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Experts Present Report On "Financial Market Regulation and Supervision in Switzerland"

Ulrika Lomas, Tax-news.com, Brussels

20 November 2000


The Swiss Federal Department of Finance (FDF) last week published its report on "Financial Market Regulation and Supervision in Switzerland", which was commissioned by the Finance Minister Kaspar Villiger and prepared by a group of experts under the chairmanship of Professor Jean-Baptiste Zufferey, who has called for a more centralised approach to regulating the financial sector in Switzerland.

The report, which was commissioned two years ago, contains 42 independent recommendations for the regulation and organisation of supervision of the financial services sector in Switzerland. The group of experts examined the strengths and weaknesses of Swiss financial market regulation and supervision mindful of the developments in the financial sector as well as increasing international integration. They focused on banks, insurance firms, global finance and financial conglomerates, non-regulated financial services providers and the organisation of overall supervision.

Professor Zufferey recommends the amalgamation of the insurance and banking supervisory bodies (The Federal Banking Commission and the Federal Office for Private Insurance) into one integrated financial supervisory authority. His report suggested a new central authority was needed to oversee the activities of all providers of financial services - not only banks, but independent asset managers, brokers and foreign exchange dealers. The report also recommends cutting back the scope for self-regulation and increasing external auditing. Because of a crisis at the Money Laundering Control Authority, which has seen a number of top-level resignations in recent weeks, Professor Zufferey's experts are also calling for the new body to be given powers to monitor compliance with 'due diligence' rules laid down in the law on money laundering. The Swiss financial sector is also urged to take a more active role in discussions taking place at an international level.

A press release issued last week by the FDF read: 'Current regulation and supervision is generally given a good report by the group of experts. The recommendations, coherently summarised into six sections, contain amongst others, the suggestion of integrating the Insurance and Banking supervisory bodies that were previously organised separately into one supervisory authority to be newly created. In this way, the increasing integration of banking and insurance business is taken into consideration and duplication of resources in supervision can be avoided. According to the group of experts, regulation and supervision of independent asset managers as well as foreign exchange dealers and introducing brokers can be justified within the framework of the current Federal Law on stock markets and securities trading (following amendment of the title); a new general financial services law is not necessary in the view of the expert commission.'

The recommendations are likely to meet stiff resistance in the industry, and possibly in the federal administration. The financial sector will no doubt object because the report calls for the activities of self-regulatory bodies to be limited to assisting the authorities in drawing up due diligence standards. The measures called for would also result in much greater expenditure on external auditing by financial services companies. There could also be opposition from the government bodies affected by the merger proposals.

In an effort to forestall some of the opposition, the experts are proposing moving forward in stages. The first stage would require simply setting up the new body, which could be done without changing existing laws. The legislation would be adapted in a second stage. The FDF said it will 'consult with groups directly concerned until the end of January 2001. Those responses together with its own evaluation of the report will form the basis for the decisions of the Federal Council on the recommendations made by the expert commission. The conversion into law, followed by a broad consultation and the decision on the part of parliament is estimated to take until mid-2003.'

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