Switzerland
25 July 2012
Local players are still playing for keeps in the Swiss custody market, as AST finds out
Image: Shutterstock
Though it seems that big-name players are rapidly encroaching on all four corners of the globe, local custodians in Switzerland are holding steady. By law, a Swiss fund must have a custodian bank domiciled in Switzerland, and perceived complexity of Swiss accounting rules; namely Swiss GAAP FER 26—and potential legal disputes between America and Switzerland, mean that local players aren’t going anywhere soon.
Swiss pension funds and insurance companies are enthusiastic buyers of Swiss franc-denominated bonds and Swiss property, both requiring local valuations and accounting standards that a homegrown custodian can offer.
Swiss trustees are also more reluctant to place shares with US custody banks, due to the possibility of legal disputes. In April of 2011, the private Swiss banks, Pictet & Cie and Banco J Safra (Suisse) were sued for a combined $216.5 million by the trustee Irving Picard, seeking to recover money for Bernard Madoff’s victims.
The trustee said that the banks “knew or should have known of numerous irregularities concerning investing” through Madoff’s firm, and Pictet responded predictably tersely.
A spokesperson said: “Pictet has never acted in the capacity of custodian bank to the assets of any Madoff feeder fund nor has Pictet ever established any vehicle (in particular the Asphalia Fund Limited) to invest directly or indirectly in Madoff-related funds.”
Instead, Pictet acted as a custodian bank for an outside investor who had set up a special purpose vehicle that was used to invest in Madoff feeder funds.
Cuckoo in the nest
Aside from legal worries, the main concern for Swiss custodians is the constant fear of losing a mandate. “The custody market in Switzerland is well-developed and more and more predatory competition is taking place,” says Andreas Barbaric, business development head at Julius Baer’s custodian service.
“Acquisition of new clients is therefore almost exclusively based on winning mandates from competitors. We have more than CHF 90 billion pure global custody assets as of March 2012. Our group’s strong capital base has proven once again to be a key differentiating factor and business enabler. The BIS total capital ratio amounted to 23.9 percent and the BIS tier 1 ratio to 21.8 percent at the end of 2011, comfortably exceeding both current and expected future requirements.”
Security, transparency, fulfilling regulatory requirements and risk management are still predominant topics in the industry, with Barbaric commenting: “The custody market in Switzerland is under supervision of FINMA (Swiss Financial Market Supervisory Authority). As a state regulatory body, FINMA is endowed with supreme authority over banks, insurance companies, stock exchanges, securities dealers and collective investment schemes.
Regarding regulation, the Swiss GAAP rules are different to the EU national and cross-border pension regulations that the global custodians are familiar with in other European countries.
GAAP FER 26 came into force on 1 April 2004, establishing principles of transparency and disclosure for pension assets and liabilities. Despite the similarities to other GAAPs, as well as other regulations such as the US IFRS, even PwC threw up its hands when outlining the difference between Swiss GAAP FER and US regulations.
It explained: “IFRS and US GAAP are globally acknowledged accounting standards for which a broad range of theoretical background, interpretations and literature is available. Swiss GAAP FER focuses on accounting for small- and medium-sized organisations and groups based in Switzerland; if there are questions that are not answered by a respective standard, the general principle of a true and fair view should be applied.”
Sizing it up
Major players in the market include Julius Baer, UBS, Credit Suisse, Pictet and J.P. Morgan; a healthy mix of local and international. However, permanent offices in Switzerland are rare in the case of many global custodians, as they prefer to cover the country from London or Frankfurt.
The market share of domestic custody providers UBS, Credit Suisse, Pictet and Julius Baer is not known, although it has previously been reported that they have well more than 50 percent of the market for custody services to Swiss pension funds, with some consultants estimating the figure to be more like 75 percent.
“Most of all, the custody market in Switzerland is well developed in the sense of a more and more demanding clientele,” says Barbaric. And with domestic Swiss custody banks such as Pictet experiencing success with their global services, it appears that demanding clients have forced custodians into a bright future that extends far beyond the Swiss Alps.
Swiss pension funds and insurance companies are enthusiastic buyers of Swiss franc-denominated bonds and Swiss property, both requiring local valuations and accounting standards that a homegrown custodian can offer.
Swiss trustees are also more reluctant to place shares with US custody banks, due to the possibility of legal disputes. In April of 2011, the private Swiss banks, Pictet & Cie and Banco J Safra (Suisse) were sued for a combined $216.5 million by the trustee Irving Picard, seeking to recover money for Bernard Madoff’s victims.
The trustee said that the banks “knew or should have known of numerous irregularities concerning investing” through Madoff’s firm, and Pictet responded predictably tersely.
A spokesperson said: “Pictet has never acted in the capacity of custodian bank to the assets of any Madoff feeder fund nor has Pictet ever established any vehicle (in particular the Asphalia Fund Limited) to invest directly or indirectly in Madoff-related funds.”
Instead, Pictet acted as a custodian bank for an outside investor who had set up a special purpose vehicle that was used to invest in Madoff feeder funds.
Cuckoo in the nest
Aside from legal worries, the main concern for Swiss custodians is the constant fear of losing a mandate. “The custody market in Switzerland is well-developed and more and more predatory competition is taking place,” says Andreas Barbaric, business development head at Julius Baer’s custodian service.
“Acquisition of new clients is therefore almost exclusively based on winning mandates from competitors. We have more than CHF 90 billion pure global custody assets as of March 2012. Our group’s strong capital base has proven once again to be a key differentiating factor and business enabler. The BIS total capital ratio amounted to 23.9 percent and the BIS tier 1 ratio to 21.8 percent at the end of 2011, comfortably exceeding both current and expected future requirements.”
Security, transparency, fulfilling regulatory requirements and risk management are still predominant topics in the industry, with Barbaric commenting: “The custody market in Switzerland is under supervision of FINMA (Swiss Financial Market Supervisory Authority). As a state regulatory body, FINMA is endowed with supreme authority over banks, insurance companies, stock exchanges, securities dealers and collective investment schemes.
Regarding regulation, the Swiss GAAP rules are different to the EU national and cross-border pension regulations that the global custodians are familiar with in other European countries.
GAAP FER 26 came into force on 1 April 2004, establishing principles of transparency and disclosure for pension assets and liabilities. Despite the similarities to other GAAPs, as well as other regulations such as the US IFRS, even PwC threw up its hands when outlining the difference between Swiss GAAP FER and US regulations.
It explained: “IFRS and US GAAP are globally acknowledged accounting standards for which a broad range of theoretical background, interpretations and literature is available. Swiss GAAP FER focuses on accounting for small- and medium-sized organisations and groups based in Switzerland; if there are questions that are not answered by a respective standard, the general principle of a true and fair view should be applied.”
Sizing it up
Major players in the market include Julius Baer, UBS, Credit Suisse, Pictet and J.P. Morgan; a healthy mix of local and international. However, permanent offices in Switzerland are rare in the case of many global custodians, as they prefer to cover the country from London or Frankfurt.
The market share of domestic custody providers UBS, Credit Suisse, Pictet and Julius Baer is not known, although it has previously been reported that they have well more than 50 percent of the market for custody services to Swiss pension funds, with some consultants estimating the figure to be more like 75 percent.
“Most of all, the custody market in Switzerland is well developed in the sense of a more and more demanding clientele,” says Barbaric. And with domestic Swiss custody banks such as Pictet experiencing success with their global services, it appears that demanding clients have forced custodians into a bright future that extends far beyond the Swiss Alps.
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