Switzerland achieves high overall compliance with international standards and codes, with a score of 60 out of 100 in our Standards Compliance Index. Switzerland's compliance in the areas of macroeconomic fundamentals and financial supervision is generally high. One exception is in the area of fiscal transparency, where a lack of coordination between the federal and cantonal governments' fiscal policies fosters accountability but hampers clarity. Switzerland has revised its banking and insurance supervision laws, and a new integrated financial supervisor - the Financial Market Supervisory Authority - was established in 2007. Regarding a transparent and sound market infrastructure, the Swiss payment systems are fully in line with international best practices, but Switzerland stands non-compliant in accounting practices since they will not be applied to small and medium-size enterprises due to their alleged complexity. In recent years, Swiss Company Law has been revised to improve the legal framework in matters of corporate governance. Switzerland's anti-money laundering is only partially compliant with international standards, as important weaknesses have been identified.

Macroeconomic Policy and Data Transparency

Switzerland has subscribed to the International Monetary Fund's (IMF) Special Data Dissemination Standard (SDDS) since 1996 and posted its first metadata on the SDDS website in 2001. According to the IMF's 2007 Article IV Consultations report, Swiss data is fully compliant with SDDS specifications for coverage, timeliness, and periodicity, although the Swiss authorities avail themselves of timeliness and periodicity flexibility options for production index data and the periodicity flexibility for wage data. Advance release calendars are produced, data is released simultaneously to all interested parties, and provisions for the assurance of data integrity are in place for most data categories. The Statistical Issues annex to the IMF's 2007 Article IV Consultations report noted that there remain some areas where data comprehensiveness falls short of international standards, particularly with regard to data compiled at the canton and commune level of the general government. The IMF largely attributes these problems to inadequate resources and insufficient authority conferred upon the Federal Statistical Office. However, the report asserts that steps are being taken to address these problems. More »

The IMF reported in its 2007 Article IV Consultation that the Swiss monetary policy framework was working well, and singled out the Swiss National Bank's (SNB) communications policies for praise. A 2005 Article IV Consultation report by the IMF found that the 2003 National Bank Act has removed a number of legislative uncertainties regarding the SNB's independence and objectives with respect to monetary policy. Under the new law, there is greater clarity as to the assignment of responsibilities and roles in monetary policy. There is also improved clarity in the way the SNB communicates its policy decisions. Improvements are still possible, however, particularly in the statistics regime. Greater resources should be made available in order to enhance data compilation and analysis. More »

Despite substantial evidence presented by the IMF and the Organization for Economic Cooperation and Development (OECD) suggesting improvements in fiscal transparency in Switzerland, particularly Switzerland's 2004 Financial Equalization Reform project, current reports do not explicitly address Switzerland's compliance with this standard. Although the IMF's Fiscal Transparency Code is pitched at the general government level, the highly decentralized nature of the Swiss government has strong implications for fiscal policy. The independence of cantons to raise their own revenues leads to tax competition at this level of the government, and the IMF suggests that this may help to foster accountability. However, cantonal independence raises problems as well. For instance, according to both the IMF and the OECD, fiscal reporting is not yet harmonized and the formulation and reporting of general government statistics are therefore subject to long delays. Budgetary interdependence is also seen as the source of impaired transparency, making it hard to discern general budget trends, particularly over the medium term. It also complicates the function of the debt-brake rule introduced to deal with high levels of public debt incurred during the 1990s, since it requires a balanced budget at the federal level, but not at the cantonal or communal levels, whose fiscal policies may impact on federal outcomes. A federal referendum passed in 2004 entitled the Financial Equalization Reform (to take effect in 2008) is aimed at addressing some of these problems by more appropriately allocating roles and responsibilities across all levels of government and enhancing equity across regions. Switzerland has participated in the IMF's Special Data Dissemination Standard (SDDS) since 1996 and first posted its metadata on the SDDS website in 2001. More »

Institutional and market infrastructure

According to a 2006 publication by N.B. Hartmann and M. Koch, Swiss insolvency legislation is based on the 1889 Federal Act on Debt Enforcement and Bankruptcy, as amended. This act is supplemented by other legislation relating to enforcement at the level of canton and commune and by laws specifically dealing with financial institutions, insurance companies, and other special cases. However, there appears to be insufficient publicly available information that directly addresses the Swiss insolvency regime and its performance with regard to the Principles and Guidelines for Effective Insolvency and Creditor Rights Systems developed by the World Bank. More »

The Commission of Experts for Recommendations in Accounting (FER) is a private body responsible for drafting the voluntary Swiss Financial Reporting Standards that are referred to as the Swiss Generally Accepted Accounting Principles (known as GAAP FER). GAAP FER standards differ from International Financial Reporting Standards (IFRSs). As explained in the Foreword to the Swiss GAAP FER standards, the Commission believes that international standards are too complex and impractical for small and medium-size enterprises (SMEs) and therefore in the future the FER will focus on developing standards more applicable for the needs of the SMEs rather than adopting IFRSs. Per the September 2006 self-assessment of the Swiss Institute of Certified Accountants and Tax Consultants, listed companies adhere to accounting standards stipulated in the Listing Rules issued by the Swiss Stock Exchange (SWX). These rules entail a spectrum of accounting standards and, as explained in the 2006 update on the IAS Plus website, most companies listed on the main board of the SWX are required to adhere to IFRSs or U.S. GAAPs. Swiss companies that operate domestically are permitted to use either Swiss GAAP FER or the above two options. A 2007 Directive on Requirements for Financial Reporting notes that banks, securities dealers and mortgage credit institutes must comply with additional legal requirements. More »

Until 2005, according to a 2005 article for Ernst & Young by M. Schweizer, the corporate governance framework in Switzerland consisted of self-regulatory provisions and stock exchange regulations on corporate governance, including the 1997 Federal Act on Stock Exchanges and Securities Trading, the 2002 Swiss Code of Best Practice, the 2002 Corporate Governance Directive of the Swiss Exchange, the 2003 Due Diligence Convention of the Swiss Bankers Association, and the 2005 Directive on the Disclosure of Management Transactions. The International Monetary Fund identified shortcomings in this framework regarding the protection of minority shareholders and disclosure of information, as noted in its 2007 report on Securities Regulation. Since 2005, Swiss Company Law has been revised to improve the legal framework in matters of corporate governance. Furthermore, on January 1, 2007, according to a 2007 Global Survey of the Institute of International Bankers, the Swiss Federal Banking Commission - the banking supervisory authority - enacted a new circular on Supervision and Internal Control. A subsequent amendment to the Company Law was expected to enter into force on January 1, 2007. The Swiss Exchange is supervised by the SFBC, and is required to meet international standards in its regulatory activities under the 1997 Federal Act on Stock Exchanges and Securities Trading. More »

According to a self-assessment prepared in September 2006 by the Swiss Institute of Certified Accountants and Tax Consultants (Treuhand-Kammer, or TK) as part of the International Federation of Accountants' Member Body Compliance Program, pronouncements of the International Auditing and Assurance Standards Board (IAASB) are adopted in Switzerland as national standards with modifications to reflect the local legal environment. In September 2004, the TK issued new Swiss Auditing Standards (Schweizer Prüfungsstandards), which constitute the official Swiss translation of the International Standards on Auditing (ISAs) effective as of June 2003. The IAASB has since revised the ISAs, and the TK's 2006 self-assessment asserted that these revisions will be incorporated in the Swiss standards only after the IAASB has finalized its Clarity Project. Additionally, the 2005 Swiss Federal Banking Commission (SFBC) Annual Report noted that, in line with international developments in the area of auditing, in 2000 the SFBC launched the reform of rules governing auditing practices aimed at modernizing the regulations. The reform was accomplished by implementing a number of SFBC circulars on auditing practices. More »

According to a third mutual evaluation report conducted by the Financial Action Task Force (FATF) in October 2005, and a 2007 report by the International Monetary Fund (which is based on the 2005 FATF evaluation), Switzerland's anti-money laundering (AML) and combating the financing of terrorism (CFT) regime is at least partially compliant in most areas. The FATF report nonetheless identified weaknesses regarding customer due diligence (CDD) and suspicious transaction reporting in the Designated Non-Financial Businesses and Professions. The report also pointed to deficiencies in identification of beneficial owners and CDD requirements for financial institutions. Furthermore, criminal offences under the 1997 Anti-Money Laundering Act do not include illegal trafficking in migrants, counterfeiting and pirating of products, smuggling, insider trading, and market manipulation. The 2007 U.S. Department of State report notes that the adoption of AML regulations in 2007 should make these crimes predicate offenses. However, there is little subsequent information addressing the adoption of these regulations. Money laundering is also criminalized under the Penal Code. The Money Laundering Reporting Office of Switzerland was established in 1998 under the AML Act to serve as Switzerland's financial intelligence unit. An integrated financial supervisory authority - the Financial Market Supervisory Authority (FINMA) - was established under the 2007 FINMA Act, which incorporates the Anti-Money Laundering Control Authority within the Federal Department of Finance. It also establishes the Swiss Federal Banking Commission and the Federal Office of Private Insurance. The FINMA Act is expected to enter into force on January 1, 2009, as noted on the Federal Office of Private Insurance website. More »

According to the 2002 IMF Report on the Observance of Standards and Codes (ROSC) on Payment Systems in Switzerland, the Swiss Interbank Clearing (SIC) system, the country's systemically important payment system, observes all applicable Core Principles for Systemically Important Payment Systems. Of the ten Core Principles (CPs), only nine are applicable, CP V does not apply to the SIC as it is a real time gross settlement system and does not settle on a multilateral net basis. Further, the Swiss National Bank (SNB) fulfills all applicable central bank responsibilities. Central Bank Responsibility B does not apply to the SNB since it does not operate the SIC or any other payment system in the country. The SIC, which commenced operations in 1987, is operated by Swiss Interbank Clearing AG, a subsidiary of the Telekurs Group, on behalf of the SNB. The ROSC finds no vulnerabilities within the SIC system itself, and further notes that its functioning reduces systemic risk in the interbank payment mechanism substantially. TARGET2, the Euro-area centralized payment system, was launched on November 19, 2007. According to the SNB's 2007 Financial Stability Report, Swiss banks will have indirect access to TARGET2 through the German-based Swiss Euro Clearing Bank, the settlement institution of the Swiss euro payment system. More »

Financial Regulation and Supervision

According to a 2002 Financial System Stability Assessment (FSSA) by the IMF, Switzerland has a high degree of compliance with the 1997 Basel Core Principles (BCPs). Moreover the report notes that Switzerland is a member of the Basel Committee on Banking Supervision and is a key player in international standards-setting bodies. As a follow-up to its 2002 assessment, the IMF prepared a factual update of Switzerland's compliance with the BCPs in 2007, and found that the Swiss Federal Banking Commission (SFBC) - the banking supervisory authority - had since addressed most of the recommendations. As noted in the IMF's 2007 FSSA Update, the SFBC has substantially improved its supervisory practices, doubled its staff, and strengthened its policies in the areas of risk management, external audit review, Basel II, and consolidated supervision. Weaknesses remain regarding the SFBC's budgetary independence and liquidity monitoring. According to the IMF's 2007 FSSA, organizational and supervisory practices are expected to be further improved after the establishment of an integrated financial supervisory authority, the Financial Market Supervisory Authority (FINMA), under the 2007 FINMA Act. The report also indicates that although the SFBC, the Federal Office of Private Insurance (FOPI), and the Anti-Money Laundering Control Authority will be integrated into FINMA, they will retain their regulatory and supervisory roles under existing sectoral legislation. The FOPI website discloses that the FINMA Act is expected to enter into force on January 1, 2009. More »

According to the IMF Financial System Stability Assessment conducted in 2002, Switzerland's securities regulation is mostly in compliance with the International Organization of Securities Commissions' (IOSCO) Objectives and Principles of Securities Regulation. However, some improvements must be made to bring securities regulation into full compliance. In particular, there need to be changes in the legislative framework, especially on budgetary independence and staffing, regulatory powers, and foreign and domestic cooperation with other regulators. Also, all securities market activities and market intermediaries should be brought under the supervision of the SFBC. In 2007, the IMF published a Financial Sector Assessment Program Update on Switzerland's compliance with the IOSCO Objectives and Principles. It asserted that Switzerland has made significant progress in implementing the 2002 FSSA's recommendations. However, there has not been as much progress in the supervision of unregulated institutions, and the political independence of the Federal Authority for Market Oversight could be strengthened further. More »

In a 2002 FSSA based on Insurance Core Principles (ICPs) and Methodology developed by the International Association of Insurance Supervisors (IAIS) in 2000, the IMF concluded that the authorities were, in general, fully or largely compliant with ICPs. Since 2003, the regulatory and supervisory regime for the insurance industry in Switzerland has been updated through legal reforms to bring it in line with international best practices, as noted in the IMF's 2007 Factual Update of the 2002 FSSA. The Update assesses insurance supervision framework in Switzerland against the new, more stringent ICPs and Methodology developed by the IAIS in October 2003 and focuses on significant market and regulatory developments in the Swiss insurance industry. One of the major developments was the adoption of the Insurance Supervision Act, which entered into force on January 1, 2006. The Act replaced the "compliance with rules" approach to the supervision with a "risk-based supervision" system. An integrated financial supervisory authority -- the FINMA -- was established under the 2007 FINMA Act. According to the IMF's 2007 FSSA Update, while the new regulatory framework in Switzerland has a very high level of observance of ICPs, the implementation process is not yet complete. The IMF concluded that the effective implementation of recently issued or drafted decrees and guidelines in key areas by the insurance supervisory authority -- the Federal Office of Private Insurance -- will bring the Swiss regime into full observance of ICPs. More »

Legend:

Credit Ratings

Moody's Aaa/Stable

Fitch AAA/Stable

Standard & Poor's AAA/Stable

Macroeconomic Data

2007 GDP (Current Prices): 423.9 billion USD (IMF)

2007 GDP (Per Capita): 58,084 USD (IMF)

2008 GDP (Growth Forecast): 1.3% (IMF)

2008 Inflation (CPI): 2% (IMF)

2007 Unemployment: 3.1% (CIA)

2006 Foreign Direct Investment

FDI (Inward): 25.1 billion USD (UNCTAD)

FDI (Outward): 81.5 billion USD (UNCTAD)

2006 Official Development Assistance

ODA (Received): N/A million USD (OECD)

ODA (Disbursed): 1646 million USD (OECD)