Swiss Banks Face Mounting Challenges

The Swiss banking industry has received a lot of attention (and public scrutiny) in the past few years. Huge tax evasion scandals coupled with increased regulations and international pressure has put new stress (and legal requirements) on Switzerland to shift its focus towards transparency.

Switzerland makes an ideal financial centre thanks to its low public debt, strong currency, and positive budget balance. Swiss banks provide clients with safe, exceptional returns. Unfortunately they have historically also helped their clients hide otherwise taxable assets by allowing them to withdraw huge sums of untraceable cash and advising them on how to circumvent tax authorities.

Despite political and regulatory cries for stricter compliance, their clients seem to be surprisingly undeterred. Foreign investors have actually been depositing an increasing amount of assets into Swiss banks. At the end of 2014, it was reported that around 45 billion Swiss Francs (approximately $50 billion) were invested in Swiss accounts. That’s about a 30 percent increase compared to the previous year.

The legendary secrecy that Swiss banks were once able to provide cannot continue, which means big changes for the banks themselves if they want to comply, and compete, internationally. Swiss banks can expect substantial new costs associated with adding a layer of bureaucracy to accommodate increasing regulations. Without the promise of secrecy, banks will need to provide new methods and technologies to its clients in order to promise a sound return. If they can’t adapt, and do it quickly, they will start losing even their most loyal clients.

One fear facing Switzerland is that increased regulation might well lead to massive consolidation of its banking industry, which would drive small banks out of existence. While Switzerland’s economy and currency will still provide a level of protection for its banks clients, an oligopolistic marketplace is rarely (if ever) good for the individual.

Implementation of these huge changes is yet to come, and it will be interesting to watch them unfold. They have a long way to go if they hope to maintain their biggest international clients.

Thank you for reading,

Andrew Chamberlain