Introduction

The financial crisis of 2008/2009 triggered a wave of new regulations in Switzerland in recent years. Besides client protection and stability for the overall economic system, past and currently ongoing reform projects are a reaction to international regulations and particularly aim to harmonise Swiss regulations with existing and upcoming EU regulations, such as the EU Directive 2011/61/EU on Alternative Investment Fund Managers ("AIFMD"), Directive 2014/65/EU on Markets in Financial Instruments II ("MiFID II") and Regulation (EU) No 600/2014 on Markets in Financial Instruments ("MiFIR") to ensure Swiss financial institutions' access to the European financial markets. The core of the new Swiss banking regulation will consist of the existing Federal Act on Banks and Savings Banks of 8 November 1934 ("BankA"), the existing Federal Act on the Swiss Financial Market Supervisory Authority of 22 June 2007 ("FINMASA"), the Financial Market Infrastructure Act of 19 June 2015 (entered into force on 1 January 2016; "FMIA"), the planned Federal Financial Services Act ("FinSA") and the planned Financial Institutions Act ("FinIA"). It is currently expected that the FinSA and FinIA will enter into force on 1 January 2018 at the earliest.

Furthermore, the current environment has been characterised by a variety of legal developments, particularly in international tax matters: first, at the end of August 2013, the US Department of Justice ("DoJ") and the Swiss Federal Council announced a programme for the settlement of the tax dispute between the Swiss banks and the DoJ ("US Program"). The process of concluding Non-prosecution Agreements ("NPA") with the DoJ is already well advanced. As per 6 February 2017, 78 of approximately 100 banks participating in the US Program concluded a NPA with the DoJ (http://www.justice.gov/tax/swiss-bank-program). Furthermore, in the course of the implementation of the revised recommendations of the Financial Action Task Force ("FATF"), several laws have been amended. E.g., under the amended provisions of the Swiss Criminal Code ("SCC") (entered into force on 1 January 2016), certain types of tax fraud constitute a predicate offence for money laundering. Further, pursuant to new provisions in the Swiss Code of Obligations ("CO"), acquirers of non-listed shares (except for shares in the form of book-entry securities) have to report to the issuing company the acquirer of bearer shares and the beneficial owner of registered or bearer shares if the threshold of 25% of the share capital or votes has been reached or exceeded. Correspondingly, the issuing companies have to keep a register of bearer shareholders and of beneficial owners. In addition, the Federal Act on the International Automatic Exchange of Information in Tax Matters ("AEOI-Act") entered into force on 1 January 2017. It provides a legal foundation in Switzerland for the OECD automatic exchange of information in tax matters with countries abroad ("AEOI") (collection of data as of 2017 and exchange of data as of 2018 at the earliest), resulting in a direct notification of foreign tax authorities regarding financial information.

Banks in Switzerland are facing pressure due to these regulatory and legal developments. They led to heavily increased reporting burdens. In addition, the tougher international capital and liquidity standards such as Basel III issued by the Basel Committee on Banking Supervision ("BCBS") or the new standards set by the Financial Stability Board ("FSB") over the last few years led to increased costs of a bank's capital and long-term funding and other regulatory requirements including, e.g., new standards for resolution planning. Besides these increased burdens, the major challenges currently lie in responding to strong competitive pressure and the resulting declining profitability, further aggravated by the continued low (including negative) interest rates and the strong Swiss currency.

The accumulation of these factors forced many banks to scale back some of their activities in Switzerland and consequently led to a trend toward consolidation in the Swiss banking sector in recent years. These tendencies toward consolidation are primarily seen with small banks and foreign Swiss bank subsidiaries, while foreign banking groups in particular either close down their operations in Switzerland by liquidation or sale or try to seek a critical mass of assets under management through acquisition or merger.

Despite this currently challenging environment, Switzerland is still a very attractive financial centre, as it combines many years of practical knowledge with expertise, particularly in private banking and wealth management. In particular, the Swiss financial centre is the global market leader in the area of assets managed cross-border (i.e. assets managed offshore, outside the owner's home country) with a global market share of 25% (see Swiss Banking, Banking Barometer 2016: Swiss banks stable, but face significant challenges, 1 September 2016, available at www.swissbanking.org). Professional advice, top-quality services and sophisticated banking products are the traditional strengths of Swiss financial institutions. Furthermore, a good educational and training infrastructure guaranteeing a reliable stream of qualified staff, political and economic stability, a liberal labour market and good infrastructure are also convincing arguments to build up Swiss banking presences. Moreover, the global position of Switzerland for currency trading has been further strengthened, since the Peoples' Bank of China authorised the Zurich Branch of China Construction Bank to act as a clearing bank for the Chinese currency Renminbi in November 2015. This Renminbi hub substantially facilitates the use of Renminbi in cross-border transactions. In addition, Switzerland has become a hub for innovative financial technologies (FinTech). To ease the Swiss regulatory framework for FinTech providers with the aim to further strengthen the competitiveness of the Swiss financial centre, the Federal Council launched a public consultation on proposed amendments to the BankA and the Federal Ordinance on Banks and Savings Banks of 30 April 2014 ("BankO") from 1 February 2017 until 8 May 2017.

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Originally published by Global Legal Insights.

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