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Swiss Banking Secrecy

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Foreign Banks

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Subsidiaries which operate as limited liability companies incorporate in Switzerland must be distinguished from branches, which do not have their own legal personality. As independent entities, subsidiaries are obliged to maintain banking secrecy vis-?-vis the parent company. A distinction must be made, however, between two activities. Where asset management is concerned, banking secrecy must be strictly observed. But in the case of commercial transactions, particularly of large loans made by Swiss banks and requiring the consent of the parent company, the client must renounce banking secrecy. An exceptional situation may be envisaged where, for instance, the management learns of particularly worrying circumstances concerning a client who is in debt to both the Swiss subsidiary and the foreign parent company. The management may then be faced with an emergency which justifies informing the foreign parent company.

On the other hand, opinions differ as to the scope of banking secrecy where branches are concerned, given their dependence on the foreign head-office/parent and the fact that they have no separate legal personality. We believe that banking secrecy should be observed in the same way as for subsidiaries.

Consolidated internal supervision of banking groups and the transmission of the relevant information both to the parent company and to its supervisory authority are necessary if the considerable risks faced at all levels of the group are to be monitored. The result of this has been the application since 1995 of article 4 quinquies of the Swiss banking law. It stipulates broadly that banks are authorized to communicate the information needed for consolidated supervision to their parent company. This information is used exclusively for internal control or supervisory purposes. It is transmitted to third parties only with the permission of the bank, which, if in doubt, can ask the Federal Banking Commission to take a decision. Indeed, cooperation between banks supervisory authorities, which in principle have access to all information within banks, should not be used to obtain information about clients except where this is indispensable to the task of bank supervision, that is, where the demands of supervision take precedence over clients interests that warrant protection.

In this context, the traditional distinction between subsidiaries and branches tends to lose significance.

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