Banking Laws in Switzerland

All banks in Switzerland are regulated by Swiss Financial Market Supervisory Authority (FINMA), which derives its authority from a series of federal statutes. The country's tradition of bank secrecy, which dates to the Middle Ages, was first codified in a 1934 law. The Swiss Financial Market Supervisory Authority (FINMA) is a public law institution that supervises most banking-related activities as well as securities markets and investment funds.[10] Regulatory authority is derived from the Swiss Financial Market Supervision Act (FINMASA) and Article 98 of the Swiss Federal Constitution. The office of the Swiss Banking Ombudsman, founded in 1993, is sponsored by the Swiss Banking Ombudsman Foundation, which was established by the Swiss Bankers Association. The ombudsman's services, which are offered free of charge, include mediation and assistance to persons searching for dormant assets. The ombudsman handles about 1,500 complaints raised against banks yearly.[11] History of Swiss Bank Accounts For over 300 years, Swiss bankers have had a code of secrecyregarding banking and their account holders. It began with the kings of France who required strict secrecy, had high financial needs and had the ability to always pay back their loans. Legislation about banking secrecy also dates back to this period. TheGreat Council of Geneva, in 1713, established regulations that required bankers to keep registers of their clients but prohibited them from sharing the information with anyone except the client-unless the City Council agreed with the need to divulge information. This began Switzerland's long reputation as a safe haven for funds for noblemen fleeing the Revolution and others seeking financial asylum. Bank secrecy was regulated solely by civil law, enabling clients to lodge complaints for damages against any bank that didn't maintain confidentiality. However, no criminal charges could be placed so there was no threat of imprisonment for the banker who divulged information. Until the turn of the century, provisions of the Swiss civil code and labor code provided a legal framework that supported bank secrecy. In order to survive twentieth-century financial upheavals such as the stock market crash of 1929 and subsequent depression, achieving legal recognition for bank secrecy was the only way the Swiss government could maintain its beliefs and refusal to interfere in the private affairs of its citizens. Switzerland's Banking Act of 1934 accomplished this goal. The law was enacted in large part because both Germany and France attempted to press Swiss banks into divulging depositor information in the name of the "good of the state." This federal law clearly stated that bank secrecy fell within the criminal domain, meaning any banker who divulged bank client information was punishable by imprisonment. One issue of the time that reinforced the passage of this law came during the era of Hitler when a German law stated that any German with foreign capital was to be punished by death. Swiss banks were watched closely by the German Gestapo. It was after Germans began being put to death for holding Swiss accounts that the Swiss government was even more convinced of the need for bank secrecy.

By : MUKHERJEE Tunoy (MBA 2011, Geneva- Switzerland)

In 1984, the people of Switzerland once again voted in favor of maintaining bank secrecy -- by a whopping 73 percent. Nazi Gold Many European Jews deposited their life savings in Swiss banks when WWII broke out during the 1930s and 1940s. And, after the war many were not allowed to recover their assets because their documentation was gone. Swiss banks have come under fire in recent years because of their actions towards Jewish account holders after World War II and also because money that German Nazis plundered from defeated countries and their prisoners was held in Swiss banks. Christoph Meili, a former bank security guard, exposed the bank he worked for, saying that they destroyed records of people murdered in the Holocaust so that their money would not be returned to their heirs. According to a report by Stuart Eizenstat on Nazi theft of Jewish assets, during WWII "between January 1939 and June 30, 1945, Germany transferred gold worth around $400 million ($3.9 billion in today's values) to the Swiss National Bank in Bern." It is believed that much of this gold was stolen from Jews and sent to Switzerland to be melted down and used to finance the war. According to Eizenstat, "Although there is no evidence that Switzerland or other neutral countries knowingly accepted victim gold ... at least a small portion of the gold that entered Switzerland and Italy included non-monetary gold from individual citizens in occupied countries and from concentration camp victims or others killed before they even reached the camps." This gold was deliberately mixed with other gold when resmelted. It's assumed that the Swiss feared possible invasion from neighboring Germany. After the war, to ensure that there could be no Nazi return to power, the Allies held or disposed of German external assets to prevent their return to German ownership or control. A plan was also made to take care of Nazi victims who needed aid. The Paris Agreement of 1946 provided that non-monetary gold recovered by the Allies in Germany and an additional $25 million from the proceeds of liquidating German assets in neutral countries would be transferred to the Intergovernmental Committee on Refugees. The 1946 Allied-Swiss Washington Accord was held by the United States, United Kingdom and France. Switzerland was invited to discuss issues as a result of the Paris agreement. Under the Washington Agreement, Swiss negotiators agreed to transfer approximately 250 million Swiss francs ($58.1 million) of gold into the Tripartite Gold Commission's (TGC) monetary gold pool. In return, according to Eizenstat, the United States, United Kingdom and French governments agreed to "waive in their name and of their banks of issue all claims against the government of Switzerland and the Swiss National Bank in connection with gold acquired from Germany by Switzerland." Recognized claims against the monetary gold pool greatly exceeded the amount of monetary gold actually recovered. So the TGC established a proportional redistribution system which established that each country would receive approximately 65 percent of its recognized claim. The problem of dormant accounts and heirless assets was not directly addressed in the Washington Agreement. The head of the Swiss delegation did state, however, that his Government would "examine sympathetically" possibilities for making available for "relief and rehabilitation" proceeds of property found in Switzerland which belonged to (Nazi) victims . . . who have died without heirs." Although no action was taken until 1962 when a Swiss Federal Decree required banks, law offices, trustees and others to comb through records to discover dormant accounts belonging to foreign or stateless persons who were deemed victims of racist, religious or political persecution. As a result, a total of nearly 9.5

By : MUKHERJEE Tunoy (MBA 2011, Geneva- Switzerland)

million Swiss francs (an approximate 1962 value of $2.4 million) was reported and about three-fourths was transferred to the rightful heirs. Of the remaining heirless assets, two-thirds were given to the Swiss Federation of Jewish communities and one-third to the Swiss Central Agency for Refugee Assistance

Banking law of 1934 The Swiss Parliament passed the Banking Law of 1934, which codified the rules of secrecy and criminalizes violation of it. The secrecy provisions were not included in the first draft of the law, which mainly concerned administrative matters such as bank supervision. The provisions, found in Article 47(b), were added before passage of the bill due to Nazi authorities' attempts to investigate the assets of Jews and "enemies of the state" held in Switzerland Bank secrecy was codified by the 1934 Swiss Banking Act following a public scandal in France, when MP Fabien Alberty denounced tax evasion by eminent French personalities, including politicians, judges, industrialists, church dignitaries and directors of newspapers, who were hiding their money in Switzerland. He called these men of "a particularly ticklish patriotism", who "probably are unaware that the money they deposit abroad is lent by Switzerland to Germany". The Peugeot brothers and Franois Coty, of the famous perfume family, were on his list. Since then, Swiss bankshave acquired worldwide celebrity due to their numbered bank accounts, which critics such as ATTAC NGO alleged only help legalized tax evasion, money laundering and more generally the underground economy.[5] Under the Swiss principle of bank secrecy, privacy is statutorily enforced, with Swiss law strictly limiting any information shared with third parties, including tax authorities, foreign governments or even Swiss authorities, except when requested by a Swiss judge's subpoena[citation needed]. However banking is not strictly anonymous since under its banking law all Swiss bank accounts, including numbered bank accounts, are linked to an identified individual. This law only permits a bank to share information with others in cases of severe criminal acts, such as identifying a terrorist's bank account or tax fraud, but not simple non-reporting of taxable income (called tax evasion in Switzerland). Under pressure from the G20 and the OECD, the Swiss government announced in March 2009 that it will abolish the distinction between tax fraud and tax evasion in dealings with foreign clients.[6] The distinction remains valid for domestic clients. Any bank employee violating a client's privacy could be punished quite severely by law. After signing 12 new double taxation treaties in accordance with the international standard set by the OECD, Switzerland was removed from the grey list of non-compliant tax jurisdictions.[7] UBS was caught red-handed by the United States government offering tax evasion strategies, sending undercover bankers with encrypted computers to the United States. After it was caught, UBS paid a $780 million penalty and handed over hundreds of client files to American authorities.[8][9] In 2010, the Swiss and the United States governments negotiated an agreement allowing Swiss bank UBS to transmit to the US authorities information concerning 4,450 American clients of UBS suspected of tax evasion.[3][10] In the aftermath of the UBS and Julius Baer banking cases, some wealthy clients who continue to use offshore accounts are turning to private banks in Singapore and Hong Kong. In addition to the local Singapore or Hong Kong banks, offices have been opened in those localities by a number of Swiss private banks. [11] The move to Singapore and Hong Kong is an alternative to the banking secrecy that Swiss banks have come under attack for. Singapore has bank secrecy provisions comparable to those in Switerland. Although Hong Kong does not have the same bank privacy laws, it offers flexibility in the creation of opaque companies that can serve as tax conduit

By : MUKHERJEE Tunoy (MBA 2011, Geneva- Switzerland)

Variety within the Swiss banking system Apart from numerous other qualities, the Swiss banking system is noted for its variety. The Swiss banking system is based on the concept of universal banking, whereby all banks can offer all banking services. Nevertheless, it has seen the development of different bank groups that have come to specialize in certain areas. The Swiss universal bank offers it all The Swiss banking system is based on the model of universal banking. This means that all banks can provide all banking services, such as:

credit/lending business asset management and investment advice payment transactions deposit business (savings accounts, etc.) securities business (stock exchange transactions) underwriting business (issuing of bonds) financial analysis

This is directly opposite of banking systems in English-speaking countries and in Japan which separate commercial banking from investment banking. Legislation is, in fact, currently underway in the United States to liberalize the system. The advantages of universal banking include the ability to spread risk over a greater number of banking businesses and customers from all sectors of the economy. Specialized bank groups Banking in Switzerland is extremely diverse, even though it is based on the principle of universal banking. Several bank groups are now fully or partially specialized: The "big" banks The two "big" banks - UBS AG and the Credit Suisse Group - together account for over 50% of the balance sheet total of all banks in Switzerland. UBS AG is the world's leader in wealth management and also Switzerland's leading bank for individual and corporate clients. It is also an important global player in investment banking and the securities business. Credit Suisse is a leading global bank headquartered in Zurich. Credit Suisse is renowned for providing expert advice, holistic solutions and innovative products to a wide range of corporate and institutional clients and high-net-worth individuals globally, as well as retail clients in Switzerland. Cantonal banks

By : MUKHERJEE Tunoy (MBA 2011, Geneva- Switzerland)

Formerly one to two per canton, there are today a total of 24 Cantonal banks (in Switzerland's 26 cantons and half-cantons); Cantonal banks are semi-governmental organizations with a state guarantee. Liberalization is currently underway with respect to the state guarantee. Despite their close connection to the state, cantonal banks must comply with commercial principles in their business activities. Their objective, according to cantonal law, is to promote the canton's economy. Field of activity: engaged in all banking businesses; emphasis on lending/deposit business. Regional banks and savings banks Smaller universal banks with an emphasis on lending/deposit business. These banks voluntarily restrict their activities to one region. Advantage: customer proximity -- they are acquainted with local circumstances and with regional business cycles. Raiffeisen Group As a group of banks with the largest branch network in Switzerland, the Raiffeisen banks together form Raiffeisen Switzerland, which is responsible for the entire Raiffeisen Group strategy and for group-wide risk management. It also coordinates the groups activities, creates the conditions for the business activities of the local Raiffeisen banks and advises and supports them in all issues. The bank group, which is structured as a cooperative, is one of Switzerlands leading retail banks. In recent years, Raiffeisen has positioned and established itself as the third largest bank group in Switzerland. Raiffeisen meanwhile counts 3 million Swiss citizens among its customers. Of these, some 1.4 million are members of the cooperative and hence co-owners of their Raiffeisen bank. They value the decisive benefits of Raiffeisen: Proximity to the customer, support, reliability and the exclusive benefits for members of the cooperative. Private banks Among the oldest banks in Switzerland. Legal form: individually owned firms, collective and limited partnerships. Private bankers are subject to unlimited subsidiary liability with their personal assets. Field of activity: asset management, chiefly for private clients; as a rule, private banks do not publicly offer to accept savings deposits. Foreign banks Foreign-control means that over half of the company's votes are held by foreigners with qualified interests. Origin of banks: Europe, predominantly EU (over 50%), Japan (around 20%). Fields of activity: foreign business (share of foreign assets in the balance sheet total is 70%), asset management. Other banks This bank group includes banks with various business objectives, such as: institutes specializing in the stock exchange, securities and asset management businesses; commercial banks: as a rule, these are universal banks for which mortgage investments play a significant role, in addition to commercial loans to trade, industry and commerce; and consumer credit institutes: institutes specializing in small loans (to private individuals and the industry).

By : MUKHERJEE Tunoy (MBA 2011, Geneva- Switzerland)

Financial market laws of the Swiss Federal Assembly

Swiss Federal Law of 8 November 1934 on Banks and Savings Banks (Banking Act, BA) Swiss Federal Act of 24 March 1995 on Stock Exchanges and Securities Trading (Stock Exchange Act, SESTA) Swiss Federal Act of 23 June 2006 on Collective Investment Schemes (Collective Investment Schemes Act, CISA) Federal Act of 10 October 1997 on Combating Money Laundering and Terrorist Financing in the Financial Sector (Anti-Money Laundering Act, AMLA) Mortgage Bond Act of 25 June 1930 (MBA) Swiss Federal Act of 17 December 2004 on the Supervision of Insurance Companies (Insurance Supervision Act, ISA) Swiss Federal Act of 2 April 1908 on Insurance Contracts (Insurance Contract Act, ICA)

Financial market ordinances of the Swiss Federal Council

Swiss Federal Ordinance of 17 May 1972 on Banks and Savings Banks (Banking Ordinance, BO) Swiss Federal Ordinance of 29 September 2006 on Capital Adequacy and Risk Diversification for Banks and Securities Dealers (Capital Adequacy Ordinance, CAO) Swiss Federal Ordinance of 9 November 2005 on the Supervision of Private Insurance Companies (Insurance Supervision Ordinance, ISO) Swiss Federal Ordinance of 1 March 1966 on the Lifting of Restrictions on the Freedom of Contract in Insurance Contracts Ordinance of the Takeover Board on Public Takeover Offers of 21 August 2008 (Takeover Ordinance, TOO) Swiss Federal Ordinance of 22 November 2006 on Collective Investment Schemes (Collective Investment Schemes Ordinance, CISO) Mortgage Bond Ordinance of 23 January 1931 (MBO)

Ordinances of the Swiss Financial Market Supervisory Authority

Ordinance of 21 October 1996 of the Swiss Financial Market Supervisory Authority on Foreign Banks in Switzerland (FINMA Foreign Banks Ordinance, FBO-FINMA) Ordinance of 30 June 2005 of the Swiss Financial Market Supervisory Authority on the Bankruptcy of Banks and Securities Dealers (FINMA Bank Bankruptcy Ordinance, BBO-FINMA) Ordinance of 9 November 2005 of the Swiss Financial Market Supervisory Authority on the Supervision of Private Insurance Companies (FINMA Insurance Supervision Ordinance, ISO-FINMA) Ordinance of the Swiss Financial Market Supervisory Authority of 25 October 2008 on Stock Exchanges and Securities Trading (FINMA Stock Exchange Ordinance, SESTO-FINMA)

By : MUKHERJEE Tunoy (MBA 2011, Geneva- Switzerland)

Ordinance of the Swiss Financial Market Supervisory Authority of 30 June 2005 on the Bankruptcy of Banks and Securities Dealers (FINMA Bank Bankruptcy Ordinance, BBO-FINMA) Ordinance of the Swiss Financial Market Supervisory Authority of 21 December 2006 on Collective Investment Schemes (FINMA Collective Investment Schemes Ordinance, CISO-FINMA) Ordinance of the Swiss Financial Market Supervisory Authority of 18 December 2002 on the Prevention of Money Laundering and Terrorist Financing in the Banking, Securities Trading and Collective Investment Schemes Sectors (FINMA Anti-Money Laundering Ordinance 1, AMLO-FINMA 1) Ordinance of the Swiss Financial Market Supervisory Authority of 24 October 2006 on the Prevention of Money Laundering and Terrorist Financing in the Private Insurance Sector (FINMA Anti-Money Laundering Ordinance 2, AMLO-FINMA 2) Ordinance of the Swiss Financial Market Supervisory Authority of 6 November 2008 on the Prevention of Money Laundering and Terrorist Financing in the Rest of the Financial Sector (FINMA Anti-Money Laundering Ordinance 3, AMLO-FINMA 3) Ordinance of the Swiss Financial Market Supervisory Authority of 20 August 2002 on the Professional Practice of Financial Intermediation as defined in the Anti-Money Laundering Act (VBAF-FINMA)

Ordinances of the Swiss Federal Banking Commission Regulations of the Takeover Board of 21 August 2008 (Regulations-TB, R-TB)

By : MUKHERJEE Tunoy (MBA 2011, Geneva- Switzerland)