How could a small country in the middle of Europe, surrounded by much bigger countries and economic giants like Germany and France and in direct competition with North American and Asian rivals, develop world-class, cutting-edge financial markets? Swiss Finance answers this question, separating myth from reality, by explaining how Switzerland managed dramatic pressures brought to bear on its financial markets during the past two decades, perhaps none of them so great as the:
· Competitive challenges caused by changes in Switzerland's banking secrecy laws and practices,
· Shifting tide of new wealth generation toward Asia (e.g., China, Singapore, and South Korea), · Burdensome federal stamp and withholding taxes, and
· Digitalization of the financial services industry, including cybersecurity, cryptocurrencies, smart contracts, central bank digital currencies, the FinTech revolution, and DLT applications.
Swiss Finance thoroughly analyzes Swiss financial markets’ successes and challenges. It covers critical topics for practitioners and academics to fully understand this unique development in world financial markets and private wealth administration.
Author(s): Henri B. Meier, John E. Marthinsen, Pascal A. Gantenbein, Samuel S. Weber
Edition: 2
Publisher: Palgrave Macmillan
Year: 2023
Language: English
Pages: 638
City: Cham
Preface
About This Book
Contents
About the Authors
List of Figures
List of Tables
1 Introduction
2 Finanzplatz Schweiz: Finance Center Switzerland
Introduction
SIX Group
SIX Group Shareholders
SIX Group’s Employee Structure and Business Areas
Key Figures of the SIX Group and Its Business Units
Organizational and Management Structure of SIX Group
Exchanges
SIX Swiss Exchange
SwissAtMid
SIX Exchange Regulation (SER)
SWXess
SIX Digital Exchange (SDX)
BME Exchange
Participation on the SIX Exchange
Trading Participants
General Clearing Members
Traders
Sponsored Access
Securities Services
SIX SIS
SIX X-Clear
SIX Repo
SIX Terravis
Financial Information
SIX Financial Information
Reference and Pricing Data
Global Corporate Actions Data and Services
Market Data and Services
Fund Data and Services
Display and Delivery Capabilities
ESG Data and Services
Regulatory Data and Services
Indices
Rolotec
Swiss Fund Data
Banking Services
SIX Interbank Clearing
SECB
euroSIC
SIX Card Solutions
Billing and Payments
eBill
QR-bill
LSV+ and BDD
PaymentStandards.CH
bLink
Worldline
Swiss Value Chain
Trading
Products
Clearing
Settlement
SIX Securities Services Ltd.
Euroclear Bank
Clearstream Banking Luxembourg Ltd.
Markets and Tradable Financial Instruments
Trading Participants of the SIX Exchange
Stock Exchange Laws and Regulations
Conclusion
Appendix: Listing of Six Corporate Services
Exchanges
Securities Services
Financial Information
Banking Services
3 The Swiss Banking System
Introduction
Significant Challenges Facing Swiss Banks
Competing in Increasingly Digitalized Markets
Cybersecurity
FinTech Competition
Open Banking
Digital Money
Gaining Access to International Markets
Cooperating with Foreign Countries and International Organizations
Complying with the Automatic (International) Exchange of Customer Information Rules
Engaging in Sustainable Finance
Switzerland and ESG
Changing Tax Rules to Make Switzerland Globally Competitive
Stamp Tax
Withholding Taxes
Global Minimum Tax
Navigating Volatile Interest Rates
Switzerland’s Falling and Negative Interest Rates
Switzerland’s Rising Interest Rates
Protecting the Financial System from Paradigm-Changing Events
Systemically Important Financial Institutions (SIFIs): Too Big to Fail
Amended Liquidity Requirements
Stricter Capital Adequacy Requirements
Responding to the Covid-19 Pandemic
Swiss Banks in the Broader Swiss Economy
Swiss Banking and Deposit Insurance: An Overview
Swiss Banking Rivalry and Conventions
Swiss Universal Banking
Swiss Deposit Insurance
Swiss Banking Structure
Sources of Swiss Banks’ Profitability
On-Balance-Sheet and Off-Balance-Sheet Assets and Liabilities
Switzerland’s “on Balance Sheet” Assets and Liabilities
Switzerland’s on Balance Sheet Assets
Swiss Banks’ on Balance Sheet Liabilities
Swiss Banks’ Off-Balance-Sheet Assets and Liabilities
Asset Administration/Management
Assets Under Management
Fiduciary Deposits
Gold Trading
Underwriting
Derivatives
Internationalization of Swiss Banks’ Balance Sheets
Switzerland’s Banking Categories
Big Banks
Cantonal Banks
Regional and Savings Banks
Raiffeisen Banks
Stock Exchange Banks
Other Banking Institutions
Foreign-Controlled Banks
Branches of Foreign Banks
“Foreign Banks” ≡ “Foreign-Controlled Banks” Plus “Branches of Foreign Banks”
Private Bankers and Private Banks
Reichmuth and Co
Portfolio Managers
Mortgage Funding Institutes
Conclusion
Appendix: Data for Chapter Tables
4 Swiss Bank (Customer) Secrecy and the International Exchange of Information
Introduction
Putting Swiss Bank (Customer) Secrecy into Perspective
Historic Layers of Protection for Swiss Banking Secrecy
Internal Bank Rules
Cantonal Laws
Swiss Constitution
Commercial Code of Obligations
Swiss Civil Code
Federal Act on Banks and Savings Banks (Banking Act of 1934—BA)
Swiss Criminal Code (SCC)
International Exchanges of Confidential Bank-Customer Information in Criminal Proceedings
Tax Fraud
Insider Trading
Market and Share Price Manipulation
Money Laundering, Unlawful Association (Organized Crime), and Financing Terrorism
Criminalization of Money Laundering
Criminal and Terrorist Organizations
Background: Swiss Efforts to Prevent Money Laundering
Three Pillars of Switzerland’s Fight Against Money Laundering and Terrorist Financing
There Is Still Room for Improvement
Corruption
Tax Evasion
Tax Evasion Issues Between Switzerland and the EU
Tax Evasion Issues Between Switzerland and the United States
US Foreign Account Tax Compliance Act of 2010
OECD’s Multilateral Convention on Mutual Administrative Assistance in Tax Matters
Automatic Exchange of Information Act (AEOIA)
Swiss Bankers’ Association and SNB Efforts to Improve Customer Identification
Switzerland’s Whistleblower Legislation
Swiss Neutrality and Bank Customer Secrecy
Conclusion
Appendix 1: Administrative, Mutual, and Judicial Assistance in International Tax Matters
Introduction
Three Levels of Request Exchanges
International Administrative and Mutual Assistance
International Judicial Assistance
Specificity, Proportionality, Reciprocity, and Dual Criminality
International Agreements
International Judicial Assistance Treaties
Administrative Assistance Under Double Tax Treaties
Appendix 2: History Behind the Banking Act of 1934
Swiss Financial Regulation and Banking Secrecy Before World War I
Swiss Financial Regulation and Banking Secrecy Between World War I and 1934
Pressures to Increase Financial Regulation
Pressure to Increase Banking Secrecy Rules
Provisions in the Swiss Banking Act of 1934
Appendix 3: Switzerland’s Dormant Accounts Controversy: 1947–2023
Dormant Accounts, Heirless Assets, and the Law
Dormant Account Controversy in the 1990s
Independent Committee of Eminent Persons (Volcker Commission)
The Eizenstat Report
Independent Commission of Experts (Bergier Commission)
Swiss Banks’ “Settlement Agreement” with the World Jewish Congress
Swiss Humanitarian Fund
Claims Against the Swiss Insurance Industry
Conclusion
5 Swiss Financial Market Regulators & Laws
Introduction
FINMA: Switzerland's Chief Financial Regulator
FINMA’s Organizational Structure
Board of Directors (BoD)
Chief Executive Officer (CEO)
Divisions
Audit Firms
Supporting Regulatory Authorities
Swiss National Bank
Legal Basis for Switzerland’s Financial System: Federal Acts
Mortgage Bond Act
Banking Act
Anti-Money Laundering Act
Consumer Credit Act (FLCC)
Insurance Supervision Act (ISA)
Collective Investment Schemes Act (CISA)
Financial Market Supervision Act (FINMASA)
Financial Market Infrastructure Act (FinMIA)
Financial Institutions Act (FinIA)
Financial Market Services Act (FinSA)
Swiss Banking Ombudsman
New Insurance Contract Act (nICA)
Federal Act on Data Protection (nFADP)
Conclusion
Appendix: Legal Basis for Switzerland’s Financial System: Federal Ordinances and Regulations
Legal Basis for FINMA
Federal Constitution
Federal Act
Federal Ordinance
FINMA Ordinances
Legal Basis for Swiss Financial Services
Federal Act
Federal Council Ordinance
Legal Basis for Swiss Banks
Federal Act
Federal Council Ordinances
FINMA Ordinances
Legal Basis for Securities Firms
Federal Act
Federal Council Ordinance
FINMA Ordinances
Legal Basis for Insurers
Federal Acts
Federal Council Ordinances
FINMA Ordinances
Legal Basis for Swiss Financial Market Infrastructures
Federal Acts
Federal Council Ordinances
FINMA Ordinances
Regulations
Legal Basis for Collective Investment Schemes
Federal Acts
Federal Council Ordinances
FINMA Ordinances
Legal Basis for Portfolio Managers (Trustees)
Federal Acts
Federal Council Ordinances
FINMA Ordinance
Legal Basis for Supervisory Organizations
Federal Acts
Federal Council Ordinance
Legal Basis for Combating Money Laundering
Federal Act
Federal Council Ordinance
FINMA Ordinance
Legal Basis for Mortgage Bonds
Federal Act
Federal Council Ordinance
Legal Basis for Auditing
FINMA Ordinance
6 Swiss Institutional Investors
Introduction
Investment Market Intermediaries
Insurance Sector
Pension Funds and Other Institutional Investors
Institutional Investing
Swiss Social Security: The Three Pillars
The First Pillar: Mandatory State-Run Pension and Disability Insurance
The Second Pillar: Occupational Pensions
Size of OASI and LOB Assets
The Third Pillar: Individual Savings
Swiss Insurance Companies
Swiss Insurance Market Structure
Level of Internationalization
Competition with Banks
Asset Structure of Insurance Companies
Regulation
Influence of Pension Funds and Social Security System on Swiss Capital Markets
Investment Funds
Real Estate Funds and Real Estate Investment Companies
Diversification of Investment Funds
Industry Concentration
Regulation of Collective Investment Schemes
Conclusion
7 Swiss National Bank and Swiss Franc’s Role in Global Financial Markets
Introduction
Overview of the Swiss National Bank
The SNB’s Mandate, Goals, Responsibilities, and Strategies
Mandate
Independence
Transparency
Cooperation
Monetary Policy Goals and Responsibilities
Environmental Sustainability
Profitability
Organizational Structure
Bank Council
Governing Board
Audit Board
The SNB’s Monetary Policy Instruments
The SNB’s Main Monetary Tools
Foreign Exchange Market Purchases, Sales, and Swaps
Open Market Operations
Standing Facilities
The SNB’s Other Monetary Tools
Interest (Positive or Negative) on Banks’ Sight Deposits
Swiss Franc Security Sales and Purchases
Derivative Purchases and Sales
Credit Transactions
Collateral Eligibility Policies
Eligible Counterparties
Settlement of Repo Transactions and SNB Bill Issues
Emergency Liquidity Assistance
Communication
Minimum Reserves
SNB Monetary Targets and Policies Since 1944
Bretton Woods and Smithsonian Agreement Parity Rates: July 1944 to January 1973
Short-Term Money Supply Growth Rate: January 1973 to September 1978
Swiss Franc—German Mark Exchange Rate: October 1978 to December 1979
Short-Term Adjusted Monetary Base and Short-Term Money Supply Growth Rates: January 1980 to December 1990
Medium-Term Adjusted Monetary Base: January 1991 to December 1999
Three-Month Libor: January 2000 to September 2011
Contractionary Monetary Policy: 2000 to 2001
Expansionary Monetary Policy: 2001 to 2004
Contractionary Monetary Policy: 2004 to 2008
Monetary Policy During the Financial Crisis: 2008 to 2009
Monetary Policy During the Sovereign Debt Crisis: 2008 to 2011
Swiss Franc—Euro Exchange Rate: September 2011 to January 2015
Negative Interest Rates
The Swiss Franc-Eurocurrency Peg is Abandoned, but Exchange Rate Targeting Continues
Three-Month Libor, SNB Sight Deposit Rate, and Exchange Rate Situation: January 2015 to June 2019
SNB “Policy Rate”: June 2019 to July 2022
The SNB and COVID-19 Pandemic (2020–2022)
SNB Policies Tighten: March 2022–June 2022
Switzerland’s Inflation and Money Supply Growth Rates: 2008 to 2022
Too Big to Fail and the Swiss Finish
The StabFund for UBS Assets
Structure of the SNB’s Assets: 2000 to 2022
Provisions for Currency Reserves
Could the SNB Become Insolvent?
The SNB’s Gold Holdings
Controversy
Digitalization
Payment Systems
Cryptocurrencies and the SNB
A Central Bank Digital Currency for Switzerland?
Retail and Wholesale CBDCs
Account-Based and Value-Based Retail CBDCs
Wholesale CBDCs (wCBDC)
SNB Experiments with and Research on wCBDC and rCBDC Systems
Swiss Sovereign Money (Vollgeld) Initiative
The SNB and Non-CBDC Cryptocurrencies
Principality of Liechtenstein
Conclusion
8 Swiss Debt Markets
Introduction
Switzerland’s Unbalanced Debt Market
Switzerland’s Shallow Market for Short-Term Debt
Low Level of Government Debt
Tax Disincentives: Federal Stamp Duty
SNB’s Relative Absence from the Short-Term Market
Modest Short-Term Borrowing by the Major Banks and Swiss Corporations
Moderate Demand by Swiss Corporations
Currency Risk
Distinguishing Features of Switzerland’s Debt Market
Quality of Swiss Franc Borrowers
Name Recognition and Rarity Value
Industrial and Geographic Diversity of Borrowers
The Size of the Swiss Franc Domestic and Foreign Debt Market
Swiss Franc Public Issues
Swiss Franc Private Placements
Amended National Banking Act
Importance of Liquidity
Asian Financial Crisis
Indirect Effects
Hybrid Securities and Convertible Bonds
Government Bond Market
Pfandbriefe
Swiss Pfandbrief Institutes
Safety of Pfandbrief Securities
Size and Growth of the Pfandbrief Market
Sustainable Bonds
Conclusion
9 Swiss Equity Markets
Introduction
Equity Markets
Types of Equity Instruments
Types of Investors
Capital Flows on the Stock Market
Venture Capital
Listing Requirements for Swiss Equities
Regulatory Framework
Securities Market Overview
Listings
Market Value
Sector and Company Overview
American Depositary Receipts
Trading Activities
Turnover in Stocks and Bonds
Number of Listed Securities
Foreign Shares
Exchange-Traded Funds
Stock Market Indices
Swiss All Shares Index
SPI Index Family
SPI ESG Indices
SPI Gender Equality Index
SMI Index Family
Further Indices
Stock Market Performance
Foreign Shares
International Comparison of Stockmarkets
Impact of the US Subprime Crisis and the Covid-19 Crisis
Conclusion
Appendix: Equity Transaction Costs In Switzerland
10 Swiss Derivative Markets
Introduction
Evolution of the Derivative Markets
OTC Derivatives Versus Exchange-Traded
OTC-Traded Derivatives
Standardized Exchange-Traded Derivatives
Global OTC Derivative Markets
Switzerland's Derivative Market Development
Swiss Options and Financial Futures Exchange (SOFFEX)
Scoach, SIX Structured Products, & Swiss Digital Exchange
SWISS FRANC-DENOMINATED DERIVATIVE MARKETS
Swiss Franc OTC Foreign Exchange and Interest Rate Derivatives
Swiss Franc Exchange-Traded Futures Market
Swiss SIX Exchange’s Structured Products
SIX Trade Repository AG and Regis-TR S.A
Switzerland's OTC Laws and Regulators
EUREX
Eurex Clearing
Eurex Repo
Conclusion
11 Financial Digitalization, FinTech, and the Collaborative Economy
Introduction
Financial Digitalization
From Open Finance to Embedded Finance
Collaborative Business Models in Banking
FinTech
Business Areas of FinTechs
Distributed Ledger Technology (DLT) and Decentralized Finance (DeFi)
FinTechs and the Digital Transformation of the Finance Sector
InsurTechs
SWISS Distributed Ledger Technology Regulation
SIX Digital Exchange (SDX)
Conclusion
12 Swiss Taxes on Investment and Financing
Introduction
Federal Withholding Tax
Federal and Cantonal Stamp Duties
Personal Income Taxes
Personal Capital Gains Tax
Capital Gains Taxes on Real Estate
Corporate Income Tax
Corporate Capital Tax
Value-Added Tax (Vat)
Corporate Capital Gains Tax
Special Aspects of Corporate Taxation
Conclusion
Appendix: Statutory Top Corporate Tax Rates around the World, 2021
13 Summary and Outlook
Financial Center Switzerland
Swiss Banking Secrecy
Swiss Banking
SNB and the Swiss Franc
Financial Digitalization
Debt Markets
Equity Markets
Derivatives Markets
Institutional Investors
Swiss Tax System
Outlook
Index
