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Last Updated: October 2009

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Switzerland

	Score	Rank
Financial Standards Index	59.17 out of 100	15
Business Indicator Index	10.65 out of 12	26

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12 Key Standards Overview
Summary by Standard
Business Indicator Summary
Quick Facts & Global Indices

Overall Standards Summary

Switzerland achieves medium overall compliance with international standards and codes, with a score of 59.17 out of 100 in our Standards Compliance Index. Further, Switzerland can be considered transparent in the disclosure of its compliance with the international best practices, with all standards but the one on insolvency and creditors’ rights systems having sufficient publicly available information. Switzerland’s compliance in the areas of macroeconomic fundamentals and financial regulation and supervision is generally high, with steps being taken to achieve full compliance. With respect to a transparent and sound market infrastructure, on the other hand, Switzerland’s compliance is mixed. While Swiss payment systems are fully in line with international best practices, Switzerland stands non-compliant in accounting standards since they local requirements are geared toward the needs of small and medium-size enterprises, and public interest entities are not required to apply International Financial Reporting Standards. Switzerland, however, adopted International Standards on Auditing in 2004 and, as of 2009, was in the process of translating the most recent of version of ISAs issued as a result of the Clarity Project. Swiss authorities have expressed their intent to improve corporate governance practices in the country, and significant progress has been made in increasing Switzerland’s compliance with the international best practices for anti-money laundering and combating the financing of terrorism with the adoption in October 2008 of a law intended to implement the recommendations of the Financial Action Task Force.

Choose a standard for a detailed compliance report:

12 Key Standards for Sound Financial Systems	Compliance Level
Special Data Dissemination Standard	CP
Code of Good Practices on Transparency in Monetary Policy	CP
Code of Good Practices on Transparency in Fiscal Policy	CP
Effective Insolvency and Creditor Rights Systems	II
International Financial Reporting Standards	NC
Principles of Corporate Governance	ID
International Standards on Auditing	ID
Anti-Money Laundering/Combating Terrorist Financing Standard	EN
Core Principles for Systemically Important Payment Systems	FC
Core Principles for Effective Banking Supervision	CP
Objectives and Principles of Securities Regulation	CP
Insurance Core Principles	CP
II = Insufficient Information \| NC = No Compliance \| ID = Intent Declared \| EN = Enacted \| CP = Compliance in Process \| FC = Full Compliance

Macroeconomic Policy and Data Transparency

CPSpecial Data Dissemination Standard

Switzerland has been a subscriber to the International Monetary Fund’s (IMF) Special Data Dissemination Standard (SDDS) since 1996. The country posted its first metadata on the SDDS website in 2001. According to the IMF’s 2009 Article IV Consultation report on Switzerland, 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 the Production Index data and 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 2009 Article IV Consultation 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.

CPCode of Good Practices on Transparency in Monetary Policy

A series of reports on Switzerland from the International IMF over the past eight years reveals increased adherence to the Fund’s Code of Good Practices on Monetary Policy Transparency (“Code”). A 2009 report using information gathered from a detailed assessment in 2002 found most benchmarks in the Code being observed at the time. A 2005 Article IV Consultation report by the IMF found that the 2003 Federal Act on the Swiss National Bank (SNB) 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 in which 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. Furthermore, while the SNB has set procedures to guide its internal activities, not all of these procedures are publicly disclosed, as the IMF would prefer. A 2009 Article IV Consultation report by the IMF gives high marks to the SNB for its actions amidst the global financial crisis. The central bank responded aggressively, lowering interest rates drastically and intervening in foreign exchange markets to avoid a deflationary spiral. Inflation in Switzerland is forecast to be -0.5 percent in 2009 and zero for the following two years.

CPCode of Good Practices on Transparency in Fiscal Policy

The IMF's 2009 Report on the Observance of Standards and Codes (ROSC) – Fiscal Transparency Module reports that Switzerland complies with “most aspects” of the IMF’s Code of Good Practices on Fiscal Transparency and meets best international practices “in most areas.” The IMF further deems Switzerland’s progress in recent years towards greater transparency “impressive.” This improvement has been achieved through the adoption of accrual accounting and budgeting, the streamlining of budget documentation, and the implementation of a risk management framework for all government departments. However, this assessment only applies to the federal government level, a caveat that is especially important in the case of Switzerland. The Swiss government is highly decentralized, with considerable autonomy given to the cantons and communes. Less than a third of public spending goes through federal channels, with the remainder appropriated at the sub-national level. According to both the IMF and the 2006 report by the Organization for Economic Cooperation and Development, fiscal reporting is not yet harmonized and the formulation and reporting of general government statistics is 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. The Financial Equalization Reform that took 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.

IIEffective Insolvency and Creditor Rights Systems

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 is 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.

NCInternational Financial Reporting Standards

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). As explained in a 2008 publication by PricewaterhouseCoopers, GAAP FER standards differ from International Financial Reporting Standards (IFRSs). A 2003 FER press release clarified that the FER 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 prepared by the Swiss Institute of Certified Accountants and Tax Consultants (TK), listed companies adhere to accounting standards stipulated in the Listing Rules issued by the Swiss Exchange (SIX). These rules entail a spectrum of accounting standards and, as explained in the 2006 update on the Deloitte IAS Plus website, most companies listed on the main board of the SIX are required to adhere to IFRSs or U.S. GAAP. 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.

IDPrinciples of Corporate Governance

Until 2005, the corporate governance framework in Switzerland mainly consisted of self-regulatory provisions and stock exchange regulations on corporate governance, according to a 2006 article for Ernst & Young by M. Schweizer. The IMF in its 2007 report identified shortcomings in this framework regarding the protection of minority shareholders and disclosure of information. However, efforts have been made to improve this framework since 2005, and Switzerland has seen “some of the most significant corporate governance reforms,” notes the 2006 Schweizer report. Among the changes were the revision of Swiss company law to improve the legal framework in matters of corporate governance as well as further amendments to the company law that were proposed by the Swiss Federal Council in late 2007 and 2008. These amendments concern especially shareholder rights and executive compensation, according to a 2009 KPMG publication. The comprehensive enactment of all aspects of this law is expected to take some time.

IDInternational Standards on Auditing

KPMG Switzerland website discloses that according to the Swiss Code of Obligations, ordinary audit is mandatory for public companies and companies of economic significance, while SMEs are required to undergo a limited statutory examination. Microenterprises, on the other hand, can forgo audits completely with the approval of shareholders. Audits of non-public companies are conducted in accordance with Swiss Auditing Standards issued by the Institute TK. For public companies, the Federal Audit Oversight Authority (FAOA) established in 2007 defines auditing standards, the application of which depends on the accounting framework used to prepare financial statements. According to a self-assessment prepared in September 2006 by the TK as part of the International Federation of Accountants' (IFAC) 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 local legal environment. In September 2004, the TK issued new Swiss Auditing Standards 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 asserts that these revisions will be incorporated in the Swiss standards after the IAASB has finalized its Clarity Project. The TK states that after the completion of the Clarity Project, the organization will cease to issue local standards and together with other German and French speaking IFAC member bodies will translate the Clarified ISAs into Swiss German and Swiss French following the IFAC’s translation policy. As of September 2009, the IFAC website indicates that the translation of the IAASB pronouncements by the TK is “in progress.”

ENAnti-Money Laundering/Combating Terrorist Financing Standard

As reported in a third mutual evaluation report conducted by the Financial Action Task Force (FATF) in October 2005 and a 2007 report by the IMF(which is based on the 2005 FATF evaluation), Switzerland's anti-money laundering (AML) and combating the financing of terrorism (CFT) regime was at least partially compliant with the FATF Recommendations in most areas. However, there were deficiencies in Switzerland's application of some of the FATF's requirements, which are considered crucial for an effective AML/CFT system. Specifically, the assessors found Switzerland to be partially compliant with core recommendations 5 (on customer due diligence) and 13 (on suspicious transaction reporting). For these recommendations the country should have a largely compliant or compliant rating to be considered compliant with the FATF's requirements. In October 2008, the Swiss authorities passed a Law implementing the FATF recommendations and as such amending all laws relating to AML/CFT issues. This law, which came into effect in 2009, was expected to incorporate all of the recommendations and special recommendations of the FATF. There is however, no publicly available assessment on the merits of this new Law. The FATF's 2008-2009 Annual Report names Switzerland as one of the jurisdictions that have undertaken to implement the FATF's 40+9 recommendations.

FCCore Principles for Systemically Important Payment Systems

According to the 2002 IMF's detailed assessment, Switzerland observes all applicable Core Principles for Systemically Important Payment Systems (CPSIPS) as stipulated by the Committee on Payment and Settlement Systems (CPSS). The IMF team conducted an assessment of the Swiss Interbank Clearing (SIC) system, which according to them, is by far the most important payment mechanism in the country and therefore the systemically important payment system (SIPS) in Switzerland. Furthermore, the assessors noted that the SIC is not only considered a SIPS domestically but it is also of vital significance for the global financial architecture. The SIC is a real-time gross settlement (RTGS) system and handles both large-and small-value transactions and is operated by Swiss Interbank Clearing AG, a subsidiary of the Telekurs Group, on behalf of the SNB, which oversees the SIC. According to the IMF, the SNB observes all applicable principles of the CPSS on central bank responsibilities. 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.

CPCore Principles for Effective Banking Supervision

In 2009, the IMF published the findings of a detailed assessment it conducted on Switzerland in 2002. According to this report, Switzerland had a high degree of compliance with the 1997 Basel Core Principles (BCPs). The country was found to be compliant with 28 of the 30 BCPs and sub-principles and largely compliant with the remaining two (Principle 1.2 on operational independence of the supervisor and 2 on permissible activities). Subsequent to this assessment there have been several reports from the IMF that commend Switzerland's progress in implementing the IMF's recommendations. Specifically, a 2007 Update by the IMF noted that the Federal Financial Market Supervisory Authority Act was expected to establish a strong and independent supervisor in the new regulator, Federal Financial Market Supervisory Authority (FINMA), an integrated financial supervisory authority. According to the IMF's 2009 Article IV report, the creation of FINMA has provided the Swiss authorities the opportunity to strengthen financial supervision. In terms of the two BCPs that were deemed largely compliant by Switzerland in 2002, the report indicates that FINMA has financial independence and is funded entirely by fees levied on the supervised entities, and the exceptions to the regulation of certain deposit taking firms were acceptable by the Basel framework as they were not considered systemically important by the authorities. Nevertheless, the report falls short of assigning a compliance rating to Switzerland for these two principles. On the global financial crisis, the 2009 Article IV report observes that the Swiss authorities' response was "proactive" and "swift" in mitigating the effects of the crisis. The authorities have taken measures to enhance financial sector oversight and strengthen regulation and are in the process of making extensive regulatory reforms, which are expected to be "much more demanding."

CPObjectives and Principles of Securities Regulation

As stated in the IMF's 2002 assessment, Switzerland's securities regulation was mostly in compliance with the International Organization of Securities Commissions' (IOSCO) Objectives and Principles of Securities Regulation. However, some improvements were recommended to bring securities regulation into full compliance. In particular, there needed to be changes in the legislative framework, especially on the former Federal Banking Commission’s (SFBC) budgetary independence and staff resources, regulatory powers, and foreign and domestic cooperation with other regulators. Also, it was advised that all securities market activities and market intermediaries be brought under the supervision of the SFBC, then the securities market regulator. In a 2007 IMF's Update on Switzerland's compliance with the IOSCO Objectives and Principles, the Fund asserted that Switzerland had made significant progress in implementing the 2002 recommendations and that the creation of the FINMA was expected to bring securities regulation more closely in line with IOSCO principles. However, there had not been as much progress in the supervision of unregulated institutions, and the political independence of the proposed FINMA was seen as lacking. The 2009 IMF Article IV Consultation report commends the integration which has enhanced the regulators’ capacity for financial regulation as well as financial and institutional independence, while pointing out that FINMA still needs more staff and resources to further improve its effectiveness.

CPInsurance Core Principles

In a 2002 IMF's detailed assessment that benchmarked insurance supervision in Switzerland against the International Association of Insurance Supervisors' (IAIS) Insurance Core Principles (ICPs) of 2000, the Fund concluded that the country was, in general, fully or largely compliant with the seventeen ICPs. Specifically, the country was found to be observing six ICPs, broadly observing six, partly observing four, and not observing one ICP. 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 Update concerning the insurance sector. The Update assesses insurance supervision framework in Switzerland against the new, more stringent ICPs of 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, and introduced risk-based supervision in Switzerland. According to the IMF's 2007 Update, while the new regulatory framework in Switzerland had a very high level of observance of ICPs, the implementation process was not yet complete. The IMF concluded that the effective implementation of recently issued or drafted decrees and guidelines in key areas by the then insurance supervisory authority - the Federal Office of Private Insurance (FOPI) -would bring the Swiss regime into full observance of ICPs. The IMF's 2007 Update also averred that the FOPI's organizational and supervisory practices were expected to further improve after the establishment of the FINMA.

Business Indicators

With an overall score of 10.65/12, Switzerland is at standard on the economic, legal, and political indicators that make up our Business Index. Switzerland has a market-based economy with moderate government spending. The Swiss government maintains a general policy of non-interference in foreign investment, focusing instead on creating a favorable environment. Although most foreign investment does not require formal approval, investments in real estate and issues regarding national security are screened. There are no significant barriers to trade. With its strong legal tradition, Switzerland has one of the best regimes for property rights protection, and is the epitome of political stability. Corruption is of no concern to investors, as reflected in Switzerland’s high standing in Transparency International’s 2008 Corruption Perceptions Index.

Global Indices & Quick Facts

Switzerland is ranked in the 1st quintile in all global indices benchmarking political, economic, business, and human capital climates, as shown below. It is characterized by a well-functioning democratic and market-based economy with low corruption, and scores in the top ten countries in terms of capital access. Switzerland is the best performer in the Global Competitiveness Index, with an excellent capacity for innovation and a very sophisticated business culture Although Switzerland scores relatively higher than the European and world average in the Heritage Foundation Index of Economic Freedom, its lowest scores are in fiscal freedom and government size, with overall tax revenue at 30.1 percent of GDP and government spending at 34 percent of GDP.

Name	Year	Rank	Score	Quintile
Bertelsmann Transformation Status Index	2010
Heritage Foundation Economic Freedom Index	2010	6/179	81.1%	1
Economic Freedom of the World Index	2009	4/141	8.19/10	1
World Economic Forum Global Competitiveness Index	2009	1/133	5.60/7	1
Milken Institute Capital Access Index	2009	3/122	7.76/10	1
World Bank Ease of Doing Business Index	2009	21/183	N/A	1
UNDP Human Development Index	2009	9/177	0.96/1	1
Transparency International Corruption Perceptions Index	2009	5/180	9/12	1
Freedom House Index	2009	Free	1/7

Credit Ratings

AAA/Stable Fitch

Aaa/Stable Moody's

AAA/Stable Standard & Poor's

Macroeconomic Data

2009 GDP (Current Prices): 452.0 billion USD (IMF)

2009 GDP (Per Capita): 61,741 USD (IMF)

2010 GDP (Growth Forecast): 0.5% (IMF)

2009 Inflation (CPI): -0.4% (IMF)

2008 Unemployment: 2.6% (CIA)

2008 Foreign Direct Investment

FDI (Inward): 17.4 billion USD (UNCTAD)

FDI (Outward): 86.30 billion USD (UNCTAD)

2007 Official Development Assistance

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

ODA (Disbursed): 1,689 million USD (OECD)