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25.03.2021

Financial Regulation, Transparency, and Compliance: Switzerland in the top tier yet again

The Swiss Finance Institute (SFI) recently published the second edition of its Global Financial Regulation, Transparency, and Compliance Index (GFRTCI). The index ranks and scores countries in terms of compliance with, and enforcement of, a set of global regulatory, transparency, and compliance standards. Switzerland is once again among the top-ranked countries.

"The idea behind the index is several years old", explains Alfred Mettler, Finance Professor at the University of Miami and SFI Adjunct Professor. "Living in the U.S., I always wondered why in every movie, feature or article about money laundering, numbered accounts or tax evasion, pictures of Switzerland, Zurich or Paradeplatz would show up to back up the points made. Could it be that all the regulatory and compliance efforts Switzerland has undertaken in the last 15 years were not recognized, or maybe just not publicized?"

Together with Professors Steven Ongena, SFI Senior Chair, Christoph Basten, SFI Faculty Member, and Markus Bürgi, SFI Management Board, the team led by Alfred Mettler decided to have a closer look into publicly available data about how different countries would and could be ranked in terms of their regulation, transparency and compliance standards. The result of their research  is the GFRTCI, a novel index whose initial version was published in 2020, now followed by the 2021 update.

It makes a big difference whether international comparisons merely consist of a list of checked boxes for certain regulations enacted or whether compliance is credibly enforced.  Preventing greenwashing, a low-cost practice to earn a premium, for example, is a major challenge in sustainable finance. Switzerland is assuring orderly implementation through provisions governing product authenticity and clarity. An index that aims to assess the quality of implementation of regulations is thus positive for the Swiss Financial Center. It ensures that we no longer have to say: Nothing gained, nothing lost – except for implementation costs. (Ausser Umsetzungsspesen nichts gewesen. )

Basel III implementation boosts rankings of EU members

The index, constructed as a "meta index", is based on publicly available, credible and established data, classifications, and rankings. It analyzes 31 countries which are members of both the OECD and BCBS (Basel Committee on Banking Supervision). For the second time, Switzerland is in the top-ranked group, together with Finland, Sweden, Denmark, Estonia, the UK and Canada.

The European Union has made a lot of progress in terms of implementation of the Basel III framework. This improvement of EU member states has impacted the final index ranking. This year, seven out of the top ten ranked countries are EU members.

Will the index change Hollywood’s portrayal of Swiss Banks?

Given the importance of the banking sector for countries like Switzerland or the UK, the index documents and highlights efforts and developments relative to other financial centers. "The GFRTCI can help to give guidance to policymakers in terms of strengths and weaknesses in specific areas", explains Markus Bürgi. Furthermore, it supports recent efforts undertaken by the Swiss financial center to publicize Switzerland's high standards in terms of financial regulation, transparency, and compliance, and to back its claim of being materially equivalent to other jurisdictions such as the EU.

"Switzerland's initiatives have clearly been recognized in the global financial community", concludes Alfred Mettler. "Now we just have to hope that Hollywood and fiction writers will finally realize it as well".

InsightRegulation & complianceSwiss financial centreMoney launderingBasel III

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Martin Hess
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