Few finance ministers have done more for the Swiss financial sector during their tenure than Ueli Maurer. Because he initiated many things, his successor has an enormous amount of unfinished business to deal with, as an analysis by finews.ch shows.
Ueli Maurer bid farewell to the Federal Council on Wednesday to resounding cheers. With his departure, Switzerland loses a politician who, as finance minister from 2016 to 2022, contributed significantly to the further development of Switzerland's financial industry at home and abroad.
Unique «Swissness»
Few Swiss finance ministers have been stronger and more successful in promoting the Swiss financial industry during their time in office, both in remits relating to traditional banking and in developing areas like fintech, crypto finance, and blockchain. Maurer also distinguished himself with his brand of «Swissness», particularly in the Middle- and Far East.
It is still open who will succeed the conservative down-to-earth SVP politician who was often underestimated early in his tenure, only to prove his critics wrong. For the financial sector, initiatives of recent years mustn't fizzle out under different leadership, especially under a potentially left-wing departmental leadership. Precisely because Maurer has initiated so much, he leaves behind a series of outstanding projects, which finews.ch distilled into nine points.
1. The Stock Market Weights on Swiss Wealth Management
The Swiss offshore location with its wealth management banks is vulnerable to bear markets in equities. If assets under management decline, revenues at wealth managers decline faster than costs. This year, the bull market that started in 2008 has come to a dramatic end. Geopolitical crises, rising interest rates, and external risks such as climate change are causing turmoil in the stock market and making clients cautious.
Accordingly, Swiss private banks are applying the brakes on costs, reducing the appeal of the supreme discipline of Swiss banking. Not an ideal starting point for policymakers when it comes to forging international alliances for the Swiss financial industry.
2. Growth Declines Across the Board
The forecasts for the entire financial sector, including insurers, also do not look particularly rosy. If the experts at BAK Economics are to be believed, Swiss banks will still deliver value-added growth of 1.6 percent on average to 2024, while insurers will manage 2.7 percent growth on average, with the financial sector as a whole averaging 1.8 percent.
This has consequences for employees. For 2023, BAK economists forecast a decline in banking jobs of 0.1 percent, while the number of jobs in the financial sector is still expected to grow by 1 percent. From 2024 to 2027, the BAK economists expect average employment growth of 0.4 percent.
3. Neighboring Countries are Sealing off Their Markets
Swiss asset managers are exporters, providing services to a majority of foreign clients. Accordingly, unimpeded market access, especially with the EU, is a perennial concern for the industry, with around 40 percent of the assets managed in this country coming from Western Europe. Since the failure of the framework agreement at the beginning of 2021, the barriers to the EU have grown.
Countries like France and Italy made access for Swiss institutions difficult, while the EU is revising regulations for branch offices by 2025. EU economic ministers dropped the establishment requirement for banks active in the European region in November. A newly appointed Federal Council needs to bring momentum back to the framework agreement, but so far it has hardly looked at the welfare of the banking industry.
4. Alliances are More Difficult
An agreement for closer ties between Switzerland and the UK planned for the fall, has not come to fruition because of the political turbulence there. The new British Prime Minister Rishi Sunak was favorably disposed toward Switzerland in his former post as finance minister, but he is currently being challenged on different fronts.
With the trend toward deglobalization, it is also no longer a foregone conclusion that Switzerland will find allies in the Middle East and Asia, financial centers intensely courted by Maurer. Now the individual regions of the world are beginning to turn inward, with countries like Singapore soon outstripping Switzerland as an offshore center.
5. Unpredictable Credit Suisse
Compared to most Western industrialized nations, bank balance sheets weigh heaviest in relation to economic output. Assets held by financial institutions exceed Swiss GDP by a factor of about six, with the books of UBS and Credit Suisse alone accounting for the lion's share. Under «too-big-to-fail,» Switzerland has paid particular attention to the stability of these two banking behemoths.
The Swiss National Bank (SNB) certified that the two are solidly capitalized, with a target hard-equity ratio of 13 percent over the next few years. Credit Suisse would still be above the minimum of 10 percent.
Credit Suisse is currently restructuring in a highly unpredictable environment, and costs could rise unexpectedly and revenues could turn out to be more meager than planned. Success is not assured.
In this respect, a state intervention for the troubled lender must be considered as a scenario. If it comes to that, the financial world will look to the finance minister, to whom the Swiss Financial Market Supervisory Authority (Finma) also reports.
6. The Asset of Swiss Self-Regulation
The growing interest in ESG investment products in Europe has not gone unnoticed in Switzerland. In contrast to the EU, the Swiss financial industry relies more on self-regulation to promote sustainable investments. The Swiss Bankers Association, among others, has created pragmatic binding regulations for its members that come into force starting next year.
With these initiatives, the industry seeks to pre-empt regulation by the authorities. Before the end of the year, the State Secretariat for International Financial Matters (SIF) responsible for the matter, wants to give its opinion, especially on greenwashing. The new departmental management would be well advised to listen to all stakeholders on these issues and to continue to respect traditional self-regulation as a valuable Swiss asset.
7. Another Stab at Withholding Tax Reform
The Swiss capital market suffers from a long-standing disadvantage whereby many companies issue their bonds abroad because investors can buy them there without paying withholding tax. A reform initiative rejected by voters in September would have brought this business, which has increasingly migrated to countries like Luxembourg, back to Switzerland.
With this missed opportunity, the Swiss financial industry remains sidelined while other countries are doing global bond business. With a «no» vote on corporate tax reform and the planned abolition of the special tax on newly created equity capital of companies, the Swiss financial industry and the entire business location suffer.
The future head of the finance department will have to gain the trust of the economy and the financial sector. If they succeed in this, another attempt must be made to abolish the withholding tax. Such reform will only strengthen the Swiss corporate bond market, but also create new tax revenues in the medium term.
8. Establishing Fintech as a Location Internationally
In recent years, Maurer contributed a great deal to a lively fintech scene in Switzerland and was given «Fintech Influencer of the Year» accolades. The jurors praise him as a personality strongly committed to an innovative and well-positioned financial center. They highlighted the fact that the Federal Council has promoted open dialog and the advancement of the international perception of Switzerland as a fintech location.
Maurer's successor must maintain this momentum. Switzerland's dynamic fintech landscape is an exemplar of Switzerland's innovative capacity. The Federal Council should continue to drive this project forward. This includes, first and foremost, pragmatic regulation in close consultation with all players, but also excellent educational institutions with highly qualified talent. On this breeding ground, the entrepreneurial spirit of the fintech scene can continue to flourish.
9. No Swiss Go-it-Alone Approach to Banking Regulations
In response to the 2008 financial crisis, internationally active banks strengthened their risk buffers. In Switzerland however, consultation on new capital adequacy regulations for banks came to an end amidst discord. The main criticism is that the implementation of Basel III standards is too complex, incurs high costs, and has negative consequences for borrowers.
According to banking associations, an undesirable «Swiss Finish» will be created, before it is even introduced in other countries. In addition, the SVP, FDP, and the center party have opposed Switzerland going it alone. In this respect, the newly composed Federal Council is expected to regulate the Swiss financial center with a sense of proportion.
