The Swiss trust industry is worried about the “bad egg”, so people have put forward suggestions on how the industry can self-regulate. These suggestions may form part of the new law on financial services.
Complaints about numerous new regulations (Mifid II, FATCA, AIFM, Basle III) in the financial industry should be disregarded. It may be hard to imagine that stakeholders in the financial sector want to enact stricter regulations. However, this is the case with trust companies operating in Switzerland, represented by the Swiss Trust World United (STWU). The association submitted a position paper in May this year, which contains proposals on how to regulate the trust industry. The document includes suggestions for the licensing and organization of trustees; it is indeed a preventive measure.
The position paper and the business regulatory recommendations contained therein also provide a basis for the association to hold talks on the planned law governing financial services (Fidleg), which was originally intended to improve client protection in Switzerland and adhere to EU guidelines. According to the Swiss Federal Department of Finances (EDF), the purpose of this law is to systematize the regulatory environment of the entire financial market. At the end of September, there was an informative meeting and according to Mario Tuor, a spokesperson for the State Secretariat for International Financial Matters (SIF), a hearing will be held in February or March 2013, and the draft should be ready for consultation before the autumn of 2013.
STWU was also invited to participate in the meeting about Fidleg. He is confident that the position paper will be considered in the legislative process. He also emphasized that one of the purposes of STWU is to prevent reputation damage caused by poorly organized trustees. The “lack of regulation” in the Swiss trust industry is enabling unnecessary risks as foreign trustees tend to take advantages of the situation by establishing business in Switzerland. STWU currently consists of 28 official members, and the number is growing; however, considering that there are more than 500 unsupervised trust companies in Switzerland, this number is actually very small. It is estimated that 90% of these companies are very small companies with only one or two employees and they do not meet the membership requirements of STWU. Trust services are often provided by financial companies that do not have the required specialized skills. As a result, various risks arise from these companies that overestimate themselves. As STWU has been demanding stricter regulation, some trust industries have been making accusations about STWU wanting to remove the smaller representative of the branch. STWU has always emphasized that Switzerland lacks rules governing the surveillance and organization of trustees, which is a very unfavourable factor in international competition. A comment in the position paper stated that as the legal owner, the trustee can access the trust’s assets; hence the interests of the trust’s beneficiaries should be better protected. For example, banks and asset managers must comply with regulations governing protection of investors.
STWU hopes to prevent abuse of trusts in this way. “Bad Fgg” has always existed in the trust industry, so the association wants to avoid negative incidents from making headlines, which may lead to collective accusations of misconduct in the trust industry. Trusts’ reputation is indeed precarious; when the press publishes articles about this financial market field, it is usually related to tax evasion. Vehicles similar to foundations have always been used in estates planning for centuries as they are particularly appropriate for international vessels that comprise private businesses, real estate, art collections and philanthropy activities.
One of the reasons for this is the rapid increase of trust companies, especially in the French region of Switzerland, partially due to the spin-off of financial institutions. In addition, foreign trusts from the United Kingdom or Jersey had moved to Switzerland because of the low barriers to entry in the Swiss market.
Source: NZZ 19. October 2012 /English translation
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.