Investec Welcomes Swiss Parliament's Trust Decision

by Ulrika Lomas, for LawAndTax-News.com, Brussels

30 January 2007

Investec Trust said last week that the Swiss parliament’s approval of the ratification of the Hague Convention on the Law applicable to Trusts and their Recognition in December last year should be seen as the first step on the road to a more certain trust environment in Switzerland.

Modifications to Swiss law to give effect to the Hague Convention concern the Swiss International Private Law rules dealing with the recognition of foreign decisions and the jurisdiction of Swiss Courts in trust related matters, as well as the introduction into the solvency and bankruptcy law of the principle of segregation of trust assets.

Investec Trust Switzerland Managing Director Xavier Isaac stated on Friday that the ratification had sent a clear signal to the international finance community that Switzerland recognised the importance of the Anglo-Saxon trust concept as an essential component of the wider wealth management proposition and of the need for an adequate legal framework when dealing with trust structures.

“It is a major development in the trust landscape internationally and for Switzerland,” he announced, continuing:

“Ratification is great as it dissipates much of the uncertainty for trusts in the Swiss legal system”

Mr Isaac added that high net worth individuals (HNWI) coming to Switzerland expect a secure environment for the structuring and management of their wealth.

“It is therefore the clients who will benefit most from ratification as more and more HNWI will continue to place their confidence in the Swiss financial sector, opening bank accounts and viewing trusts as sound vehicles for wealth management,” he observed.

He went on to express the belief that private banks and other trust providers in the jurisdiction will also benefit, as trusts allow for a broader wealth planning option. However, he warned that it is those banks and professionals that have the expertise and deep understanding of the trust concept that will see success.

“There are no short cuts to providing excellent trust work. It is a great opportunity but also a danger of some jumping on the bandwagon who don’t fully understand trust structures and related risks but see an opportunity to offer them as part of a bigger financial package,” he said.

“Some have built their businesses solely on Switzerland’s reputation for secrecy. This is not good enough anymore. In that respect trusts offer value added alternatives to the reliance on secrecy.”

“I see the level of interest and expertise in this area improving nicely in Switzerland. The success of the Society of Trust and Estate Practitioners in Switzerland illustrate this. However legal ratification is just one step in a long walk.”

Mr Isaac revealed that Investec Trust believes that other areas which need to be tackled with speed and discernment are the trust tax and regulatory environments.

“Agreeing the way forward on the tax treatment and having a sound regulatory framework would further cement the legal certainty which ratification has provided," he explained, continuing:

“It will also give additional international credibility and standing to Switzerland as a proper jurisdiction for wealth management activities in a context where Switzerland is too often the target of some EU and other countries."

“What we have seen is that a competing jurisdiction like Singapore has been quick to understand that, besides offering the pure banking environment, it needs to offer favourable tax and regulatory frameworks to satellite financial services – like trusts."

“It is not yet a level playing field as Switzerland is playing a catch up exercise. In the UK, Channel Islands and other traditional Anglo-Saxon jurisdictions the trust concept is embedded in the legal system."

“Switzerland is adjusting its existing rules so that Swiss law can now interact with trusts from a legal perspective."

“The Swiss Tax Conference is reviewing the tax treatment on trusts. While the taxation of settlors and beneficiaries in Switzerland is the most complex and sensitive part of the discussion I hope that trusts, which have non-resident settlors and beneficiaries but have Swiss trustees and/or are being administrated in Switzerland, will be treated on tax neutral basis."

Mr Isaac also suggested that the regulatory environment needed to be examined.

“Trust companies operating in Switzerland are currently only regulated under anti-money laundering legislation. This is not enough, particularly if you compare Switzerland with its competitors. Most competing centres, although not Luxembourg, have introduced systems of licensing to carry out trust activities," he observed.

“Investec Trust is also in favour of the establishment of an adequate regulatory framework providing it does not prevent the trust business from flourishing. Minimum standards, a code of ethics and a recognised level of professional credentials should be in place to further provide certainty to clients and signal to all that Switzerland is a highly professional jurisdiction for trust work."

“It is interesting that it is the industry itself which is moving fastest in this area. Investec Trust together with some other professionals in the industry is currently discussing standards. We aim to create a Swiss Association of Trust Companies, the purpose of which will be to engage in the furtherance and development of trustees activities in Switzerland and to promote the adherence to certain professional and ethical standards."

“I anticipate some players will be reluctant to sign up. They will see it as additional cost and another constraint but we believe for the long term benefit of Switzerland as an international wealth planning centre it is important to agree on good standards for the industry."

“The above initiative is another strong signal to clients and the international market that professional and high quality trust services are available in Switzerland,” he concluded.

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