Marcel, you previously headed Julius Baer’s European Financial Intermediaries Business. Are there any specific market trends or regulatory initiatives that are expected to shape the industry’s growth?
“From 2013, I spent four years working in the UK, and during this time, the UK government introduced profound regulatory reforms. The new legislation in Switzerland reminds me of this time, albeit the Swiss financial intermediaries industry is already very well equipped for the new world with FIDLEG and FINIG. While some headwinds can be expected in the short term, the new ruleset will support innovation and growth in the Swiss financial services sector and make it more competitive, both locally and internationally. As regards the long-anticipated market consolidation, I doubt we will see an immediate effect following the licensing event, specifically given the buyer’s market today and the still healthy margins across the industry. If we look again at the UK, but also Germany, an accented consolidation phase started three to four years after the introduction of the new ruleset, with increased M&A activity and strategic investors providing growth capital.”
How do you see the Swiss financial intermediaries market adapting to the increasing demand for sustainable investing and ESG integration?
“Generally, I believe these topics will become more important going forward. In the EU, 2023 will mark the transition to more detailed requirements under UCITS and we will likely soon see the impact of the ESG uplifts on the MiFID II, AIFMD and UCITS rules. This and the Federal Council’s high ambitions regarding sustainable finance will hint in what direction we might be headed. So far, Swiss institutional investors have shown more interest in sustainable investment opportunities than private investors have. However, we see an increased interest from private clients to use sustainable investment strategies to achieve specific results, with thematic- and impact investing being particularly popular. Going forward, both regulatory and client-demand induced requirements will drive future developments in the area of sustainable finance, and to address such requirements, the Association of Swiss Asset and Wealth Management Banks (VAV) formulated 14 priorities to support transformation in the industry. I believe the aspects about ESG integration across research, advisory, and investment processes, as well as transparency adjustments are crucial elements needed to move successfully in the desired direction.”
Are there any upcoming regulatory changes or proposals by FINMA that could significantly impact the Swiss financial intermediaries industry?
“The list of upcoming regulatory changes is long and it is difficult to paint a reliable picture. Generally, it would be interesting to see a first analysis of the initial audits and whether FINMA is going to alter its current audit strategy in light of the outcomes. Unfortunately, it is still too early to tell, as many financial intermediaries have yet to receive their FINMA licensing approval. If I had to make predictions about individual key regulatory projects at FINMA, I would say that the subject of data protection will gain in importance with the new, completely revised Swiss data protection law, which is still closely based on EU data protection law (GDPR). The updated ESG requirements and the management of environment-related financial risks will also gain in importance, as will greenwashing-prevention measures and further refinements of the rules of conduct under FinSA and FinSO, with particular focus on a firm’s design and efficacy of its conduct risk framework.”
What are the key challenges and opportunities for financial intermediaries in the Swiss market as it continues to evolve?
“Today’s markets are resilient, which is likely due to the entrepreneurial and agile nature of the businesses and the people. For those firms that stay in the market, the FINMA licence can be considered a hallmark, which will help the sector, but firms will have to manage short-term challenges to get there successfully. In particular, margin pressure will get higher, driven by higher production costs due to the new regulatory obligations and increased investments in the organisation, process optimisation, and technology. In this context, keeping a focus and scale will be key to maintain the required knowledge and experience to be successful in an increasingly complex environment.
“Apart from this, the new landscape also requires firms to enable the creation of financial intermediaries ecosystems. Through strong networks, cooperations and partnerships, especially between financial intermediaries and custody banks, the market participants’ strengths and capabilities can be leveraged and will eventually make the Swiss market more competitive overall.”