Financial market policy: shaping the future today
Using financial market policy to address problems of the past: this solution has characterised Swiss Parliament during the last two legislature periods. This was both necessary and the right thing to do. Effective responses to the financial crisis were needed. Capital and liquidity requirements were increased, and investor and client protection were strengthened. At the same time, with the shift away from bank client confidentiality vis-à-vis other countries, the Swiss financial centre underwent a fundamental transformation. And it did so successfully! Contrary to the fears at the time, Switzerland remains the global leader in cross-border wealth management even in today’s age of the Automatic Exchange of Information.
Maintaining the foundation
The financial centre today stands on firm ground and respects the international standards. This solid foundation must be maintained and continuously improved in the future. But a solid and reliable foundation alone is not enough. It is important that in our financial market policy, we look to the future resolutely and with conviction. The good news is: that is exactly what Parliament is doing.
Fintech, blockchain, the cloud
A recent study conducted by the research institute Sotomo and commissioned by the Swiss Bankers Association (SBA), analyses the dynamics in Federal Parliament over the last 20 years as they relate to procedural requests and subject matter. The analysis shows that the number of parliamentary procedural requests relating to financial market regulation has clearly decreased in recent years. In contrast, procedural requests concerning digitalisation as well as innovations in the financial sector such as fintech, mobile payments and blockchain have increased significantly.
Until 2014, less than 2 percent of all procedural requests related to digitalisation. But from 2015 onwards, a sharp increase was seen. Last year, a total of 8 percent of all procedural requests addressed this matter. The Federal Council is also concerning itself with innovation in the financial sector: it has lowered the barriers to market entry for fintech companies and simplified the rules of the game. Further to this, consultations regarding the Federal Council’s draft bill on the electronic identity (e-ID) are currently underway in the two chambers of Parliament.
A shift in perspective from crisis to innovation
The Federal Council and Parliament have recognised the signs of the times: politicians are once again increasingly focusing on innovation and the competitiveness of the financial centre. That is good news. But in my view, the true test is yet to come. It will in particular be up to this year’s newly elected Parliament to work to consistently usher in the paradigm shift needed to actively shape the future and consequently, comprehensively address the digital future of the Swiss financial centre.
This includes creating attractive and secure framework conditions for blockchain technologies and cloud banking, but also dealing with issues such as how to appropriately handle matters like the digital tax. Ultimately, however, it is not just about framework conditions for digital services and technologies in the narrower sense. Even more important is that all conditions that Switzerland offers as a location be scrutinised. The most important question here is: do these conditions strengthen the future viability and competitiveness of the financial centre?
There is a clear need for action in areas such as taxes – specifically withholding tax and stamp duty. No other financial centre that we compete with, e.g. the UK, Singapore, the US or Hong Kong, has a tax comparable to Switzerland’s stamp duty. It is time to do away with this self-imposed handicap.
With the institutional agreement, an essential dossier for the Swiss financial centre is being debated. For the banking sector the case is clear: market access to the EU must be secured and improved. The foundation for this is a high-quality framework agreement that can get a majority backing.
Ultimately, it is important that politicians ask themselves, time and again, what exactly good regulation means. The Federal Council is planning a new ordinance that addresses this matter, and which is to more concretely specify the roles and competencies of FINMA with regard to regulation. This is an opportunity to strengthen important principles such as competitiveness and proportionality in regulation.
The Swiss financial centre is solid and competitive. The fact that Switzerland is not only the global leader in traditional private banking, but also at the forefront as a location for fintech, is cause for optimism. However, international competition has become fiercer and key competing financial centres are growing more quickly than Switzerland. Which means it’s high time we start shaping the future.