A Country Report on Switzerland issued by International Monetary Fund
(IMF) has pitched for enhanced supervision and transparency of banks
after factoring in Swiss banking secrecy.
According
to the report on 'Detailed Assessment of Compliance on the Basel Core
Principles for Effective Banking Supervision on Switzerland,' the Swiss
banking system is very large relative to the size of the economy,
conducts significant transactions with non-residents, and contains two
G-SIFIs with large international operations and a number of banks that
are systemically important in domestic terms. The sector faces a number
of challenges to parts of its business model as expectations related to
transparency and tax authorities increase.
The Report says: "Major
Swiss banks are also adjusting to the new international prudential
standards. More recently, several material issues have arisen in
domestic or cross-border markets that have indicated weaknesses in
controls or practices that are being dealt with by banks and the
authorities. Given the nature of the Swiss banking system and its
importance to the country and globally, it is essential that the
supervisory system meet the highest standards for effectiveness. To
reach that goal, Swiss authorities need to go farther along the path
they have already started and aim for a higher level of intensive
supervision."
It
has noted that Switzerland has recently made major enhancements in the
practice of banking supervision and now has a high level of compliance
with the Basel Core Principles for Effective Banking Supervision (BCPs).
This observation comes with a caveat: "Not all the results of
improvement to date are embedded in the system or yet observable."
As
put by the Report, "various observers have noted that disclosure under
Swiss accounting rules is less in general than under international
standards. The philosophy of complete bank secrecy related to individual
account holders is being altered in some circumstances under
international pressure and as a result of specific situations of
questionable behaviour. Market participants believe these trends will
have implications for the business model of certain institutions."
It
says that effective market discipline is promoted by the design of key
policy measures, such as those related to resolution of banks, and by a
transparency in disclosure of financial accounts.
Swiss
Financial Market Supervisory Authority's (FINMA's) Code of Conduct
provides for protection of the confidentiality of official matters.
FINMA also has rules on the appropriate use of information. In case of
violation of these rules, sanctions such as dismissals can be imposed by
FINMA. A breach of official secrecy is liable to prosecution under
Swiss Criminal Code Art. 320.
Regarding
cooperation with domestic authorities, the legal provisions stipulate
that FINMA is authorized to transmit confidential information and
documents to another domestic authority if they require the information
to fulfil their duties.
The
Report says that FINMA treats information from other supervisors as
confidential and uses the information only for the direct supervision of
the regulated institutions. Members of FINMA Board of Directors and
FINMA employees are bound by official secrecy. This duty applies not
only with regard to third parties outside the government but also
towards other offices of the federal or cantonal administration.
In
addition, FINMA must comply with the Data Protection Act that imposes
restrictions on the processing of personal data. A violation of official
secrecy may lead to administrative disciplinary measures and a prison
sentence or a fine under the Criminal Act. As a result, FINMA may in
principle neither disclose confidential information nor transfer such
information to third parties. However, FINMA has the competence to
decide whether to waive official secrecy, according to a decision of the
Swiss Supreme Court.
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