Switzerland’s compliance model sets the standard for private banking hubs

The once freewheeling Swiss private banker, who danced to his client’s tune and asked no questions, is being reined in by the straitjacket of regulation.

Proactive law enforcement officials are now jumping on breaches of money laundering rules and poor compliance processes. Those Swiss banks that were once sacrosanct are being publicly shamed and their partners who break the rules are named and fined.

In response, compliance levels have been raised, with rulebook observance emphasised.

“Regulators are making greater demands on banks, and banks are having to catch up and maintain at all times a level of compliance that ensures they’re up to speed,” says Shelby du Pasquier, head of the banking and finance practice at Geneva law firm of Lenz & Staehelin.

Swiss family offices and independent wealth managers are raising operating standards and spending much more on compliance than in the past.

“If I compare the Swiss market before the new regulations and now, today we are taken seriously by everyone, by the banks, but also by the end customers. Compliance costs have significantly increased, but you can also consider them as an investment,” says Nicole Curti, CEO of boutique firm Capital Y and president of the Alliance of Swiss Wealth Managers.

The Swiss Financial Market Supervisory Authority (Finma) significantly revised its anti-money laundering provisions in 2016 and further tightened them in 2022, emphasising conduct and behaviour ahead of form-filling. 

Banks are also required to focus more on analysis of transactions to uncover contradictions in the client’s source of wealth statements. “This corroboration journey results in a more burdensome but effective audit,” says Sergio Uldry, CEO of Uldry Risk and Compliance, a regulatory expert.

Familiar markets

The regulatory purge has impacted many jurisdictions and all sizes of banks. Switzerland has demonstrated its tough new approach by confiscating SFr12.7m ($16m) of “unlawfully generated profits” from Mirabaud & Cie in June 2023. They also fined J Safra Sarasin SFr3.5m for its role in the Brazilian Petrobras scandal.

In 2024, Swiss prosecutors charged Lombard Odier with money laundering offences in relation to the affairs of Gulnara Karimova, the daughter of the former president of Uzbekistan. The bank is contesting the charges.

This case illustrated the difficulty and risk a bank may encounter when working in an international jurisdiction with which it was unfamiliar, unless it carries out requisite due diligence. “The key is to understand the risks and make sure your compliance programme matches the risks,” says Kenneth Nunnenkamp, a lawyer at US legal firm Morgan Lewis. A particularly effective “apparatus” is necessary in order to avoid problems when doing business in higher-risk jurisdictions such as Uzbekistan, he suggests.

Many banks have had their wings clipped, which has led to the majority now seeking to economise on compliance expenses by staying in familiar markets and dealing with known, existing customers.

Ms Curti asks: “Do I want to spend weeks and weeks and pay compliance and lawyers to understand how an unfamiliar market works to sign just one client?”

Banks that fail to invest in due diligence and can end up paying heavily. JP Morgan recently agreed to pay $330m “without admission of liability” to the Malaysian government for its part in the 1MDB scandal. The Malaysian sovereign wealth fund has been trying to recover losses from a number of banks, including JP Morgan’s Swiss unit, since 2021.

Non-banking financial institutions have also seen sharp regulatory retribution for both anti-money laundering and sanction compliance failures, “which specifically demonstrates the serious consequence of inadequate compliance programmes”, says Crystal Trout, a director with advisory, tax and assurance firm Baker Tilly’s risk advisory practice.

Reputational risks

The Singapore authorities showed their new iron fist in 2023, raiding six local private banks and seizing more than a billion dollars’ worth of assets linked to a money laundering gang. 

The investigation came to a head in July 2025, when they announced fines totalling S$27.5m ($21m) against nine financial institutions including the Singapore operations of UBS, Citi, Julius Baer and LGT. While the Monetary Authority of Singapore was prepared to accept that most of the financial institutions had established policies and controls countering money laundering and financing of terrorism, it insisted that breaches had arisen out of “poor or inconsistent implementation of these policies and controls”.

Failings in customer risk assessment had led to lapses in processes for following up red flags that “should have cast doubt on some customers’ purported sources of wealth and which indicated increased risk of money laundering”. The Singapore authorities warn that they will be monitoring with alacrity the banks’ remedial efforts.

Perhaps greater than the financial pain of a fine is the reputational hit, and Singapore’s regulators showed no restraint when they outlined in detail each bank’s money laundering failings. “The fine may only be a small part of the penalty, the damage to reputation is much graver,” says Mr Nunnenkamp.

Some commentators claim banks seeking to avoid tightening regulations imposed in Switzerland and Singapore have gravitated to the Gulf states, where financial resources from Abu Dhabi, the capital of the United Arab Emirates, have funded extensive infrastructure. They say laissez faire regulation needs to be balanced against robustness of institutions and stability of governments.

“Even if today Dubai might be easier to open an account with, you cannot tell how things will develop in a couple of years,” says Davide Rovetta, senior counsel at Belgian law firm Campa Avvocati.

Institutions accustomed to working in Switzerland or Singapore need to “think twice” before considering other European financial centres, believe practitioners. “I don’t want to point at any particular country, but while France and Luxembourg are huge markets for funds, private banking is really not there for today,” says one Geneva-based lawyer.

Rising relationship tensions

While today’s growing emphasis on compliance and due diligence may protect private banks from more intrusive regulators, it can lead to tensions between relationship managers and clients facing more questioning and form filling. 

“Relationship managers are under huge pressure to bring in clients and new money and at the same time they are responsible to ensure that all appropriate KYC procedures be followed,” says Mr du Pasquier at Lenz & Staehelin in Geneva. “They are told to attract clients, but have to avoid frightening them with over intrusive questions. This is creating a tension that need to be addressed appropriately in terms of incentives at this crucial level.”

More aggressive approaches to acquiring new sources of funds have been criticised by Swiss regulator Finma. It recently required HSBC private bank to reduce the number of politically exposed persons it had onboarded on the grounds they came from questionable jurisdictions.

Regulators require banks to deal with the risk associated with “politically exposed persons,” who may be using trust structures and cross-border wealth management services by implementing enhanced due diligence.

“Comprehensive background checks need to extend beyond just basic identity verification of the client and include more analysis of clients business interest and their political connections,” says Ms Trout at Baker Tilly.

While compliance places a straitjacket on some sources of funds, banks are reminded by their advisers that the cost of being discovered to have breached the rules can be very high and damaging. If once, bankers would have been prepared to chance their arm with the regulators, today, they are more like to bow and comply.