One of the side effects of a global economy is that all
financial regulations seem to be getting extended beyond
national and continental boundaries, creating a potentially
confusing array of conflicting 'extra-territorial' legislation
One of the most significant hedge fund management industries in
Europe is landlocked Switzerland, which is not part of the EU -
and viewed widely as something of a fortress outside of
But now the country, which has often been seen as being 'light
touch' in its approach to financial regulation, seems to be
aligning itself squarely with the tougher new international
Prompted by the EU's Alternative Investment Fund Managers
Directive (AIFMD), the Swiss government is going to bring in
tighter regulations which will, if approved, give the Swiss
Financial Market Supervisory Authority, or FINMA, increased
regulatory oversight of the industry.
This may effectively mean that Switzerland will be a
dramatically different place to do business - effectively
bringing down the shutters on the old era.
Why the change?
Switzerland, like all major financial centres, has had its
usual way of doing things challenged because of the global
financial crisis in 2008.
The response to this from governments around the world has been
to increase regulation and crack down on tax avoidance, with
some also proposing a financial transaction tax - with the aim
of creating a sounder financial system.
One result has been Switzerland's oldest bank, Wegelin &
Co, closing down following a tax dispute with the US
authorities. This came after it was also revealed that many of
the country's private banks had exposure to Madoff - all of
which has resulted in a swing in public opinion.
But probably more importantly, the country had arguably become
perceived by some hedge fund managers as a regulatory and tax
haven. And when governments in some other major jurisdictions
such as the UK threatened the industry with tighter regulation
and/or higher taxes, it even seemed possible that the entire
hedge fund industry may relocate en masse to its friendly
Indeed, some of the top personnel at London-based hedge fund
firms such as BlueCrest and Brevan Howard have moved to Geneva
in recent years.
It should be remembered that neither of those firms, however,
is officially headquartered in Switzerland - and that the
lion's share of the European hedge fund industry, including
more than 50 of the region's 'Billion Dollar Club' firms,
remain based in London, as opposed to only a handful in
Nevertheless, Europe's most important non-EU jurisdiction
appears to have responded to the perception that it is used for
regulatory arbitrage - and the need to avoid being locked
out of trade with its neighbours. It wants to remain
competitive - and to do so, being 'light touch' doesn't seem to
have the same advantages any more.