The Dwindling Numbers of Swiss Financial Institutions
Switzerland’s esteemed finance industry is witnessing a declining number of wealth managers and private banks. A surge in regulatory requirements and industry consolidation has compelled these institutions to either close their doors or opt for mergers. The financial industry in Switzerland is gradually shifting to become leaner, regulated, and more concentrated.
Fewer Banks, More Regulation
As of the last month, the number of licensed financial institutions plummeted sharply from over 2,000 to just 1,570 as per the public registers of portfolio managers and wealth advisers. The number of private banks has also seen a notable decrease, dropping from more than 100 a decade ago to only 82 currently, according to data from KPMG. The firm projects this figure could further decline to below 70 by 2030.
However, it’s important to note that this consolidation is not solely due to the weakness of the firms. Many strong players are also involved in these deals. The overall trend is undoubtedly towards fewer banks and larger institutions, leading to a more streamlined and regulated financial sector.
Impact of New Regulations
Regulatory changes have raised the cost and complexity of compliance, particularly for smaller firms. The Financial Institutions Act (Finia), which was fully implemented in 2022, was designed to align Switzerland’s fragmented wealth industry with global standards. This act introduced licensing for portfolio managers and trustees, thereby supervising smaller wealth-management firms for the first time.
These new regulations have significantly impacted business models, especially for firms managing under $100mn. There are concerns about their survival in this changing landscape, and experts predict further consolidation in the industry.
End of Banking Secrecy
The termination of banking secrecy and the introduction of international tax-transparency rules have drastically changed the business environment that once made Switzerland a haven for offshore wealth. The head of a Zurich-based private bank commented, “It is no longer a place to hide money so many no longer have a reason to exist.”
Changes in Regulatory Pressure
The regulatory pressure intensified after UBS’s emergency takeover of Credit Suisse in 2023. This takeover created a domestic giant with more than $3tn in assets under management. The consolidation has led to stricter regulations, making it challenging for firms with under $10bn in AUM to survive.
Focus on Systemically Important Banks
The Swiss government and Finma are now shifting their focus to systemically important banks, particularly UBS, whose assets are approximately twice Switzerland’s GDP. New rules could increase UBS’s capital requirements by up to $26bn under a strengthened “too-big-to-fail” (TBTF) regime. The reforms also give Finma greater powers, including stronger early-intervention tools and an expanded ability to hold senior management accountable.
Regulatory Divergence
While the US under the Trump administration is seeking to relax financial-sector rules, and the EU and UK are softening or delaying Basel III implementation to protect competitiveness, Switzerland is moving in the opposite direction. This divergence has raised concerns among bankers and lawmakers that excessive regulation could render Swiss banks less profitable and less competitive, especially burdening smaller players already grappling with escalating compliance costs.
However, the regulatory authority, Finma, asserts that their approach “reflects lessons from past events”. They aim to ensure all market participants operate with sound governance and risk management, not to overburden these institutions.
The Challenges for Smaller Institutions
The new regulatory changes, particularly Finia, pose a significant challenge for smaller wealth advisers and managers. However, the regulator has noted that over 200 new applications have been submitted by firms entering the market since the end of 2022, even as others have closed, merged, or withdrawn. Finma has recommended institutions to initiate the licensing process in good time to manage the challenges posed by the new requirements.
Despite the challenges, some argue that regulation can be a selling point, especially for international clients. Jamie Vrijhof-Droese, managing partner of WHVP, a wealth management firm for US clients, commented, “Regulation is a selling point, especially for international clients. But it has to be balanced with the realities of doing business.”
Additional reporting by Martin Arnold in London and Josh Franklin in New York
Correction: UBS’s assets equate to roughly twice Switzerland’s GDP, not the previously stated figure.
Source: Here
