Liberated By Regulation

Philippe J Weil believes the huge regulatory changes brought about by global transparency initiatives may be good news for families, allowing them to discuss family wealth openly.

KEY POINTS

• What is the issue? The challenges of the current changes in the regulatory environment are considered a burden and a threat to our industry.
• What does it mean for me? These changes are actually opportunities, for both the industry and clients.
• What can I take away? The industry will be forced to improve due to greater competition. Clients will finally be free to exploit the full potential of their wealth, and openly discuss the best governance for their family and wealth.

International pressure for transparency, tax compliance and exchange of information has shaken the financial services industry and most of the private clients we serve. The financial safe havens of the world are struggling to cope with the mass of new regulations, with demands from international and domestic regulators, and with international pressure to disclose and collaborate. Clients who have stewarded privately held family funds are now faced with the need to make governance decisions on different management of the funds. Is this new era of transparency and regulation going to be negative for trustees, bankers and asset managers, and for the high-net-worth-individuals (HNWIs) and families that they serve, or will there be a silver lining?

INDUSTRY DISRUPTION
We have seen much mergers and acquisitions activity in the financial industry. Private banks are being closed, taken over or sold off from big international houses. Once, the private banking arm of an internationally active bank was the cash cow of the institution; today, it blocks the future of the bank and is often sold to a competitor. This is particularly true in Switzerland, which has often been considered synonymous with secrecy in relation to clients’ family wealth. The sea change resulting from new regulation, and its effect in Switzerland, is worth understanding.

Today, foreign governments and the OECD are encroaching on Swiss sovereignty. Swiss bank secrecy and Switzerland’s differentiation of tax evasion from tax fraud laws have changed under foreign pressure. The fact is, however, that these concepts are not just laws, but century-old Swiss traditions. The changes imposed on the Swiss threaten and insult. Switzerland is a direct democracy and is very proud of the fact that many changes in law have to be made by public referendum. The imposed regulatory changes, however, have happened very quickly and in this case people were not asked; the government had to change the laws. The changes are seen as intrusive and as undermining the political independence of Switzerland.

THE OFFSHORE NEST EGG
Historically, clients of financial institutions in fiscal safe havens felt protected from their own governments and tax authorities, as well as, in many cases, nationalisation of their assets, dictators, political putsches and revolutions. Suddenly, century-old habits and traditions are being dispensed with, and, under pressure from the very institutions that should safeguard them, secret assets are being discovered or forcefully disclosed, or must be voluntarily declared to avoid criminal proceedings.