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 and rules.
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
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
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
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.