2022 brought fresh challenges for the Swiss market, given the widespread instability in the global economy. Despite strong consumer spending and the removal of the last of the pandemic restrictions ensuring that economic growth has remained steady, the lingering aftershocks of the pandemic, war in Ukraine and the ensuing energy crisis, mean official predictions for growth were cut to 2% by the end of 2022. Inflation stood at just under 3% last year and the Swiss National Bank opted to raise interest rates to 1% in December 2022, having only increased them to 0.5% a few months earlier.
‘The SNB is concerned by current inflation rates,’ says Juerg Bloch, investigations and enforcement partner at Niederer Kraft Frey (NKF), says. ‘The aim is to keep inflation within the range of price stability over the medium term.’
Within the larger international context, it is clear the Swiss market is weathering the year’s challenges relatively well, with lower inflation and interest rates than many other parts of Europe and the US.
A useful way of assessing Switzerland’s position on the international stage is its involvement in the EU’s sanctions on Russia. While the decision may be interpreted as a departure from the traditional stance of neutrality, Bloch observes that it was received with little surprise in the market. ‘As a small country with extensive economic ties, Switzerland has adapted to the EU framework. If Switzerland had not joined the EU sanctions, this would likely have led to considerable political and economic pressure on Switzerland.’
Adhering to the changes means that Swiss banks are now prohibited from accepting deposits from Russian nationals in excess of CHF100,000 (€101,000), sanctions have been introduced on oil products and coal, investments into the Russian energy sector have been banned and distribution companies are prohibited from selling restricted products to Russia.
The exclusion of Russian participants in the market is already contributing to notable shifts in work, with corporate finance one practice area where partners predict activity levels will be impacted, given reduced lending from Russia.
Meanwhile, the commodities market is experiencing a slowdown. Switzerland has a strong reputation as a hub for global commodities trading and has historically seen Russian players active in the market.
Private banking is another area seeing consequences from Russian sanctions. The country has long been a destination for high and ultra-high-net-worth individuals drawn to the stability and security of the jurisdiction. Among these have inevitably been a number of now sanctioned Russian oligarchs. Relationships with these clients have been terminated and relevant assets frozen.
While the full effects of sanctions remain to be seen, the flip side for law firms is that disputes teams across the leading independents are already seeing a lot of sanctions-related activity.
Domestically, one development driving some activity has been a new licensing system targeted at asset managers. Implemented in January 2020, The Financial Services Act (FinSA) and Financial Institutions Act (FinIA) introduced a new requirement for all asset managers in the country to obtain licences from the financial regulator FINMA by January 2023.
‘Asset managers with small assets under management are no longer profitable due to the increased costs in order to fulfil the regulatory requirements.’
Juerg Bloch, NKF
Switzerland has historically been a highly active centre for wealth management, however, the new licence requirement is presenting a significant challenge.
‘The licence requirements of asset managers are rather high and require a certain size in order to ensure control functions that are independent from the business functions,’ Bloch says. ‘Asset managers with small assets under management are no longer profitable due to the increased costs in order to fulfil the regulatory requirements.’
Perhaps due to this, the rate of licence applications has remained low, with hundreds of asset managers informing FINMA that they will not be seeking the licence. Market observers have been expecting to see consolidation in the market as a result but, so far, this anticipated wave of M&A transactions has failed to kick off.
Fintech and crypto also remain hot topics in Switzerland, with the Canton of Zug, nicknamed the ‘Crypto Valley’, a notable hub. The market has withstood the turbulence blockchain and cryptocurrency technologies have seen globally over the past year, with market sentiment being that this has driven a ‘clean out’, with speculators and opportunists departing, leaving only true believers and entrepreneurs.
While some may be sceptical as to the value of this sector, or its potential to achieve anything but a niche following, Bloch observes that distributed ledger technology (DLT) holds the possibility of higher dividends across the banking industry: ‘In the short term, blockchain, based on smart contracts, will enable faster and cheaper digital transactions, improve access to capital, make compliance smoother, harness identity management and the trading of digital assets.’
The potential opportunities are indicated by the steady increase in interest from traditional financial institutions, which are now beginning to make inroads. Fintech solutions are also becoming normalised in capital markets, with new strategies such as share tokenisation steadily gaining popularity.
Switzerland has faced significant challenges in 2022 and may expect to see more reversals in the coming years. Those looking ahead foresee the ongoing energy crisis and the burden on businesses to repay government coronavirus-era loans as presenting further difficulties.
But these are the same obstacles faced by countries around the globe, and the Swiss market has fared better than many. Recent years have made clear the uncertainties with which nations must contend, and in the face of these difficult times, Switzerland and its legal market has demonstrated nothing but fortitude. LB
| Rank (by Legal 500 ranking | Firm name | Region | Total lawyers | Total partners | Promotions | Offices | Partner hires |
|---|---|---|---|---|---|---|---|
| 24 | Lenz & Staehelin | Switzerland | 200 | 47 | 2 | 3 | |
| 33 | Bar & Karrer | Switzerland | 175 | 49 | 2 | 5 | |
| 37 | Schellenberg Wittmer | Switzerland | 164 | 46 | 1 | 3 | 1 |
| 39 | Homburger | Switzerland | 150 | 38 | 2 | 1 | |
| 42 | Niederer Kraft Frey | Switzerland | 140 | 47 | 3 | 2 | |
| 43 | Pestalozzi | Switzerland | 100 | 32 | 2 | 2 | 5 |
| 50 | Walder Wyss | Switzerland | 259 | 74 | 1 | 6 | 2 |
| 79 | MLL Meyerlustenberger Lachenal Froriep | Switzerland | 155 | 53 | 2 | 6 | 2 |