20 summit, from which Switzerland has been excluded, might consider clarifying the role of Italian Prime Minister Silvio Berlusconi, for example. Or perhaps comment on payment arrangements in Germany’s black market or the deployment of cocaine-tainted funds in the US?”

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