As many as 7,000 Swiss private banking jobs could be culled if European regulation aimed at improving market infrastructure goes ahead as planned

September 29, 2013 6:12 am

Swiss private banks face 7,000 job cull

By Madison Marriage

As many as 7,000 Swiss private banking jobs could be culled if European regulation aimed at improving market infrastructure goes ahead as planned. The Swiss Bankers Association has warned that heavy job losses are inevitable if the proposals, which would force Swiss banks to set up branches or subsidiaries in the EU to access onshore clients, are approved. The proposals form part of the revised Markets in Financial Instruments Directive, which aims to improve investor protection and competition across Europe.Stefan Hoffmann, head of European affairs at the SBA, said that large private banks will be able to adapt to the requirements, but small and medium-sized players lack the financial means to establish an onshore presence.

This will cut smaller banks off from the estimated SFr1tn ($1.1tn) of assets currently handled by Swiss private banks on behalf of EU-based private clients.

Mr Hoffmann said: “Large banks are solving the problem at a high cost by setting up subsidiaries or branches in Europe, but that option is not open to small banks. A real danger is that they will have to close down.”

The regulation will exacerbate the pressure already exerted on the Swiss private banking industry caused by a global shift towards onshore assets and increased tax transparency.

These pressures have forced 16 Swiss private banks into liquidation this year alone, according to Andreas Lenzhofer, a partner in the Zurich office of Booz, the consultancy.

He said: “There are more private banks going out of business than getting acquired at the moment. The large private banks that have done their homework and made internal changes are doing quite well, but those without such capabilities are in difficulty.”

Felix Wenger, a director in the Zurich office of McKinsey, the consultancy, added: “[Mifid II] is a major problem for Switzerland, especially for the smaller players that do not have the scale to implement complex processes.”

The SBA anticipates the harmful impact of the directive on small and medium-sized groups will lead to heavy outflows of assets from private banks and a big shift of jobs from Switzerland to the EU.

The Swiss private banking industry currently represents about SFr5tn of assets, while cross-border wealth management accounts for approximately 20,000 jobs, according to figures from the SBA.

Nicolas Faller, managing director of UBP, the Swiss private bank, agreed that the European directive is “definitely a problem for small banks”. “It will hurt their profitability terribly,” he said.

The SBA is lobbying European policy makers to soften their stance before the Mifid II text is finalised at the end of the year, but Mr Hoffmann fears their complaints will go unheard.

He said: “A few countries, such as the UK and Germany, are very sympathetic, but they are not prepared to fight for us. [Mifid II] is clearly about protecting European banks from foreign competitors.”

Sebastian Dovey, managing partner at Scorpio Partnership, the consultancy, said Switzerland should stop complaining. “The Swiss market needs to wake up and be much more co-operative with the pan-European market,” he said.

“European nations want better control of their citizens’ taxes and they have a jurisdictional right to monitor what goes on in their country. If Switzerland wants to play in that game, it will have to play by those rules.”