Multiple legislative programs accompanying the introduction of substantive trust law into the Swiss legal system are under discussion. The National Council will soon make a decision.
HOW DOES IT AFFECT ME?
The introduction of substantive trust law in the Swiss legal system will provide a great opportunity to lay the foundation for the Swiss domestic succession planning vehicle, thereby changing the current anomaly that Swiss residents who need succession planning have to look for foreign-law vehicles.
WHAT ARE MY TAKEAWAYS?
There is significant progress in achieving further clarity and an advantageous environment in Swiss trust services.
Switzerland has had a very active community consisting of highly qualified and widely recognized trusts experts and thought leaders since years ago.
In addition, we must also thank the professor of the University of Geneva. His unremitting efforts in favour of trusts greatly contributed to Switzerland’s approval of the Convention in 2007. It came into effect on July 1, 2007, and its implementing regulations provide certainty for the legal treatment of Swiss trusts and the relationship between trust assets and trustees’ personal assets. This is essential for the development of the Swiss trust industry.
Soon thereafter, the Circular on the Taxation of Trusts was adopted, which significantly improved the development conditions of the industry. The circular stated that the trust and the trustee are not subject to Swiss tax on the assets held in trust as well as any income generated from the assets.
After the Convention entered into force, in July 2007, representatives of the Swiss trust industry established the Swiss Trust World United (STWU), an association initiated by trust experts with the support of STEP. STWU is committed to expanding trustee activities and promoting the compliance of high-quality standards, professionalism and integrity among Swiss trust service providers.
In order to achieve the above objectives and strengthen the trust industry’s position and reputation in Switzerland, STWU actively promoted the implementation of comprehensive trustees’ regulation, on top of the existing anti-money laundering legislation.
STWU released the White Paper on the Regulation of Trustees in Switzerland in 2012. It put forward concrete proposals for the content of the regulation and the institutions responsible for its execution.
Although the impact of this white paper was limited at the time, it laid the foundation for a breakthrough in the overhaul of Swiss financial regulations a few years later. The purpose of the new regulations is to ensure parity with the EU Markets in Financial Instruments Directive II, as well as to gain access to the European market for financial services providers in Switzerland.
Under the initial draft of the Financial Institutions Act (FinIA), independent asset managers will be subject to strict supervision. However, trustees were not included in this new legislation, which is rather surprising, as the implementation of a licensing regime for trustees had been considered when the Convention was approved, but was denied precisely because independent asset managers were not regulated by such requirement.
STWU proposed to the federal administration the reasons for expanding the scope of FinIA’s regulation to trustees, and therefore the draft law was revised accordingly. On June 15, 2018, FinIA was passed by the Swiss Parliament together with the Financial Services Act (FinSA). These two laws and their implementing ordinances are expected to come into effect on January 1, 2020.
STEP Journal already covers the detailed content of FinIA and its impact on trustees operating in or from Switzerland. The implementing ordinance draft was released on October 24, 2018, further explaining more details of the regulatory regime for trustees. STWU and other organizations are analyzing the content of the ordinance, and they present their comments before February 6, 2019. As for whether FinSA also applies to trustees, the explanatory report of the Federal Department of Finance clarified that trustees are not included in the definition of “asset managers” in FinSA and therefore are not within the scope of the law, unless the professional activities they provide include Services regulated by FinSA.
INTRODUCTION OF SUBSTANTIVE TRUST LAW?
Last but not least, there are various legislative projects pertaining to the introduction of substantive trust law in the Swiss legal system currently under discussion; without delving in-depth into the complexity of Swiss legislative procedures, all these projects have a mutuality: they ideate the introduction of a substantive trust law (despite their differences) and raise the following key issues:
Currently it is expected that the National Council will make a final decision on the motion before the end of 2018 and this should clearly indicate the direction of the motion. However, before this, there were differences of opinion even among trust professionals regarding whether Switzerland really needs a substantive trust law, or it should simply amend the law of the foundations to enable the so-called “maintenance foundation” so that foundations are available for the purpose of general succession planning.
Then among the supporters of substantive trust law, some people advocate the adoption of full-scale trust law on the Anglo-Saxon model, while some people prefer to codify the “fiducie”, which is a form of trustee arrangement in Switzerland that has been well-established and recognized by the Swiss court.
IN A NUTSHELL
Regardless of the outcome, it is undeniably a unique opportunity to lay the groundwork for succession planning vehicle in Switzerland. In addition, most people believe that it is time to correct the anachronism caused by the statutory provisions that restricted the succession planning for several generations that were implemented in the early 20th century and its restrictive interpretation can be traced back to 1945. After all, trusts are now widely recognized in Switzerland and it has also been clarified that these restrictions are not part of the Swiss ordre public.
This will also rectify the current anomaly where Swiss residents who need an estate plan must resort to foreign legal vehicles. Swiss residents seeking for planning solutions (such as the transfer of family businesses) will benefit from the introduction of Swiss-law private succession vehicle; it will also significantly enhance the offering of the Swiss trust services providers.
Thus, it is vital to assess the achievements of a dynamic and progressive Swiss trust industry. In fact, we have made significant progress, thanks to the collaboration of the Swiss expert advisors and scholar communities; hence we should continue to collaborate on subjects of mutual interest, such as the implementation of a Swiss substantive trust law.
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.