Report Assesses Switzerland's Future As Financial Center

by Ulrika Lomas, Tax-News.com, Brussels

15 September 2009

The Swiss Federal Finance Department (DFF) has recently published a report on the future of the country’s financial center.

The aim of the report is to examine the effect that the financial crisis has had on the Swiss financial center up to now, and to then evaluate how this will influence the financial center’s future, in terms of possible new risks or benefits.

According to the report, the current financial crisis has had a profound and destabilizing effect on financial centers around the world, and served to modify the international financial system.

As a result of the crisis, the financial markets are now subject to much tighter regulations, and initiatives designed to strengthen cross-border cooperation in tax matters have been launched.

Competition between financial centers and therefore between the various systems of taxation has also intensified, and the threat of increasing protectionist tendencies has emerged.

Indeed, the report warns that the future of the Swiss financial center depends to a large extent on the degree to which these protectionist tendencies evolve, and the degree to which Swiss companies continue to gain access to foreign markets.

While the report considers these increased risks, it also points out that Switzerland could emerge from the financial crisis stronger than before.

The evolution of the private wealth management sector plays a crucial role in determining the future of the financial center, the report notes, explaining that the main challenge that the country faces lies in repositioning its financial sector in the light of the revised regulations, and increased international pressure.

Although Switzerland must seek to preserve its traditional banking secrecy in order to protect the private sphere, it is also imperative, the report warns, to comply fully with the new standards.

In order to secure Switzerland’s future as a leading financial sector, State intervention plays a pivotal role, the report emphasizes. The following key objectives must be realized in order to achieve this ultimate goal:

  • Existing regulations and surveillance must be improved. This includes treating systemic risks, increasing the protection of private investors and depositors, eradicating existing loopholes in the system, and improving the system of early risk detection, while avoiding excessive regulations which would prove damaging to the competitiveness of the sector.
  • The Swiss financial industry must be guaranteed access to foreign markets, and protectionist tendencies must be combated.
  • Conditions framing taxation must be improved. This will be achieved through a third reform of corporate taxation.
  • An efficient infrastructure must be established within the financial markets, and the reputation of the Swiss financial center consolidated, by implementing internationally agreed standards tax cooperation.

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