• David Grammig

Managing Compliance In Family Offices In Switzerland: Quo Vadis In The Light Of The Modified FINIG*

Updated: Jun 10

*Federal Act on Financial Institutions (FINIG)


Already in the past Multi-Family Offices have encountered delicate situations when dealing with Swiss Private Banks in order to fulfil anti-money laundering related requirements: Extensive requests on the Know-Your-Client, Source of Wealth, Source of Funds and purpose of the relationship etc were only the warm-up exercise before account opening. Thereafter, Multi-Family Offices have been submerged with extensive requests by the Compliance function of the financial institution related to transactions, negative news identified during a name screening exercise etc. Further topics have occurred in the last years with regard to US-Swiss Non-Prosecution Agreement Program for Swiss banks, the implementation of FATCA program and Switzerland’s participation in certain international exchange of information agreements, including the CRS (Common Reporting Standard) – a permanent challenge.


In contrast to other financial centers, trustees and so-called independent or external asset managers in Switzerland have so far not been subject to any authorization requirement or specific supervision but only had to comply with the provisions of the Anti-Money Laundering Act (AMLA). The new requirements go further than the currently required affiliation with a self-regulatory organization (SRO) for AML purposes.


With the new Swiss Federal Act on Financial Institutions (FINIG) which took effect on 01st January 2020 this has changed fundamentally. Suddenly Multi-Family Offices and Trustees are in particular confronted with a mandatory approval requirement in order to exercise its activity. It might appear that MFOs have still a lot of time until 31st of December 2022 to fulfil all the requirements for this approval, but a more in-depth look into the list of various conditions and requirements reveals a neuralgic pain point of the past: Now Multi-Family Offices have to dispose an adequate organisation to ensure a proper management of legal and Reputational/ Compliance risks. Moreover, they will need to implement a full set of internal guidelines, in particular with an AML focus.


From a bank perspective, the truth is that a successful and sustainable cooperation with Multi-Family Offices is no longer a ‘more clients = better business’ approach but to choose those Multi-Family Offices as preferred partners which demonstrate that they really do ‘know their clients’ and have already established a structured identification and monitoring process for their clients during the client’s lifecycle. This approach was mainly driven by the fact that the relationship MFO vs bank has been in the focus of the Swiss regulator FINMA for a long time. It was assumed that the set-up via an intermediary creates a ‘natural distance’ between the bank and the client and thus exposes it to a higher relationship management and ultimately Compliance risk. This led to the review of the Swiss Federal Banking Act (SBA) which now obliges banks to ensure that the persons entrusted with the administration and management of the bank enjoy a good reputation and offer a guarantee of sound business operations (“Duty of Sound Management“).

‘Compliance as a differentiating and distinctive factor’


Reality shows that Multi-Family Offices which have invested in and implemented an internal Compliance framework with sufficient level of controls and a well-organised processes will be capable to generate higher returns and even place clients with financial institutions which might be considered as more sensitive. The ‘zero’ risk client does not exist anymore. The focus is on how to mitigate and monitor the existing risks most efficiently – in a market driven by more restrictions and less margins. Those Family Offices which understand Compliance not only as a regulatory burden but as an opportunity for a distinctive factor in a very competitive Swiss market have gained a significant advantage taken into consideration the estimated costs of managing a high-risk client for example by the Economist of approximately USD 75k/per year.


There is of course a substantial investment in resources (tools, processes as well as humans) which will need to be calculated but the quick wins are easily to be identified: Higher responsiveness by Private Banks on the feasibility of the envisaged operation, short transformation of the prospect into a client and heightened chances to increase the portfolio rapidly and/or establish complex structures for wealth planning or management purposes. The investment in Compliance will be a strategic decision for Multi-Family Offices as it was for banks 10 years ago to survive the regulatory tsunami.

‘Know your Counterparty – the reverse KYC model


But the changes are more profound: Multi-Family Offices have now turned their focus not only to better serving their clients with more tailor-made solutions but have pro-actively reached out to Private Banks to understand the shifts and status quo of AML programs, risk-appetite strategies, KYC remediation exercises etc. These regulatory requirements affect immediately Multi-Family Offices as they need to be aware at any time where the Private Banks are moving to adjust investment and wealth management strategies for their common clients.


However the truth is that there is a ‘mainstream’ approach in the market which is mainly driven by expectations of external auditors so that these requirements do not materially differ in each bank: For example, risk appetite strategies are heavily exposed to country risk assessments based on FATF findings, corruption index etc which very often leads to exit strategies by all banks at the same time. To avoid such an impact for a multi-booked client of a Multi-Family Office, these scenarios need to be prepared in advance. The only way to get these insights is cooperation model not only with the business departments of the Private Bank including the view of Compliance. This reverse model of understanding your counterpart (KYC) is the sole factor to ensure a sustainable business relation and to face a disruptive situation.

Digitalization and Open banking approach


To make a long story short: Digitalization will change the financial industry profoundly but the road of digital opportunities is still very long and frequently ends with unrealistic concepts from the RegTech industry into the ‘digital nirvana’.


Yes – the future is digital but the present is shaped by banking systems which do not communicate with each other. Therefore it is still believed that those market players which dispose digital concepts with highly adaptive solutions (API etc) to connect with the relevant local core banking system will have the best chances of long-lasting success. End-to-end digital solutions with the partnering bank will need first of all the implementation of an own digital strategy and concept in line with the expectation of the client.


Furthermore, we believe that in an increasingly fragmented value chain, where customers are being served by a large number of different financial services providers, digital solutions based on the standardized and secure exchange of data between the bank and reliable third-party providers or between different banks (called ‘open banking’ solutions) will have a significant potential for all market participants. However, the current discussions have not reached a common ground to establish a future target operating model which will increase the competitiveness of Switzerland’s financial center.

Conclusion: Integration vs Delegation


In the words of Simon Sinek – you need to find your ‘Why’: Family Offices in Switzerland will take a more important role in the future taking into consideration the attractiveness of the Swiss financial market, the expertise and skillset as part of a growth model and last but not least the need of the client to have the best tailored solution for his multiple and diversified needs.


Compliance is to be considered not only as a regulatory burden but as a chance to differentiate the strategy from the competitors. In order to offer the client the best available and sustainable service, Compliance concerns must be identified at the earliest stage and to the fullest extent. Those Multi-Family Offices which have already established an integrated internal Compliance program with adequate resources will have an advantage on a long-term perspective to steer pro-actively the Compliance momentum and to integrate the regulatory requirements into a forward looking and sustainable approach.


Those Multi-Family Offices which have opted for an external delegation will at least fulfil the minimum requirements of the regulatory expectations, but will largely depend on the quality of the external provider to obtain an insight into market trends. It has been observed over the last years that the number of external providers offering a wide range of services dedicated to Multi-Family Offices has substantially increased but it is difficult to make the right pick in line with the individual needs.



About the author:


Ralph Ebert, a German lawyer, is active in legal and compliance for big and private banks with 15 years of experience. He currently works as Head of Compliance in a Swiss Private Bank. He previously worked in Seoul, Montreal and Paris, before moving to Switzerland in 2008. He worked for companies including BNP Paribas, Credit Suisse, UBP and Credit Agricole Indosuez. He is specialized in the fight against money laundering but also focuses on the integration of regtech solutions, consequences for compliance and the modern compliance culture.