Lex UBS, compromise sought (cross-border guide)

Context

The Commission of the Economy and Taxation of the States (CET-S) unanimously decided to enter into the matter on the draft law of the Federal Council concerning the coverage with own funds for foreign holdings in the parent company of systemically important banks (UBS). However, there is no agreement on how such “strengthening shall take place” that takes into account the interests at stake.

The issue is particularly sensitive for the Canton of Zurich, which hosts the headquarters of UBS, and for the city of Bern, where the seat of the Federal Council is located. The law under discussion aims to ensure the financial stability of the banking group, which has suffered heavy losses due to US sanctions.

According to Federal Council estimates, the own funds coverage for UBS's foreign participation could amount to around 10 billion Swiss francs. However, how such coverage will need to be funded is still up for debate.

The CET-S proposed two options: increase taxation on companies or increase taxation on sole proprietorships. However, both options were rejected by the Federal Council, which preferred not to increase the tax burden on taxpayers.

The situation is further complicated by the fact that UBS has already received a contribution of 5 billion Swiss francs from the state to cover losses caused by US sanctions. However, this contribution is

Operational details

The Commission for the Regulation of the Financial Sector (CET-S) is seeking a balance between the legitimate need for security of the population and the equally legitimate competitiveness of the financial market. The Commission awaits a report from the competent authority in cooperation with the Federal Office of Justice on the drafting proposals submitted so far. Discussions will continue on August 31.

The issue is particularly sensitive in Switzerland, where the financial centre is one of the engines of the country's economic growth. According to 2022 data, the Swiss financial sector generated an added value of about 35 billion francs, 12% of the country's GDP. Switzerland is also the second country in the world for the amount of funds managed, after the United States. 📊

However, the 2008 financial crisis and the subsequent subprime crisis highlighted the need for tighter regulations to prevent future crises. Swiss legislation has therefore undergone a number of changes, including the revision of the Banking Act (Botschaft zur Bankenrevision, 12 May 2011) and the creation of the Commission for the Regulation of the Financial Sector (CET-S).

The TEC-S has proposed several measures to ensure the stability of the financial system, including the creation of a reserve fund for banks and the revision of capitalisation rules. According to estimates, the reserve fund should

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Key points

Discussions on own funds hedging for foreign holdings in the parent company of systemically important banks (UBS) will continue on 31 August. The Commission for the Regulation of Financial Institutions (CET-S) is awaiting a report from the competent authority in cooperation with the Federal Office of Justice on the drafting proposals submitted so far.

It is important that the Commission reaches an agreement that takes into account the interests at stake, including the stability of the Swiss financial system and the protection of investors. CET-S has already received several proposals for wording, some of which provide for the coverage of up to 50% of prejudices with own funds. This could have a significant impact on Switzerland's balance of payments and the stability of the Swiss franc.

For example, if UBS had to cover a loss of CHF 10 billion with its own funds, this would have resulted in a significant financial burden for the institution. This could negatively impact your ability to serve clients and your ability to invest in new opportunities.

CET-S has already received drafting proposals from several financial institutions, including the Bank of Switzerland, Julius Baer and UBS itself. The Commission awaits the report of the competent authority in order to make a final decision.

To make an informed decision, the

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Source: tio.ch