State Street is currently caught in a battle with Swiss authorities over its management of Swiss social security fund, Alters-und Hinterlassenenversicherung (AHV), reports Swiss finance news site, Finews. The controversy has brought to the forefront the larger political question of whether foreign banks should be allowed to safeguard Switzerland’s national wealth; its resolution could have ramifications across the Swiss custodian landscape.
State Street’s battle began when the Economic Affairs and Taxation Committee (WAK) filed a motion to strip the bank of its custodian mandate for the AHV compensation fund. If there is no legal recourse for doing so, the committee believes that the Federal Council should “create the necessary legal framework to enforce the change”.
Those for removing State Street’s mandate claim that they are viewing the issue from a security perspective. Finews quotes Thomas Matter, a member of the National Council for the Swiss People’s Party (SVP): “For reasons of safeguarding our national wealth, wouldn’t it be more prudent for Switzerland’s social security funds to have their global custodian services handled by a Swiss bank?”
Foreign expertise
State Street has countered the argument by emphasising its specialisation in administrating the compensation fund, claiming that this gives it expertise few other banks have. In response to criticisms that it does not have a strong presence in Switzerland, the bank points to its office in Sihlcity with 100 employees and that it is regulated by the Swiss Financial Market Supervisory Authority (FINMA).
The Swiss Bankers Association (SBA) has backed State Street in this fight. “A Swiss custodian bank would also have to hold US securities in the United States,” it points out. If US authorities take the “unlikely but possible” step of freezing assets, the effects “would be the same for all banks, regardless of their headquarters’ location”. SBA is of the opinion that foreign banks are “reliable partners for Swiss businesses” due to their “expertise and valuable networks across various global markets”.
Ripple effect
Should the motion go through, all foreign banks will have to be removed as custodians for Compenswiss, the public law institution responsible for the compensation funds of AHV, Invalidenversicherung (IV), and Ergänzungsleistungen (EO), Switzerland’s three social security funds.
As covered in this article, State Street won the custodian mandate for AHV, IV and EO in July 2024, taking over UBS’ long-running 26-year custodianship. Compenswiss made the switch from UBS to State Street following a recommendation from the Swiss Federal Audit Office that a tender be made for global custodian and fund administration services.
The motion will be voted on in the National Council on 3 March 2025.
