Like parenting, regulation should be strict, evenly enforced and calibrated so that it does not kill individual creativity and growth. Too often regulatory focus falls exclusively on strictness, leaving enforcement and economic considerations behind.

Over the past few years financial markets regulations have changed and we, like everyone else, have had to undergo a thorough review process to keep the required qualifications to serve our clients. While we await final approval from FINcontrol and FINMA (our supervisory organization and regulator), it has become clear that the process to obtain it has a scale issue: the regulations are designed for large multi-national banking institutions, not small consultancies like ourselves (who, incidentally, cannot operate without relying on the same institutions). Policy statements, checklists, organization charts, list of responsibilities, manuals: it’s tough to make an organization with 2 employees (in full-time equivalent; we are actually 4 physical beings) fit the mold. New rules pile upon existing rules, without necessarily adding to the protection of the ultimate investor, which brings to mind an expression: ‘it’s the enforcement, stupid!’

Take for example the ‘know-your-client’ rules (KYC, for the practitioners), which have been around for many years and which have become progressively stricter. The rules hit the Swiss banking sector particularly hard, due to historical reasons. KYC simply requires that an asset manager or advisor know the identity of their ultimate clients (that is, the person, group of persons or family behind the company, trust, foundation or whatever the manager/advisor is officially engaged by). You may ask ‘who in his right mind would not secure such information?’; you’d be surprised at what people will do for the right fee. Yet, after all this time of indoctrination and increasingly tight rulemaking, it appears impossible to quantify the full extent of Russian money in Swiss banks. How is that possible?

Like KYC there are many other regulatory structural faults that would need to be addressed. But instead of fixing them, the approach by regulators seems to be more in the direction of forcing the industry to beef up internal regulatory and legal staff at the expense of protecting investors. And this is where the scale issue does the most harm: the entities best placed to absorb the inevitable rise in costs are the large institutions, while for small independent outfits these costs are burdensome and, in some cases, threaten their financial viability. End result: less competition.

I wonder if the general level of competition in Switzerland is in any way related to the quality of life it affords its residents. On one hand, this country is a representation of paradise on earth. On the other, finding reasonably priced goods and financial services or ordering online products from other countries can at times be quite a challenge if not downright impossible. All just to prove, perhaps, that there is no such thing as a free lunch.

Roberto Plaja, June 4, 2022

Cover: Giuseppe Baldrighi, ‘The Family of Philip, Duke of Parma’, 1755,