UPDATE 1-Swiss regulator to watch banks' compliance abroad

Fri Oct 22, 2010 9:17am EDT

* Banks, insurers must mitigate risks from cross-border ops

* Regulator FINMA says could enforce necessary steps

* New push reaction to banks' legal troubles abroad

(FINMA comments, details, background)

By Robin Bleeker

GENEVA, Oct 22 (Reuters) - Swiss regulators will keep an eye on banks and insurers to ensure they are complying with laws and regulations abroad, with the management of risks from cross-border business a part of their regular supervision.

In a position paper presented in Geneva on Friday, Swiss financial market regulator FINMA told banks and insurers in the country they must know the rules abroad and take steps to mitigate or eliminate risks stemming from cross-border business.

Should banks and insurers fail to take all necessary measures to ensure compliance with regulations in countries where they are doing business, FINMA could force them to act under current legislation.

Swiss banks have come under heavy fire abroad as governments hunt down tax cheats, and Switzerland has had to soften its cherished bank secrecy, caving in to global pressure.

The government and regulators have vowed to end the country's history as a safe place for tax evaders and pledged to allow in only taxed money in the future.

"Risks have always been there. But laws toughened in some countries while others simply decided to apply already existent laws in a more systematic way," said Urs Zulauf, General Counsel of the FINMA, at a media briefing in Geneva.

The regulators also said they had to be informed immediately if a bank or an insurer faced legal troubles abroad.

To end a damaging tax case, the Swiss government had to allow UBS to hand over to U.S. authorities the details of around 4,450 clients that UBS had helped to dodge taxes.

In Germany, the government has paid for stolen data from Swiss banks to catch tax cheats and raided the German offices of Switzerland's No.2 bank Credit Suisse (CSGN.VX) (CS.N).

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FINMA position paper www.finma.ch/

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HIGH-PROFILE

The recent high-profile cases have highlighted the legal and reputational risks associated with cross border-business, banks and insurers must thoroughly assess their operations and the risks attached, FINMA said.

"Appropriate measures to mitigate or eliminate risk must also be taken," the regulatory body said.

"FINMA expects institutions to take due account of foreign supervisory legislation in particular and to define a service model appropriate for each individual target market," the regulator said.

In some cases, banks or insurers may have to change their strategy as a consequence of the risk assessment, FINMA said.

"Institutions may decide to dispense with cross-border services in certain target markets, or the provision of services to certain categories of clients, and to adjust their business models accordingly," FINMA said.

Many Swiss banks have decided for risk-related reasons to stop doing business with certain categories of U.S. clients or to at least discontinue some services to them.

The regulator highlighted that all internationally active financial institutions, including insurers, faced such risks, not just banks.

FINMA particularly highlighted insurance wrappers, which exploit tax benefits on investment income held in life insurance policies and have become popular with wealthy clients. (Additional reporting by Sven Egenter; Editing by Karen Foster)

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