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Swiss moves to tighten regulation

Better late than never. After months of scandals involving Swiss pension funds, the Berne government has finally woken up. This summer it plans to unveil legislation to improve regulation and corporate governance of Pensionskassen.

A key part of the legislation is a ban on so-called ‘parallel running’ - where Pensionskassen managers trade the same shares as the schemes that employ them. Along with the ban, best-practice rules for the managers are to be tightened.

The government also wants to break somewhat with the Swiss tradition of devolution and create a national regulator to assist the cantons in oversight of the schemes. The cantons will not, however, lose any oversight power.

According to the Federal Agency for Social Insurance (BSV), the regulator will assist by setting standards for regulation of Pensionskassen and watching out for flaws in the cantons’ oversight.

“If during an inspection, flaws are discovered, the regulator can request that the canton correct them,” the BSV said. It added, however, that the regulator lacked the power to overturn regulatory decisions made by the canton.

Interestingly, the government’s move came five days before the International Monetary Fund issued a report on Switzerland in which it called for measures similar to what Berne plans. Did the government catch wind of the IMF report before its release and try to save itself some embarrassment?

In any event, Berne’s crackdown is overdue. It could have taken action last August amid the Swissfirst affair. In that affair, seven Pensionskassen, including those for technology giant Siemens and drugs giant Roche, simultaneously dumped shares in Swissfirst bank days before the bank merged with a peer in September 2005.

While the various investigations into Swissfirst cleared the schemes of wrongdoing, their behaviour in September 2005 was definitely suspicious.

The government’s inertia was even odder considering that both Social Security Fund boss Ulrich Grete and Swiss National Bank president Jean-Pierre Roth openly expressed dissatisfaction with Pensionskassen supervision days after the Swissfirst affair broke.

Roth noted that the fragmented regulation of the schemes and the absence of national best-practice rules had created a breeding ground for affairs like Swissfirst. Grete, meanwhile, said there was an urgent need for professionalism at the schemes’ supervisory boards - the first line of defence in preventing corruption.

Yet two more scandals erupted before the government finally took action. Last October, the former investment head for Siemens Pensionskasse, Roland Rümmeli, was found to have accepted a bribe from a hedge fund called Auriga.

Then in late November, it emerged that Marco Frei, investment head for Roche Pensionskasse, had sold his personal shares in Swissfirst following the bank’s merger, earning CHF50,000 (€31,000) in the
process.

Until then, Pensionskassen involved with Swissfirst had insisted that had they known about the bank’s merger in September 2005, they would have hung on to their shares.

Rümmeli’s case has been handled well. He was jailed, ordered to pay back almost all of the bribe and faces criminal charges from Siemens. Whether Frei’s treatment was appropriate is open to debate. Despite the apparent conflict of interest, he was cleared of any wrongdoing by the relevant regulator in Basel and still works for Roche.

But the government dismisses criticisms that it was slow to react to the scandals. The BSV said: “Actually, the Swiss government planned to do something about pension fund governance in the autumn. But in the flurry of media reports [on the scandals], it needed to be prudent and not quickly implement measures that would have led to over-regulation of the second pillar.”

The BSV added: “It therefore took its time to analyse the situation and to talk with various experts before coming up with its proposals.”

In Berne’s defence, it could hardly have foreseen the scandals. In 2000, Swiss Pensionskassen lobby ASIP unveiled a best-practice code for its members, so the government had some reason to trust that the industry would carry out self-regulation.

Only at the height of the Swissfirst affair last September did it emerge that merely a tenth of ASIP’s 3,000-odd members had bothered to adopt the code.

And while the government’s proposal for a national regulator appears half-hearted, one must remember that the Swiss are very attached to their decentralised model. Had it not been for the scandals, the government would have had little political chance of even inching toward centralised regulation.

ASIP insists that despite the scandals, the Swiss cantons are still the best regulator for the Pensionskassen. “Centralised regulation of the schemes is unworkable in our view. Effective supervision of the schemes is best achieved by the cantons as they are close to them and know them well,” says ASIP managing director Hanspeter Konrad.

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