As technology becomes more pervasive across Financial Services, so do the associated risks; failing to manage these risks creates front page news, as well as an unwelcome and often material financial, customer and reputational impact. Regulators are responding accordingly, with many EMEA regulators paying particular attention to the risks associated with technology. For example, FINMA issued a draft of their revised circular 2008/21 on operational risk management in March 2016 with revised guidelines for managing IT risk. Continue reading

As one of the globally leading financial centres – currently placed 6th in the global financial centres index – Zurich has traditionally enjoyed a good reputation within the financial services industry. When putting it in direct comparison with London, the worldwide most important financial centre, one can clearly see that there is still room for improvement. The development that London has exhibited in recent years is nothing short of impressive. But how did the capital of the UK develop that edge? Is the British model transmittable to other financial centres? What can the Swiss financial centre change, in order to keep up with its international competition or even strengthen its position in the market? Continue reading

On 28 July 2016, the Organisation for Economic Co-operation and Development (“OECD”) issued a discussion draft which deals with approaches to tackle base erosion and profit shifting (“BEPS”) involving interest in the banking and insurance sectors (“the discussion draft”). The common approach to tackling BEPS involving interest In October 2015, the OECD published the final Action 4 report (“the Report” or “the Action 4 Report”), Limiting Base Erosion Involving Interest Deductions and Other Financial Payments, which sets out a best practice approach for countries to prevent erosion of the tax base through the use of interest expense. Action 4 is focused on the use of third-party, related party and intragroup debt to obtain excessive deductions or to finance the production of exempt or deferred income. The Report recommends an approach based on a fixed ratio rule, with a potential range of ratios to take into account that not all countries are in an equivalent position. The fixed ratio approach can be supplemented by a worldwide group ratio rule, as well as certain targeted rules. The Report also recognized that the fixed ratio and the worldwide group ratio rules are unlikely to be effective in addressing BEPS involving interest in the banking and insurance sectors, because of the specific features of those industries. These include the following: •Entities engaged in banking or insurance business will typically have net interest income rather than net interest expense; •The nature of interest is fundamentally different than for most other businesses, where interest income is linked to a treasury function; •Banking and insurance groups are subject to regulatory capital requirements that restrict the ability of groups to place debt in certain entities. Discussion draft on the banking and insurance sectors The discussion draft does not change any of the conclusions agreed in the Report, but provides a more detailed consideration of the BEPS risks posed by regulated banks and insurance companies, whereas entities such as captive insurers and group treasury companies remain subject to the general approach set out in the Action 4 Report. It is worth noting that the discussion draft focuses on the technical treatment of the Action 4 Report’s recommendations and in this respect does not refer to the arm’s length nature of the proposed treatment. For banks and insurance companies, a limited BEPS risk has been identified and the discussion draft explores why this might be the case, the protection provided by regulatory capital rules, and the limits to this protection which differ between countries. Given the differences in risk faced by countries, the discussion draft does not propose a single approach but provides that countries should introduce rules to deal with the actual BEPS risks they face. A country may therefore still choose to apply a fixed ratio rule to banks and insurers, although in this case the report also highlights the following potential problems that this can create for such businesses: •In cases where a bank or insurance company finds itself in a net interest expense position as a result of poor market conditions, the fixed ratio rule is likely to result in a disallowance of most or all of this net expense, which could seriously hinder an entity’s ability to survive financial shocks. •When permitted, the option to carry forward disallowed interest expenses would be limited for bank and insurance companies as they will generally have a low or negative EBITDA, even when they are highly profitable in terms of their level of net interest income. For other entities in a banking or insurance group, the discussion draft identifies a greater BEPS risk and recommends that countries consider applying the fixed ratio rule and the worldwide group ratio rule to these entities, with modification in certain cases. In each case, flexibility is provided for a country to take into account particular features of its tax law and policy. The discussion draft illustrates the various approaches proposed by the following examples: 1.Application of the fixed ratio rule to the net interest position of all the entities of a local group, including regulated banks and insurance companies; 2.Application of the fixed ratio rule to the net interest position of the entities of a local group but excluding regulated banks and insurance companies; 3.Application of the fixed ratio rule to the net interest position of the entities of a local group, including the net interest expense from specific debt funding activities (e.g. regulatory capital instruments); 4.Application of the fixed ratio rule to the net interest position of the entities of a local group but excluding the net interest expense from specific debt funding activities (e.g. regulatory capital instruments); 5.Application of the fixed ratio rule, alongside the worldwide group ratio rule, to the net interest position of the entities of a group resident in different countries. This highlights the possibility of differentiated treatment, as in the example discussed, the position of banks and insurance companies is not taken into account in applying the fixed ratio rule but is taken into account in applying the worldwide group ratio rule. Finally, it is worth noting that the final report on approaches to address BEPS involving interest in the banking and insurance sectors will include a summary of the rules currently applied by countries which are intended to provide protection against BEPS involving interest in the banking and insurance sectors. Continue reading

Is it true that CEOs in the FS industry receive higher compensation packages than in other industry sectors? How large is the difference in pay between CEOs and other executives? What do board members in Switzerland earn? Which role do long-term incentive plans play within the total compensation packages for executives, and what are the most common terms of such plans? Looking beyond the largest companies: What do pay packages in smaller Swiss companies look like? Our new “Swiss Leaders – Compensation Survey 2016” has the answers; based on data from 214 Swiss companies across all industries and sizes, but always separated between FS and non-FS. Continue reading

Cross-border wealth management and private banking players will need to adapt to a new competitive landscape, as the industry has entered an unprecedented era of transparency. Growing scrutiny from tax authorities has been at the origin of a significant client re-domiciliation trend which, in turn, has urged Wealth Management firms and Private Banks to follow their clients to their home countries. In parallel, a series of substantial evolutions in the cross-border environment, the emergence of a more global and mobile client type, and a regulatory avalanche have rocked the industry to its foundations. Our recent Deloitte report “Global market, global clients but local specificities” shows existing challenges revolving around the value proposition delivered to cross-border clients and, more importantly, how this value can be delivered through a combination of multi-channel interaction, appropriate product and service offerings, at a fair price, and supported by optimal operating and organizational models. Continue reading

The Swiss Federal Council initiated consultation on the CRS Ordinance earlier this year, welcoming the Swiss financial industry and other interested parties to comment on the draft. The publication of the draft Ordinance represents a key step towards the implementation of the automatic exchange of financial account information between Switzerland and its partner jurisdictions. The automatic exchange of information is based on the CRS, a multilateral framework driven by the OECD with the aim to tackle international tax evasion. To become legally binding for the domestic financial industry, jurisdictions need to activate the CRS through local law. Switzerland did this through the AEI Act, which comes into force on 1 January 2017. The draft Ordinance complements the AEI Act and completes – together with the soon finalised guidelines – the legislative framework to implement CRS. Continue reading

Since the financial crisis, the Swiss Banking industry has been under tremendous pressure. An unfavourable economic climate, increased regulatory focus, rising expectations of empowered customers and intense on- and offshore competition have reduced the revenue margins of Swiss banks by 21 per cent between 2010 and 2015. By reducing cost, banks have managed to keep the cost-income ratio more or less stable, however, ‘quick wins’ have now been exploited to a large extent while revenue and cost pressure is expected to remain high. Banks have to take more comprehensive measures now to increase efficiency and regain flexibility in order to deal with innovative competition and tightening economic conditions. Continue reading

While Brexit has generated uncertainty, the importance of the UK market to Switzerland is not going to disappear overnight. Even before UK referendum, there were questions on the horizon for Swiss Private Banks, amongst them being the future taxation of UK Resident Non-Doms (RND’s) who form a key target market of many Swiss wealth managers. Continue reading

Despite the many years that have passed since the global financial crisis, its causes and consequences continue to demand attention from industry and policymakers alike. At the heart of the crisis was the dilemma posed by banks which were held to be “too-big-to-fail” (TBTF). Their sheer size, complexity and inter-connectedness made the prospect of their failure too harmful to contemplate. As a consequence, when those banks got into trouble, governments around the world chose to come to their rescue with financial aid – or “bail-outs”. Continue reading

The Financial Stability Board (FSB) has consulted on policy recommendations for addressing structural vulnerabilities from asset management activities. This follows a long debate at international level involving both the FSB and the International Organization of Securities Commissions (IOSCO). The FSB’s proposed recommendations relate to risks arising from liquidity mismatch, leverage, operational issues in transferring investment mandates in stressed conditions, and indemnifications related to securities lending. Continue reading

The Panama Papers are reported to be a leaked set of 11.5 million internal records detailing information about more than 214,000 offshore entities allegedly established with assistance from Panama-based law firm Mossack Fonseca (“MF”). On 9 May 2016, the ICIJ released a searchable database and documents allegedly cover a period starting back in the 1970s and reportedly comprise 2.6 terabytes of data. This release purports to contain data relating to more than 214,000 offshore entities incorporated by MF and to the persons associated with them (as beneficiaries, shareholders or directors). Continue reading

The decision by voters in the United Kingdom to exit the European Union, known as “Brexit," was a surprising one: prognosticators assigned a fairly low probability for the “leave" supporters to come out on top. What impact will Brexit have on financial services institutions? Continue reading

On 9 and 10 June, the 28th Annual Forum on International Tax Withholding & Information Reporting, generally referred to as the Executive Enterprise Institute or EEI Conference, took place in New York. This year’s EEI Conference consisted of eleven panels, ranging across the multiple U.S. withholding and reporting regimes as well as targeted updates on the Department of Justice’s investigations into an array of tax-related activities. Panelists included representatives from industry (primarily, large custodial banks with U.S. operations), professional tax advisors and software vendors as well as IRS officials. Continue reading

The UK has voted to leave the European Union (EU). Uncertainty in financial markets and among the business community is understandably very high. Today, there are many more unknowns than knowns – especially about how financial services firms operating in the UK will access and trade with the EU’s Single Market in future. Continue reading

The IFRS 9 required movement from an incurred loss to an Expected Credit Loss (ECL) approach will for most banks increase the overall credit loss provisioning levels and at the same time reduce Core Equity Tier 1 (CET1) capital ratios. The profit and loss volatility will likely increase after the implementation of IFRS 9. The implementation of an Expected Credit Loss approach might even impact product pricing for lending products. Continue reading

Forecasting the results of Britain’s referendum on EU membership is as challenging as trying to predict the impact of a potential Brexit. The run-up to the referendum has seen market volatility rise, while the Swiss franc has already appreciated slightly. Preliminary results from Deloitte’s CFO Survey show that Swiss businesses have become increasingly worried, with financial service companies more concerned than most. The latter need to be prepared to weather a potential storm, and able to react quickly and decisively to take advantage of opportunities created by either Brexit or Bremain. Continue reading

Are you ready for the automatic exchange of information of your international clients or globally mobile employees? The Common Reporting Standard (CRS) is a framework developed by the Organisation for Economic Co-operation and Development (OECD) to provide a standard for the automatic exchange of financial account information, that will result in annual communication of taxpayer’s information between jurisdictions. Over 100 jurisdictions have committed to the implementation of CRS. More than 50 early adopters implemented new procedures as of 1 January 2016, while late adopters, including Switzerland, will go live on 1 January 2017. The automatic annual transfer of taxpayer data, by the jurisdiction where accounts are held to the residence jurisdiction of the taxpayer, will impose another level of administration as well as provide tax jurisdictions with information on non-compliance where tax may have been evaded. As part of our webcast, our speakers will share their insights on the following topics: • An overview of CRS; • How it will impact individuals in terms of additional personal compliance, complexity and costs; • What it may mean to relationship and programme managers who deal with international clients or internationally mobile employees; and • Non-compliance and voluntary disclosure. Continue reading

There is evidence that fintech firms have already begun to disrupt the financial services industry. But will fintech's impact be felt uniformly among financial firms? Join our webcast on 21 June and discover the challenges and opportunities for financial firms as fintech changes the future of the industry. Continue reading

The external asset management (“EAM”) sector in Switzerland has remained to some extent less impacted than the banking industry by regulatory costs increases, delaying the consolidation and restructuring process as currently observed between banking institutions. With the forthcoming implementations of FIDLEG and FINIG as well as the impact of automatic exchange of information, we expect increased consolidation in the sector alongside a rise in valuations in the coming years. Continue reading

On 18 May 2016, the Swiss Federal Council initiated the consultation on the CRS Ordinance, which will last until 9 September 2016. The Ordinance supplements the CRS Act by providing two key elements for the implementation of CRS in Switzerland: • Additional clarification where the CRS Act delegated certain decisions to the Federal Council; and • Supplemental provisions further specifying the implementation of CRS in Switzerland. Continue reading

The International Tax Review (ITR) has named Deloitte "Tax Firm of the Year" for the fourth year in a row. Deloitte was also chosen as "Transfer Pricing Firm of the Year", clearly marking the impact of the firm’s tax and legal advisory services in Switzerland. Continue reading

On 12 April 2016, the IRS (Internal Revenue Service) released proposed section 305(c) regulations, reaffirming the IRS view that any adjustments to the conversion ratios in U.S. convertible debt and similar instruments constitute deemed distributions potentially subject to withholding and reporting under the QI (Qualified Intermediary) and FATCA regimes. Continue reading

In recent papers1, the Basel Committee (BCBS) has proposed a number of changes to the scope and use of internal modelled approaches. Taken together, they represent a tectonic shift in banks’ ability to use internal models for regulatory capital purposes. Continue reading

Since the U.S. declaration that it would not commit itself to the implementation of the OECD Common Reporting Standard ("CRS"), the question of the treatment of the U.S. hovered over the application of CRS. The recent emergence of certain white lists sharpened the debate, as a few jurisdictions included the U.S. on their white lists of Participating Jurisdictions. Continue reading

The European Central Bank doubled down on 10 March, cutting rates and expanding quantitative easing. The Bank of Japan held their fire in March, after delivering a big surprise with negative interest rates at the beginning of the year. The only major central bank to raise rates recently, the Federal Reserve, scaled back its forecast for further interest rate rises. Overall, the low interest rate environment seen since the financial crisis – and thus much longer than many anticipated – is persisting and increasingly turning negative. With the Eurozone, Japan, Switzerland, Denmark and Sweden almost a quarter of the global economy now has negative official interest rates. Why is this happening and where do we go from here? Continue reading