English in Banking blog
The impact of COVID-19 on financial institutions, the economic downturn, and changes to working practices have had broad implications for risk management. How has risk management already responded and what are the implications for strategically restructuring risk functions?
The ever-evolving role of an Automatic Exchange of Information (AEOI) responsible person - Join our live training on 3 March at 16.00 CET
Both US FATCA and the OECD’s Common Reporting Standard (CRS) require Financial Institutions (FIs) to put in place processes, procedures and overall governance to enable accurate reporting of information about the FI’s account holders and/or controlling persons thereof, to certain tax authorities. These rules, which are commonly referred to as the Automatic Exchange of Information (AEOI), have become business as usual over the past six years. However, these rules are practically complex to implement and maintain, and can expose FIs to significant risks. Key challenges include manual processes, local expertise requirements, systems interfacing, documentation and data deficiencies, and requirements that are often unclear and continuously change. Jurisdictions around the globe are starting to take audit action.
The lockdowns of 2020 have accelerated the adoption of digital channels by as much as five years. When potential clients change how they interact with their financial providers, banks are prompted to act. They have to adjust their mortgage distribution strategy to maintain or increase the level of leads and therefore mortgage volumes. Online and mobile channels are finally starting to live up to their potential. For example, the percentage of clients taking out mortgages online has increased around 15 percentage points compared to pre- COVID – a trend that is expected to continue. Similarly, phone and video advisory has finally made a long-awaited breakthrough.
Over the past decade, Swiss financial institutions, banks, insurance companies and asset managers have been facing challenging times, and this has resulted in the number of key performance indicators deteriorating. In parallel to this, a number of new entrants came into the market: Fintech, Insurtech, new banks which have grabbed market share from the traditional players in order to gain market share. Watch Deloitte Switzerland’s Financial Services Industry leader Jean-Francois Lagasse’s video statement to find out how financial services companies need to embrace change to win in the marketplace and read this blog post for more detailed information.
Partnership withholding regulations and the QI agreement: Impact on banks’ compliance and market offerings
In October 2020, the US Internal Revenue Service (IRS) published the final regulations under section 1446(f) of the US Internal Revenue Code (IRC) (hereinafter “final regulations”). The final regulations set out the detailed withholding and reporting requirements in relation to a non-US person selling an interest in a partnership that is engaged in a US trade or business.
In this blog, we summarise how the final regulations and the planned changes to the Qualified Intermediary (QI) agreement affect non-US banks that hold publicly traded partnership (PTP) interests in custody for their clients. We also outline why acting as a Nonqualified Intermediary (NQI) with respect to PTP interests, which is a common practice amongst various Swiss and Liechtenstein banks, may no longer be a feasible approach as of 1 January 2022.
After a very testing 2020, 2021 brings different kinds of challenges for independent asset managers (IAMs) and Trustees. Beyond managing the risks from the pandemic, IAMs and Trustees have to make sure they also bring their risk management and governance system up to speed with FINMA requirements, as spelt out in the raft of new rules in FinIA, FinSA, FinIO and FMIO-FINMA. Now is the time to act, as all the new rules are finally out and in place, with the last piece of the puzzle published in November by FINMA1.
Many IAMs are still in the process of getting their applications and organisations ready, and FINMA has only granted a few licenses so far, which means the bulk of the work is ahead for most organisations. Several things should be on IAMs’ and Trustees’ list:
The COVID-19 crisis is not a financial crisis and so it has had less of an impact on the financial sector than on many other sectors. Most financial service providers are well prepared for crises and well capitalised. However, the crisis is not yet over: the second wave of the pandemic is upon us, and a mass vaccination programme still some way off. The longer the crisis continues, the more the risk of loan defaults grows, so banks need now to be monitoring their capitalisation more closely, expanding their stress-testing tools, taking short, medium and long-term steps to boost their capital resources, and optimising monitoring of their loan portfolio.
Modern slavery is the third largest source of criminal profits globally with the majority of these profits passing through the global financial system undetected. Financial institutions have an important role to play to combat modern slavery in their own operations and with the clients and companies they provide services to. Expanding, updating and developing the necessary frameworks to identify actions and associated risks are vital to combat modern slavery.
The objective of the Net Stable Funding Ratio (NSFR) is to reduce liquidity risk over a longer time horizon by requiring banks to fund their activities from sufficiently stable sources. The new regulatory ratio will enter into force in Switzerland on 1 July 2021. What do Swiss banks need to do?