“The regulations should ensure that trustee activities are conducted by suitable and qualified professionals in accordance with industry standards”
The Swiss Trust World United (STWU) was established in July 2007 as a professional association with the purpose of enhancing the status and reputation of the trustee industry and ensuring that Swiss trust service providers comply with high-quality standards, professionalism and integrity. Since then, it has grown to a total of 35 members comprising small and large, independent and bank-owned companies. Now, STWU has been recognized by the Swiss government and other influential institutions, and its advisory board members are having regular contact with influential people in Bern. The Swiss trust industry is a major part of Swiss private wealth management services provided to the international community. Its popularity continues to grow, with many service providers abroad setting up offices in Switzerland. However, there is no regulation in trust industry. Trust companies have been subject to strict anti-money laundering (AML) regulations since 2000. Despite the lack of Swiss trust law, the concept of trust has been officially accepted, when the Hague Trust Convention was ratified by Switzerland in 2007. Since then, some Swiss law provisions have been adapted to cover the concept of trusts, and a circular on trusts taxation was issued as well.
The Swiss financial services industry and many other financial institutions have experienced great pressure from the international community in recent years, and the regulations have been introduced at a rapid speed. This is why STWU decided to propose possible ways to regulate trust businesses in its position paper. Other than that, the association is also worried that the regulations introduced by the federal government may not correctly reflect the particularities of trust, since Switzerland is a civil law country and its regulatory agencies are not familiar with trust. The earlier proposal of introducing a trust register or trust deed register has raised concerns by the entire industry. As a result, STWU members voted in favour of the white paper at their general meeting in May 2012, and agreed to take proactive action instead of waiting for the government to introduce new rules that are unfavourable to the trustee community.
Three major objectives of the white paper
The STWU white paper The Regulation of Trustees in Switzerland has three main objectives that STWU thinks should be taken into considerations by the Swiss regulators. First of all, the regulations should ensure that trustee activities are conducted by suitable and qualified professionals in accordance with industry standards, thereby establishing a framework that protects beneficiaries and the reputation of the Swiss trust industry. The second objective is that it should preserve appropriate trustee regulation records, meet existing anti-money laundering requirements and protect beneficiaries, and at the same time maintain individuals’ reasonable confidentiality expectations. Last but not least, the white paper suggests harmonizing the regulations with the regulatory requirements in place to ensure the establishment of a credible system, rather than adding unnecessary regulatory burdens.
Self-regulating organization model
The white paper proposes to also create a self-regulatory organization (SRO), which is a mature system for the implementation of anti-money laundering regulation efficiently in Switzerland, as this internationally recognized SRO system has been proven to be effective.
The new SRO will serve as the licensing body and regulator of the trustee, and its responsibility is to ensure that the trustee complies with certain professional standards. It will coexist with the current AML SRO to avoid overlap with AML procedures currently in effect. Besides, the white paper also proposes a board consisting of existing Swiss AML SRO representatives, as well as representatives or spectators from the Federal Department of Finance, essentially establishing a hybrid SRO.
STWU’s responsibilities will include establishing professional standards, introducing these standards to auditors and regulators, and giving industry support and information to regulators.
Future regulatory scope
The white paper envisions granting a license to the Swiss Registered Trust Service Provider (TSP) with operative offices that conducts trustee activities in Switzerland. Initially, the scope will only cover TSPs that are “financial intermediaries” in accordance with Article 2 of the Swiss Anti-Money Laundering Act. In other words, some companies will be exempted, such as those with less than 20 clients, less than CHF5 million in managed assets, less than CHF20,000 in annual fee income, or less than CHF2 million in total annual transactions, which is in line with the Swiss anti-money laundering laws currently in place. For trustees who do not meet the required standards, a series of sanctions will be taken, such as increasing the audits frequency, or suspending or even revoking the trustee license.
The suggested licensing envisions that operating trust companies registered in Switzerland must meet certain minimum standards, including a minimum capitalisation of CHF100,000, at least three employees, adequate professional qualifications of staff and management, strict adherence to the “four-eyes principle” for the management of the trust funds, insurance coverage of at least CHF2 million and a clean anti-money laundering record. Besides, the licensee must be able to conduct business at a high level of professionalism consistent with the reputation and credibility the Swiss trust industry hopes to achieve.
The STWU white paper also puts forward the idea of member audit to ensure compliance. It proposes that the existing anti-money laundering auditors add trustee regulations to their current AML audits. The trustee audit will be conducted under regulator‘s supervision, in order to review the TSP performance in accordance with the set standards.
STWU believes that Switzerland will continue to provide excellent wealth management services. The expected implementation of the Swiss trust industry regulation will definitely bring benefits to its participants. Delays in the regulations implementation may result in a negative effect on the industry as there may not be enough time to wait for the passage of federal laws that could take up to ten years. Therefore, SRO’s regulatory proposal would be favourable and feasible, allowing an effective licensing system to be implemented within a reasonable timeframe. In addition, it will also enhance the reputation of the Swiss system in the eyes of foreign jurisdictions and markets.
STWU was founded on July 5, 2007. It is an association established under the Swiss Civil Code, with its registered office located in Zug, Switzerland.
STWU aims to promote and develop trustee activities in Switzerland, to ensure the excellence, professionalism and integrity with professional and ethical standards in the Swiss trust industry.