XBRL for Swiss Treasurers

My presentation fest continued this morning with my first Webex enabled online seminar about XBRL to the Association of Corporate Treasurers in Switzerland. Please find below the slides used during the presentation.

Linking pensions to longevity

The OECD has issued an interesting working paper Life-Expectancy Risk and Pensions: Who Bears the Burden?, which looks into a number of OECD countries' relatively recent policy changes to share part of the longevity risk with pensioners. Given the proportions of the risk and the massive inter-generational skew in cost/benefit, this is perfectly reasonable and should be adopted universally.

For some undisclosed reason, Switzerland is virtually omitted from the scope of the analysis, even though there clearly is no linkage between longevity risk and pensions whatsoever. In the Swiss three pillar system, longevity risk is borne in the first pillar by the tax payer, by employers in the second, and by individuals in the third pillar.

Farewell America

Bank Wegelin's most recent investment commentary by the same title is remarkable. It provides an extensive explanation of the US taxation risks involved when investing in US securities as a non-US person. The fact that the status of US-person is left (intentionally?) unclear is of particular concern to Qualified Intermediaries (i.e. foreign banks) because they assume liability for their clients' putative tax liability. This is the reason why Wegelin is actively advising its clients to exit all US securities and may not sign the more rigorous QI Agreement. Wegelin's move receives particular attention in Switzerland because its Managing Director is also Chairman of the Swiss Private Bankers Association.

Non-US pension funds (and listed entities) may be eligible to an exemption from a new 30% compulsory withholding tax on US securities held by non-US companies, as explained by the Green Book.

A busy week of acronyms

Today, influential Swiss daily Neue Z�rcher Zeitung NZZ has my article on XBRL. Which is perfect timing because of the forthcoming workshop that XBRL CH is organising next Monday. The subject matter of that event is the US SEC's new XBRL regulation, which is applicable for foreign filers as well - so, rather targeted. Back to back, but more generic, is the big XBRL show in Paris, beginning on Tuesday through to Thursday. Interactivity!

Impact of accounting and prudential regulation on pensions

"A long-term view involves short-term risk, whereas a short-sighted strategy involves increased risk over the long term."

EDHEC just released its impressive report Impact of Regulation on the ALM of European Pension Funds. Even though we disagree in some instances, we think this is mandatory reading for anyone in the pensions investment space because it highlights those areas of regulation which will be of increasing consequence for pension funds' investment strategies in the near future, as we have continued to stress over the recent past.

At the core of the report is the development of an asset allocation model in the presence of liability constraints. The solution involves the components cash, risky assets and the liability hedging portfolio. The state of the art model takes inflation and longevity risk management into account as well.

There is not enough space nor time for an in-depth review of this valuable piece. Nevertheless, I would like to mention two issues that have slightly moderated my enthusiasm for the report:

• There seem to be a few at least implicit factual inaccuracies in the parts describing the regulatory environment. The most glaring of which may be the assumption that the EU pensions directive is applicable in Switzerland - it is not.
• Accounting standards seem to be understood to effectively determine investment action. While it is not unheard of that managements structure transactions in such ways as to optimise their reporting, this clearly goes one step too far. We are well aware of the interdependence between perception (qua accounting standards) and (economic) reality, but at least in an academic report, the latter needs to retain some vestige of predominance over the former. Remember: pension funds' long-term time horizon, as accounting standards can and do change.

Longevity in Switzerland

It is hardly a coincidence that the Federal Office of Statistics publishes a new study about the Future of Longevity in Switzerland (German, French) today. There is an upcoming referendum to decide about the proposed reduction of the transformation rate with which accumulated pensions capital will be transformed into annuities. Longevity expectations are an important factor in that hotly contended issue. The study expects an additional 5 to 9 years of life expectancy gains over the next 20 years with a continuation of morbidity compression.�

Accounting standards - pass or fail?

Swiss economic semi-weekly Finanz und Wirtschaft had a lead article�(in German) by Prof. Straubhaar the other day with which I almost entirely disagreed. In short, he gave international accounting standards a fail because they amplified the financial crisis. He preferred continental accounting standards and does not even mention investor requirements. Unfortunately, this reflects much of the continental European consensus, which is why �I wrote a somewhat extensive rebuttal.�This was published today.

XBRL - A Guide for Investors

CFA Institute has just published XBRL - A Guide for Investors. The title is pretty much self-explanatory. I'm glad to have contributed to it. Enjoy!�

Also on the XBRL channel: Yesterday, L'Agefi published an article I've written. But when you follow the link, you'll see that it is written in excellent French, which cannot be me. Thanks for the contact and the translation goes to Marc Barbezat, member of XBRL CH!

New online resources

The design is about as appealing as can be expected from a body of professional accountants, but we are talking about the newly free access to an important part of the world's economic operating system, namely International Financial Reporting Standards, together with the statements of International Financial Reporting Interpretation Committee (IFRIC) and Standing Interpretation Committee (SIC). Now we have the narrative to go with the taxonomy ...

Slightly less globally relevant is the recent availability of the Swiss XBRL Jurisdiction's website.

Victims (III): Prudent Person in Switzerland?

Until the beginning of this year, Swiss pension funds were obliged to follow a detailed set of investment restrictions laid down in a government regulation, or obtain a formal waiver to deviate from these restrictions. The more sophisticated institutions have made use of that opportunity, which is why what once was supposed to be an exemption now had effectively become the rule.

This has changed with the new investment guidelines of articles 49 ff. BVV 2 which have entered into force on 1 January. The number of investment restrictions has been curtailed substantively and the alternatives asset class has been made available. Yet, the government has stopped short of introducing the prudent person rule as there are still a large number of small iorps which appear to feel more comfortable following a prescribed asset allocation, despite their objective needs. That is probably the line of thought that MPs followed who criticised the changed guidelines massively.  They seem to think that parliament knows best what an appropriate asset allocation strategy should be. It is unfortunate that even the most moderate of reasonable changes come under political pressure as a consequence of the crisis.

Effectively, the new investment guidelines are a reluctant, small step in the right direction. But they clearly fall short of the EU's state-of-the-art Pensions Directive 2003/41 in fundamental ways, most evidently in the restriction on equity investments to 50% rather than 70% as per the Directive. Also, a target return in line with money and capital markets and real estate returns seems to be at odds with member interests. Consequently, it is hardly surprising that the magic triangle of Risk, Return and Liquidity is cut down to a single Risk-Return line. There is also a degree of over-diversification in the prescription that alternatives exposure can only be taken through (expensive) collective means. Finally, there seems to be an editorial error in art. 60, which appears obsolete, given art. 50.4/5 (deleted by subsequent Regulation). There is a lot left to do. Here's to hope that the crisis will not preclude the necessary changes.

Redefining Old

Nomura has an excellent piece of research out that goes well beyond what that genre usually entails in the brokerage space. The Business of Ageing is an extensive discussion of the key risk of the pensions industry that is longevity, its implications for the real economy, financial markets and the major industries. I particularly value the section about longevity with its discussion of the technophysio approach which, in combination with longevity convergence across countries, is posited as leading to rapid longevity growth. Where official UN projections arrive at an average life expectancy of ca 85 years in 2050, Nomura models predict ca 90 years.�

Redefining Old refers to another interesting aspect of the paper: Whereas a social security definition in terms of years lived will lead to an increasing share of the "old" cohort burdening social security, the authors argue that with increasing healthy life expectancy due to morbidity compression, it will be reasonable (i.e. necessary) to expect people to work (much) longer. The authors pinpoint that age at about 80, which would be suicidal for any politician to ask for. Note that this blog has argued for the same number before.

Virtually unseen in brokerage research is the extensive, up-to-date scientific apparatus provided. The label useful is fully deserved.

As a side comment: In spite of Switzerland's claim of having an exemplary retirement system that is the envy of the world, her only (and favourable) appearance in the paper is in a table about obesity ...

XBRL for Investment Professionals

It's nearly a month that said conference took place in London, and I have yet to blog about it ... some of the reasons for that delay probably co?ncide with the reasons why a relatively small group of less than fifty professionals came together for an event that has been organised by CFA Institute, EFFAS and the IASCF, namely current market dislocations. In the face of that, an infrastructure undertaking such as XBRL takes second place with many.

Nevertheless, participants tended to be quite happy with the conference and commented favourably on the quality of the audience as well. The relatively small size of the audience made it possible for the audience to interact with each other and to participate actively in the Q&A session, which is very helpful when you're the moderator ...

Here are the presentation slides. It's a pity that David McGraw's slides are not available, because his and Homi Byramji's presentations struck a strong chord with me. In David's case it was the breadth of the potential applicability within a leading institutional investor's processes, and the challenges that XBRL has to respond to (data governance!), whereas Homi was demonstrating clearly that, other than Encyclopedia Britannica, Thomson Reuters is not going to be asleep on the wheel in the face of the challenge to the middle man posed by XBRL. Personally, I am fairly confident now that XBRL is a sustaining innovation for information intermediaries.�

Shortly before the conference, Finanz und Wirtschaft published an XBRL update that I wrote. And there is one more update: XBRL CH is now officially a provisional Jurisdiction!

Swiss management of longevity

Influential Swiss newspaper NZZ has a good article (in German) about how Swiss Pensionskassen manage their longevity risks, i.e. not very much. The article claims that due to the usage of backward looking mortality tables, the longevity of members is systematically underestimated in a world of continuously rising longevity. Unfortunately the article does not take into consideration the experience in more advanced countries such as the UK. This is a valid issue which receives too little attention because of a rigid regulatory environment in Switzerland where many important parameters are politically determined with little consideration to factual developments.

The future of public pensions

Richard Ennis' article�in the current issue of the Financial Analysts Journal may be aimed at the�ailment�of US public pensions, �but its tenets are equally applicable to European (including Swiss) public pension plans as well. A key issue is that of valuation, where current actuarial valuations are traditionally predominant under the pretext of perennial solvency of the state sponsor. Ennis convincingly demonstrates that the "issues are the value of the obligation, the cost to extinguish it, and on whom the burden of that cost falls. In a word, the concern is accountability." From a Public Choice perspective, his tenets are unlikely to be put into action just now, unfortunately. The increasing gulf between public and private pensions will have to get wider before this can be addressed fundamentally.�

IZS conference documentation

IZS has made available the presentation slides from its recent annual conference about cross-border retirement provision from a Swiss perspective. It's a pity that the most interesting presentation seems to be missing: Klaus Stiefermann of a.b.a. talked about the Pensions Directive: godsend or letdown? As he was speaking from a distinctly German perspective, it will not come as much of a surprise that he tended towards the latter.

Revised SWX Corporate Governance

The self-regulated Swiss Stock Exchange SWX has issued a revised commentary re Corporate Governance Directive that is binding for all companies listed on SWX. The most important changes are:

The comply or explain rule has been extended to contain a substantiated explanation of why the conflict of interest between the public interest in disclosure and the secrecy interest has been decided for the benefit of the latter. This explanation requirement weakens this important option substantially.

Principles and Elements of compensation or share-ownership programmes are explained and substantiated to make management compensation more transparent.

Valuation of Swiss IORPs

Well known Swiss accounting and pensions expert Carl Helbling has a highly relevant piece on the valuation of Swiss pension schemes. In it, he comes to a rather disturbing conclusion: "Accounting standards IFRS and Swiss GAAP FER are too undifferentiated and can only be a limited basis for valuation [of pensions]." He lists a substantive number of instances, where, for legal reasons, apparent over- or underfundings of Swiss plans cannot be utilised as expected economically. Thus, accounting numbers may be substantially different from effective values.

Now, this is not exactly news as IAS 19 is hardly known to reflect economic reality thanks to its built-in shortcomings. But the instances listed do not even appear to be related to IAS 19 features to start with, but rather to what needs to be considered as accounting artefacts in the light of (legal) reality. One wonders how such numbers can be presented as true and fair?

Swiss CFA supports XBRL

The Swiss CFA Society claims to be the world's first association of financial analysts to endorse XBRL by making its own financial reports available in that format. As there is still no XBRL jurisdiction in the Swiss market, such endorsement and awareness building is of the essence.

Occupational pensions in Switzerland

The Federal Office of Statistics has published key figures about occupational pensions in Switzerland. Unfortunately, the latest numbers available date back to 2005. Nevertheless, it is interesting to note that the 2nd pillar's assets have grown to over CHF 540 bio by 2005. That's 117% of GNP. Since 2000, the number of iorps has declined by 19% to 2770. The average number of members per iorp is just shy of 1200.

These statistics have several deficiencies. Available numbers are not timely. Furthermore, we know little about the effective structure of overall liabilities, nor about interest rate sensitivities of assets.

CFA Pension Code of Conduct

The CFA Institute Centre is asking for comments on its Code of Conduct for Members of a Pension Scheme Governing Body until 15 August. The draft has been prepared with the assistance of the OECD and major trade associations from the Hong Kong, the Netherlands, Switzerland, the UK and the USA.

UK pensions to become mandatory?

In the first ever Summer Statement outlining the formal Gracious address which in turn contains the legislative programme of HM Government, Gordon Brown said the following:

The new Pensions Bill will ensure that for the first time not just some but all working people have the right to a workplace pension with a duty on every employer to contribute towards it.

We can only interpret this to mean that occupational pensions will go from contingent to mandatory for everyone in the UK. The implications of this change for the European first and second pillar classification, which critically relies on the non-mandatory nature of occupational pensions in contradistinction to social security, may be huge. This criterion, which is dispensable in our view, would be a major technical impediment to the eventual application of the Pensions Directive to Switzerland with its mandatory occupational pensions system.

Education & Innovation

On the occasion of the Swiss CFA Society's celebration of the CFA Institute's 60th anniversary, I've been asked to host a panel discussing Education & Innovation in Switzerland. The panel was composed of Prof. Manuel Ammann, Prof. Thorsten Hens and Patrick Odier (right to left). The debate covered topics such as Swiss pragmatism in adopting innovation invented elsewhere, the r�le of intellectual property in financial innovation as well as ways to bridge the gap between academic research and practice. Panelists would like to see increased flexibility in the educational landscape and more interaction between the two quite separate fields.

"Prudent investor" for Switzerland?

NZZ reports the results of a survey among 172 Swiss institutional investors with CHF 211.7 Bio (EUR 128.3 Bio) assets under management. They have been asked to give their opinion on the rather restrictive set of detailed investment rules applicable to Swiss occupational pension funds. A majority of funds voiced their preference for the prudent investor rule to replace the incumbent detailed set of rules. The available exemption from detailed rules of Art. 59 BVV2 is reported to be used by 80% of funds and thus has become the rule.

Unfortunately, detailed results of the survey appear not to be available online.

Opening up Switzerland

According to VF, ASIP's new president Christoph Ryter named opening up of Switzerland for European retirement solutions as one of four main challenges that the influential Swiss association will have to live up to during his presidency.

Draft Swiss pension law

Swiss pensions association ASIP has published a concise draft of a revised occupational pensions law to assist the ongoing debate about simplifying the overly complex current law. Surprisingly, this draft still does not refer to the prudent person rule in its asset management section. Encouragingly, the draft does away with politically set rates such as the conversion rate or the guaranteed minimum return.

At the same time, ASIP has published the executive summary of a research paper examining the alleged over-capitalisation of the Swiss second pillar with a view to reducing the full coverage requirement. Some of the arguments proffered are truly surprising: foreign investments are used as evidence of an over-abundance of capital. Unsurprisingly, the authors conclude that there is no indication for too much saving and that it is reasonable to maintain the full coverage requirement.

2007 asset allocation survey

Mercer IC published its periodic asset allocation survey of European pension funds. Of the 651 funds surveyed, 75% still reside in the UK, thus the survey's cross country comparison may not be entirely reliable (via VF).

Europe in a nutshell?

Geneva based Le Temps has an interesting piece comparing IORPs in French & German speaking Switzerland (via Vorsorgeforum). In short, -

the technical discount rate tends to be at the standard level of 4% in the Romandie, whereas it is closer to 3% in the German speaking part;

the coverage rate of state institutions tends to be lower in the Romandie, quoting the perpetuity of the state; nevertheless, full coverage is aspired everywhere

francophone funds tend to take higher risk than their German speaking counterparts, to the extent of 40% allocation vs. 30% on average, and

funds in the Romandie are quoted as more favourable to financial innovation. The only case in point given, though, is their elevated investment in ethical and socially responsible investments, which strikes us as an odd proxy for financial innovation.

Altogether, Switzerland may be seen as representing both the anglo-saxon as well as the mediterranean approach to retirement provision in one small jurisdiction with a multitude of (cantonal) supervisory institutions.

Global institutional investors

The Committee on the Global Financial System hosted by the BIS recently published a paper on "Institutional investors, savings and asset allocation". This paper tries to assess the impact of ongoing regulatory and accounting changes on the behaviour of institutional investors, whose assets under management are seen as rapidly catching up with those of the banking system, therefore warranting central banks' interest with a view to the stability of the financial system. The impact of regulatory changes on market rates and asset prices is another important consideration. The report's main theme is the ongoing transfer of risk from institutional balance sheets to the household segment.

Two side notes on Swiss pension funds: Available information about their assets & allocation is two years older than other countries', and their equity exposure is considerably below average.

The chocolate connection

Last Tuesday saw an interesting convention on the shores of lake Geneva at the sumptuous estate of Baron Rothschild and his company. The topic of the well attended conference was pan-European pensions in general and the Belgian incarnation thereof in particular. The list of speakers could not have been of higher calibre: The Prime Minister together with two cabinet ministers and high level representatives of the EU Commission and the Belgian pensions supervisor. Their objective was to introduce the Belgian legal framework for the newly created legal entity Organisation for Financing Pensions (OFP). They did this quite effectively, albeit on the only neutral territory in Europe where the Pensions Directive is not applicable.

The OFP seems to be a highly attractive entity to provide pan-European pensions with. It operates on zero (income, capital, VAT) tax, it can provide solidarity across several pension plans (which is attractive for efficient capital allocation), it reflects no other restrictions on asset management than the Directive's prudent person principle, it may rely on Belgium's extensive network of double taxation treaties, it takes advantages of Belgium's recent transition to EET, it is not encumbered by a Pensions Protection Fund levy and last, but by no means least, the valuation of its liabilities may be based on a discount rate that incorporates expected returns, thus may go as high as 6%. A word of caution may be in order here, though: It is not clear whether the long term consensus expected return used to derive that attractive discount rate takes into consideration recent literature on the proper calculation of expected rates of return.

Jean-Pierre Steiner of Nestl� Capital Advisers shed some cold water on participants' hopes that pan-European pension plans might fully replace local plans in the near future. In his view, this is an ambitious long-term objective reaching beyond his active lifetime. Nevertheless, he put Nestl�'s considerable weight behind the support of Belgium as the currently most attractive location for pan-European pension funds.

Also of interest was Mr Van Hulle, the EU Commission's representative's comment that he wasn't opposed to supervisory shopping, which is of course tantamount to regulatory shopping - something that tends to be frowned upon elsewhere. Equally interesting to Swiss listeners was Mr Wymeersch's note that Belgian first pillar institutions may be falling under the Directive, which seems to be in direct contradiction to the Directive's scope and is of particular interest to Liechtenstein as well.

M&A Yearbook Switzerland

KPMG has published the first edition of its M&A Yearbook 2006 which contains an overview of mergers & acquisitions in Switzerland in 2006.

Swiss worries

The periodically updated Swiss Worry Barometer gives a representative view of the most pressing worries in the Swiss population at large and is thus carefully monitored by politicians. My visual reading of the graph indicates that retirement provision (AHV/Altersvorsorge) seems to be the only problem with a positively sloped trend line, so it's just a question of time until it overtakes Health and Unemployment as more dominant worries.

Seminar documentation available

The complete documentation (slides & materials) of the recent IZS seminar on European pensions from a Swiss perspective is now available online.

Asset management under the Directive [CH]

Here are the slides of my presentation held today at the IZS seminar on Pan-European Pensions from a Swiss perspective. The main focus of that presentation was on the prudent person rule, which is a new concept in the Swiss market. Co-sponsoring (together with Winterthur) Bank Sarasin's auditorium in Basle was fully packed, and I have a feeling that this was a rather important event for the Swiss market place with most participants' awareness of the challenge raised.

One European retirement market [CH]

Swiss economics half-weekly Finanz und Wirtschaft has my article about the EU pensions directive and the Swiss position relative to it in today's edition.

Taboo topic retirement age [CH]

Credit Suisse weighs on the debate about the retirement age in Switzerland by challenging the uncharacteristically disconnected political consensus that a retirement age of 65 is sustainable in the present demographic situation. In its recent study, it argues that only an increase of the working life can return social security and retirement provision systems to sustainability and addresses widely held contrary beliefs, especially concerning higher flexibility in retirement as long as it does not lead to an increase of retirement age on average.

European Pensions from a Swiss perspective

The programme for the one day seminar on pan-European pensions from a Swiss perspective in Basle on 22 November 2006 is now available. Please register here, mentioning Tertium. Alternatively, you can download & send in a registration form.

Dynamic investment strategies [CH]

The recently published study Dynamic Investment Strategies for Swiss Pension Funds by the Swiss Institute of Banking and Finance at my alma mater has caused a bit of a stir in the Swiss media. But naturally, the stir does not come from the study's main tenets - it's far too technical for that - but rather from some marginal comments which hit an environment rife with discontent about pension funds' investment behaviour.

Materially, the study assesses alternatives to the current common practice of buy and hold strategies. There is quite enough material for disagreement not to have to take recourse to marginal political squabbles. My main points of critique are the following:

The expected annual growth rate of the funding ratio is the key variable studied. The model pension fund's liabilities are a key component of this ratio. Yet, the model never revalues the liabilities during the whole simulation period of ten years, despite of changes in the discount rate. Starting from an initial value, the fund's liabilities are simply bearing the technical interest rate. This is not just a model simplification, it is a critical omission. If the model were corrected for that factor, the shapes of the central charts probably have to be modified, which might easily change the conclusions of the study.

Leveraged Constant Proportion Portfolio Insurance (CPPI) is one of the strategies recommended. This strategy implies that the fund uses leverage, probably in the form of a loan. Strategic borrowing is not permissible for pension funds, though.

Another strategy uses long straddles without mentioning that there cannot be net leverage without recourse to art. 59 BVV 2.

P.S. The authors comment offline that they assumed a constant technical interest rate and a closed fund. Unfortunately the assumption about the technical rate was tacit.

Demographic leporello [CH]

Swiss think-tank Avenir Suisse has published a comprehensive leporello (a.k.a. leaflet) about the demographic challenges in Switzerland and Europe. It is also available in French.

No Prudent Investors in Switzerland? [CH]

In Monday's edition, NZZ had an article advocating the introduction of the prudent investor rule to Swiss pensions regulation, thereby abolishing the current rules prescribing fixed limits per asset class. This proposal is in line with the recent criticism of Swiss regulations by the IMF. While it is true that the strict limits can be dispensed with by IORPs declaring their specific purpose, the article introduces a very valid argument: IORPs which operate within the boundaries of those limits will typically not fulfill their fiduciary duties because their investments are not tailored to their individual economic requirements - they are "only" in line with legal requirements. Therefore these legal limits are inherently contradictory to the purpose of the regulation.

Incidentally, the Prudent Investor is not only advocated by Messrs. Skaanes & Hauser in conjunction with the IMF, but also by the Pensions Directive, of course.

Europe Report 2006 [CH]

The Swiss Government has published its impatiently expected Europabericht 2006, an update to a similar analysis of the complex relations between Switzerland and the EU done last in 1999.

The Report mentions the Pensions Directive in several instances as a business opportunity not currently available to Swiss providers, or as a substantive vector for change in the non-mandatory segment of the second pillar in case it became applicable. In other parts of the report, the Directive is seen as related to a possible future Services Agreement, the negotiation of which has been adjourned in 2003. This policy stance evidently is detrimental to the interests of the Swiss pensions industry and therefore requires adjustments in several respects.

Pan-European Pensions in Z�rich [CH]

The British-Swiss Chamber of Commerce in association with the Association of Foreign Banks in Switzerland will be hosting a lunchtime presentation about Pension Fund 2nd pillar - borderless: A Swiss Perspective in Z�rich on 6 July. I am honoured to have been asked to speak at that event, which is open to non-members also. The invitation is available here.

IZS Seminar on Pensions Directive

IZS invites to a full day seminar on the consequences of the Pensions Directive for the Swiss market. The seminar will take place in Basle, Switzerland on 22 November 2006 and will be held in German. An invitation can be downloaded here.

IMF proposes reform to Swiss pensions system [CH]

In an additional Selected Issues paper to its recently published, periodic Article IV consultation, the IMF has analysed the Swiss occupational pensions system, comparing it to the Dutch and the British system.

While the analysis inevitably remains at a high level of abstraction (for instance, there is no mention of the fact that many pension plans that are nominally classified as DC need to be reclassified as DB to stay in line with IAS 19), the international comparison permits important conclusions concerning the fragmented supervisory structure in Switzerland and its outdated regulatory framework with a set of parameters that are defined without much recourse to actual market developments.

It will interesting to follow the IMF's more detailed exploration of these issues, announced for the Financial Sector Assessment Program update scheduled for the end of this year!

IMF on Swiss pensions supervision [CH]

NZZ in its Saturday Reflexe points us to the Concluding Statement of the IMF Mission dating back to March, which we've completely missed. Not only do the IMF staff underline the need to extend working life further, in line with increased life expectancy.

More importantly, they will look further into several second pillar issues, namely -

understatement of underfunding due to discounting of liabilities with non-market-based interest rates,

fragmented cantonal supervision, opening up opportunities for regulatory arbitrage,

regulatory distortions relative to the insurance sector, because regulation is not risk- and market-based as in the insurance industry.

From an international practitioner's standpoint, these are all valid issues that deserve close examination. Regulatory arbitrage is a fact, as is the lack of a fair value based approach to funding issues.

EFRP view of Switzerland

Here is an interesting presentation about EFRP and its view of the Swiss retirement provision system.

Interactive financial data in Switzerland

The Chairman of the US SEC has dedicated a considerable portion of his testimony before the US House Committee on Financial Services to interactive financial information and XBRL. Personally I am convinced that XBRL in conjunction with the IASB's IFRS taxonomy is the next big thing in financial reporting, so I recommend to attend the Swiss CFA Society's forthcoming free seminar on the issue.

Supervisory cooperation EU/CH

Earlier this month, CEIOPS and Swiss FOPI have signed a Memorandum of Understanding (press release) covering the procedures of cross border supervision of insurance groups. This MoM is interesting in that it is the logical consequence of the 1989 Insurance Agreement between Switzerland and the EU, which extends the EU's freedom of establishment to Swiss insurance undertakings.

From a pensions viewpoint, there are two relevant aspects: 1) The MoM might serve as a blueprint for cooperation in the pensions arena. This presupposes however that there is 2) a supervisory body of Swiss IORPs which is capable of filling the same r�le. Currently, it is questionable whether that r�le might be filled by the FSIO, which does not act as a direct supervisor to IORPs. We note however that, generally speaking, insurers seem to be well ahead of the "pensions pack" with regards to European market access. Their specific advantage with regards to market access to the new pan-european pensions market seems to be limited, though, since Appendix 2 of the Insurance Agreement appears to exlude such business lines from the scope of the Agreement.

Swiss discussions

Here is an interesting discussion paper by Nestl�'s Martin Wagner which has gone to all members of the Swiss Chamber of Pensions Experts, without generating a great deal of discussion, unfortunately.

Meanwhile, I've joined IZS's project group on Pan-European Pensions, which has held a very productive meeting yesterday. An in-depth public information event on the subject matter is probably forthcoming shortly.

Second pillar without frontiers

Here is an article (German) that I've published in Schweizer Bank a while back. Unfortunately, there wasn't much feedback on it to date.

European Pensions for Switzerland

A project group of Innovation Second Pillar is currently evaluating options for extending the Pensions Directive's cross border regime to Switzerland and vice versa. With Switzerland not being part of the EU nor of the EEA, this constitutes a major impediment for otherwise highly experienced Swiss service providers. It also dispossesses Swiss firms with employees in the EU of potential economies of scale by forcing them to maintain dual structures.

The Pensions Directive is technically still not part of the legal body of the EEA at this point. This technicality is expected to be removed by May of this year, however. Nevertheless, the Principality of Liechtenstein, with which Switzerland has close ties, is part of the EEA and plans to transpose the Directive into its law by 1 January 2007. We are keeping a close watch on what is happening in the neighbourhood.