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Swiss banks focus on Dubai to park funds

Swiss banks, coming under growing pressure from regulatory authorities in pursuit of secrets relating to the ownership of funds they handle, are turning to Dubai as an alternative safe haven to park these funds on behalf of their clients.

Sources close to Swiss banking circles confide that the funds are either being parked with local banks or entrusted with subsidiaries being created at financial free zones like DIFC, allowing clients to choose local custodian banks to keep their funds with. This route turns out to be a relatively simple way to keep clients happy as they get increasingly wary of the changes being forced on to Swiss banking secrecy laws.

There have been reports that substantial amounts of funds are flowing to Dubai from countries affected by the Arab Spring as accumulators of wealth under discredited regimes feared retribution at the hands of the new power centres. No official figures of such fund flows are available, but a recent pick-up in property prices in the higher segments of villa and premier housing in Dubai and other emirates has largely been attributed to such funds.

Financial circles are abuzz with suggestions that the forced changes in the Swiss banking secrecy laws as well as the heightened vigil by governments to track down wealth stashed by their citizens in secrecy-shrouded channels may also be contributing to the repositioning of wealth. In this context, Dubai is reckoned to be among the leading beneficiary jurisdictions.

“With business stagnating in Switzerland and Europe, Swiss banks are significantly increasing their presence in the Middle East, anchoring on Dubai and for this its geographical advantage of being in between Switzerland and the financial hubs of Asia is not the only reason; there are tactical advantages as well,” says Jean-Luc Freymond, CEO of SAGE Group SA, a technology firm that works closely with Swiss banks. The Switzerland-headquartered company provides solutions that specifically service the needs of wealth and asset management, fund administration, trading, portfolio management etc.

“Dubai offers a relatively safe alternative for recalcitrant Western clients of Swiss banks, who do not feel safe with the gradual erosion of banking secrecy in Switzerland. The opening of a Dubai subsidiary offering management services allows the client to choose a local custodian bank and this helps the Swiss bank to keep these clients,” Jean-Luc points out.

The local banks on their turn are gearing up for a bigger slice of the cake by strengthening their private banking departments through investments in new technologies as well as new hirings so that they can quickly respond to the increasing expectations of clients, who are looking for more sophisticated products and risk management tools.

According to Jean-Luc, the Swiss bank clients are more comfortable with Dubai in comparison to competing jurisdictions like Singapore, which is readying to sign a new treaty with the Swiss government regarding regulatory disclosures between the two sides. There might be some more time left for Dubai’s turn to come.

While there does seem to be a short-term opportunity, as Jean-Luc sees it, on a larger political perspective, this route may not be much of an option as the UAE is a strong signatory to the Recommendations issued by the Financial Action Task Force (FATF), the global standard- setter for combating money laundering and terrorist finance and the Dubai Financial Services Authority (DFSA) is committed to comply with all its provisions.

It has been stated on behalf of the DFSA that the Authority cooperates closely with regulatory bodies in Switzerland, particularly with the Swiss Financial Market Supervisory Authority, in regulating Swiss-domiciled firms.

“If any firm is considering authorisation in the DIFC as a method of hiding their activities from authorities or prosecutors elsewhere in the world, they should reconsider their decision,” a spokesperson said in response to a question on the possibility of DIFC being used for suspicious activities.

“The DFSA is not, of course, under any obligation to enforce another country’s legislation but it is obliged to comply with any request received by the UAE Ministry of Finance pursuant to an international agreement entered into with a country such as the USA where it relates to a request for information for taxation purposes,” the spokesperson clarified.

*This article was written by K Raveendran of Banking & Business Review on its July 2012 issue for the UAE.