In the Wake of the “Panama Papers”, the CRS will Speed up Compliance

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In the Wake of the “Panama Papers”, the CRS will Speed up Compliance
CC-BY-SA-2.0, FlickrFoto: fielperson / Pixabay. Maitland: Para algunos contribuyentes el CRS ya está "vivo"; para otros es inminente

The Common Reporting Standard (CRS) is a new international system for the automatic exchange of tax information promoted by the Organisation for Economic Cooperation and Development (OECD) and modelled on the United States’ Foreign Account Tax Compliance Act (FATCA). For some taxpayers the CRS is already “live”; for others it is imminent.

While FATCA focused, and continues to focus, only on US taxpayers, the CRS potentially involves reporting on residents of any country that has signed up to the CRS where those residents, or an entity deemed “controlled” by them, holds a “financial account” in another country that has also signed up to the CRS.

Approximately 100 countries have signed up so far. The full list can be seen on the OECD website. Approximately 56 of those who have signed up so far are so-called early adopters, which means that financial accounts held with financial institutions in those countries as of 31 December 2015, and new accounts opened after that date, will eventually be the subject of reporting. Although that reporting may only start happening in 2017 with reporting by later adopters starting a year later, residents of participating jurisdictions should already be taking steps to understand what the CRS will mean for them in concrete terms. Residents of countries that have not yet committed to apply the CRS should be considering the impact of their countries’ eventually doing so.

For example, it is noteworthy that despite Brazil not being in the group of Early Adopters, if a Brazilian has assets (bank accounts, investment funds, etc.) held in any jurisdiction of the Early Adopters group, their tax information will be reported in the first half of 2017.

The international political climate has been significantly affected by the revelations arising from the leak of the “Panama Papers”. In this environment, the reality is that every individual who has any international investment in any form and direct or indirect, needs to get to grips with whether or not they may be the subject of reporting and what the consequences would be. 

One of the side-effects of the CRS has been the introduction by a number of countries of an amnesty or voluntary disclosure programme so as to enable their taxpayers to regularise their tax or exchange control position in relation to assets in foreign accounts. A number of people have embarked on such a regularisation process in advance of the inevitable flow of tax-related information to their tax authorities. One might be tempted to take the view that, having gone through such a process, or at least having committed to do so, the eventual reporting of financial information to one’s tax authority becomes of secondary importance. Taking such a view would be unwise as the level of reporting may well go beyond what is strictly necessary for purposes of tax compliance and have other consequences for the individuals concerned.

The trigger is the existence of “financial accounts”
As the existence of a “financial account” is the starting point for potential reporting, the critical thing each resident of a CRS jurisdiction must understand is whether one is the holder of, or a person deemed to be controlling, a “financial account”. The term “financial account” is a much wider concept than perhaps one might imagine. Up until now, only US taxpayers have been obliged to get to grips with the full meaning of the term.

Even if a taxpayer successfully completes a particular regularisation process or even if their tax affairs always were entirely compliant, that does not mean that the impact of the CRS ceases to be of further concern.  It will not be uncommon for information reported under the CRS to be surprising and irrelevant to a person’s tax affairs.
Thus, in all cases it will be important to understand whether one will be treated as the holder or controller of a “financial account”.

“Financial accounts” in trust structures

  • It will come as no surprise for individuals holding a bank account or an interest in an investment fund in their own name that they hold a financial account.  But individuals with some sort of involvement with a trust may find themselves subject to reporting as, believe it or not, a trust in many cases will be a financial institution and the following people will be regarded as a having a financial account with a trust:
  • Settlors, even if the trust is irrevocable – and, while we consider the position being taken by the OECD to be incorrect, the value of that account reported against the name of the settlor may be the entire value of the trust. In addition, the OECD has even indicated that it is considering whether a settlor who is dead should continue to be the subject of reporting!
  • Protectors, where their powers are such as to give them ultimate effective control over the trust, a not uncommon situation. Again, the value of the account reported may be the entire value of the trust, even where the protector is excluded from benefit.  Let us consider the case of a person who, while living in the UK, was appointed as protector, and then takes retirement in France while remaining the protector. It is likely that the French tax administration will be very interested in someone who is considered to be in control of a trust that holds significant assets and whose value would give rise to a significant French net wealth tax charge.
  • Vested beneficiaries and, in the years in which a discretionary award is made, also discretionary beneficiaries. In the latter case, only the value of the award would be reported as the account value.

Underlying companies of trusts – another layer of reporting

The position is more complex where a financial account, such as a bank or investment account, is held by an underlying company of a trust. The existence of this additional financial account may result in another layer of reporting, in addition to the reporting on the trust. This is because the bank or investment fund may well need to identify the controlling persons of the underlying company and that in turn may require an examination of the controlling persons of the trust that is the sole shareholder of the company. The controlling persons are not the same as the financial account holders in the trust. The following are potentially affected:

  • Settlors – this time the reported amount will be limited to the value of the account of the underlying company in question; but it will mean that both the trust and the bank or fund will be reporting on the same person.
  • Protectors – this time it is irrelevant what powers of control are given to the protector in question as protectors are, by definition, controlling persons even if they do not exercise control.
  • Trustees – and if the trustee is a corporate trustee, this will involve a further enquiry as to who the controlling person of the trustee is, which may in turn result in the disclosure of its senior managing official.
  • Vested beneficiaries and discretionary beneficiaries – but in this case the latter may be treated as controlling persons even if they do not receive an award.
  • Potentially anybody else that the bank or fund might consider to be the beneficial owner for anti-money laundering purposes.

Bear in mind that the complexities of reporting will increase as the complexity of the structure increases, including where there are multiple trusts involved, as well as trusts with individuals or private trust companies as trustees.

The key for holders of financial accounts, and persons who may be regarded as “controlling persons” of a company, is to recognise well in advance where they may be subject to reporting. Based on that assessment, consideration can be given in good time to dealing with the consequences.

Column by Andrew Knight and Anthony Markham. If you have any queries about this column, please contact Benjamin Reid
 

Pro-invest Group Signed a Fund Administration Agreement with Apex

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Pro-invest Group, a Private Equity Real Estate investment firm, announced on Monday the signing of a fund administration agreement with global independent fund administrator, Apex Fund Services. The partnership will deliver Pro-invest Group with the specialist private equity real estate fund accounting, regulatory reporting and middle office support services required to provide the required infrastructure and support investments.

Apex’s global presence and breath of service capabilities spanning the full value chain of a fund will ensure Pro-invest is supported by administrative resources that enable them to deliver cross-border services to their clients. With $300m (AUD) in committed capital, Pro-invest’s vision to provide tailored products to clients from Europe, the Middle East, Asia and North America will be reinforced by Apex’s local office presence and expertise in these regions.

Ronald Barrott, Chief Executive Officer, Pro-invest Group said, “Pro-invest Group recently reached a significant milestone through the opening of Australia’s first Holiday Inn Express hotel in March this year. At this important stage in our growth and success, it is essential that we work with an administrator who understands our business model but also more importantly our guiding principles of trust, integrity and commitment. Apex and Pro-invest have a shared vision in this area and Apex’s approach to service provision echoes our core values. As we look to capitalise on unique investment opportunities for our clients, we need flexible service providers who can evolve along with us. This partnership will allow us to confidently focus on our investment mission, whilst being operationally supported by qualified experts to achieve our growth goals.”

Srikumar TE, Managing Director at Apex Fund Services APAC, said: “We are delighted to be working with Pro-invest Group at this time. The flexible nature of Apex’s approach to service provision makes us ideally suited to administer a private equity and real estate fund of this nature. We are fully invested in supporting Pro-invest’s mandate to deliver tailor-made services and investment opportunities to clients. As an independent provider we have the ability to align our solutions and support services to robustly support real estate investments. Apex has experienced 35% growth in private equity and real estate clients over the past year, and we now host eight private equity and real estate centres of excellence across the group. We have built a focused and flexible solution to support Pro-invest with strong internal controls and experienced staff to ensure their commitment to achieving success is continually realised.”

UBS Takes Stake in SigFig And Forms a Strategic Alliance for Technology Development

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UBS Takes Stake in SigFig And Forms a Strategic Alliance for Technology Development
Foto: Windell Oskay . UBS toma una participación en SigFig, con quien sella una alianza estratégica para desarrollar tecnología

UBS Wealth Management Americas (WMA) has made an equity investment in SigFig, an independent San-Francisco-based firm wealth management technology company. Also, they have agreed to form a strategic alliance to develop financial technology for UBS WMA, its financial advisors and their clients. Additionally, both companies will create a joint Advisor Technology Research and Innovation Lab, where the companies will continually collaborate on new wealth management technology tools. The companies envision the lab as a forum where financial advisors, product experts and technologists can join with SigFig’s experts in digital technologies and design to develop leading technology capabilities for UBS WMA and its clients.

As part of this strategic alliance, the WM technology company will create and customize digital tools and services for the America´s division of the swiss bank´s 7,000 advisors that will complement their expertise and enhance their clients’ digital experience. This platform will improve the ability of the advisors to efficiently provide advice on assets held at the bank and other institutions, a critical factor in providing truly personalized financial advice across the complete range of client needs.

Matthew Elderfield, to Become New Head of Group Compliance at Nordea

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50 year old Matthew Elderfield has been appointed Head of Group Compliance and a member of Group Executive Management at Nordea. He will join the company by November, 9th, 2016 at the latest.

“We have set an ambitious target to be best in class regarding regulatory compliance. Continuing to enforce a strong risk and compliance culture and making it an integral part of our business model is key to making these efforts succeed. I’m convinced that Matthew with his extensive international experience will bring Nordea closer to our ambition in leading our increased focus on compliance going forward, says Group CEO Casper von Koskull.

Matthew Elderfield is currently Global Head of Compliance at Lloyds Banking Group where his role covers all business areas, ie Retail, Wholesale and Wealth. The Financial Crime unit is also part of his responsibility.

Prior to Lloyds Banking Group Matthew Elderfield has held a number of senior international regulatory roles, most recently as Deputy Governor of the Central Bank of Ireland when he also served as Deputy Chairman of the European Banking Authority and as a member of the Managing Board of the European Insurance and Occupational Pensions Authority.

Johan Ekwall will stay on as acting Head of Group Compliance until Matthew Elderfield takes up his position.

Helen Driver Joins as Fund Manager, Global Equities, Aviva

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Aviva Investors, the global asset management business of Aviva, has appointed Helen Driver as fund manager in its Global Equities team. She is based in London and reports to Chris Murphy, Global Head of Equities.

In this new role, Helen is focused on identifying high-conviction large-cap global equity ideas for inclusion in both stand-alone global equity portfolios and as a key part of Aviva Investors’ Multi-Strategy proposition.

Helen has 16 years’ investment management experience and joins from Legal & General Investment Management, where she was fund manager on the UK Real Income Builder Fund. Prior to this, she held investment and client servicing roles with Standard Life Investments.

She is a member of the Asset & Liabilities Committee for the Social Investment Business, which provides grants and loans to voluntary sector organisations. In this voluntary role, she helps to review the investment portfolio for the Futurebuilders England & Modernisation Funds.

Chris Murphy, Global Head of Equities, said:

“I am very pleased to welcome Helen to Aviva Investors. She brings strong expertise in building and managing equity portfolios and a proven track record in successful stock selection. I am certain she will make a significant contribution to the team as we continue to develop our global equities proposition.”

 

XP Investimentos: “We Strongly Believe We Can Break the BRL 100 Billion Mark in Five Years”

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The firm XP Investimentos has dedicated more than 10 years innovating and transforming the way Brazilians invest. They were the first firm that introduced the idea of “financial shopping” in the Brazilian market, aiming to provide more freedom of choice to their clients. The firm has already about BRL 35 billion in assets under management, and is expecting to grow up to BRL 100 billion in the next five years. In an exclusive interview with Funds Society, Beny Podlubny, Head of the Wealth Management division at XP Investimentos, talks about their main areas of development and growth, their international expansion plans, and the Brazilian investors’ preferences. 

Since 2008, XP Investimentos has been the largest independent brokerage firm in Brazil, what factors would you say have shaped the success of the firm?

I believe several factors have contributed to our success, the first factor would be the partnership culture in the firm, our firm has attracted several outstanding professionals that act as owners. They are hardworking, committed and top performers. These same professionals will not stop working until reaching our main goal: the highest level of service. Secondly, our main focus are our clients. We do our homework daily and constantly compare ourselves to the best companies in Brazil known for this service. And thirdly, we invest on innovation, and when I say innovation I do not only mean technology, but also how we conduct businesses offering creative solutions and easy access to products and services.

XP Investimentos offers three type of services: Exclusive Advisory (Assesoria Exclusiva), Self-Service (Auto Atendimento), and the service offered through your Partner Network (Rede de Parceiros XP). Which line of business has shown greater growth in the last couple of years? And, which areas are a priority in terms of resource allocation for XP Group?

Since our Advisory Group is the newest line of business in the group and therefore the one with the smallest asset base, this is the one that is growing the most. We are having a tremendous growth in 2016, reaching more than BRL 3 billion on assets under management, up to April. On the retail side, we are also having huge growth, especially in the on line business. We have partnered with Red Ventures, and they are doing a fine job in helping us find new clients through our online platform. On March, we have opened 20,000 accounts and have raised more than BRL 2.1 billion.

What is the current size of the Wealth Management division unit? What are your goals for the next five years?

The XP wealth management platform can be accessed by our internal bankers and also by our partner network. Today we have around 15,000 clients with more than BRL 1million of investments, totaling BRL 15 billion.The wealth management market in Brazil is about BRL 1 trillion, and in five years we strongly believe we can break the BRL 100 billion mark.

When we consider the undeclared wealth held by Brazilians abroad, and the amount expected to bring the undergoing tax amnesty, we are even more confident about reaching this goal. At XP, we know that we are prepared to serve these clients in our Brazilian and US Platforms, as well as in our new European offices.

XP Investimentos has an open fund platform with more than 300 funds listed, are there any preferences on any particular asset management firm from investors?

Brazil has a long history of high interest rates. Therefore, clients are used to investing in bonds and fixed income funds. That is the biggest strategy for any portfolio in Brazil. Here at XP we have a strong due diligence process to select and approve the managers that are in our platform. We also offer market intelligence to our bankers and partners network in order to enable them to better serve their clients. Finally, clients can access our comparison tools to analyze the best risk adjusted returns. 

XP Investimentos also distributes funds of XP Gestao de Recursos, being XP Long Short FIC FIM, XP Investor FI Renda Fixa Crédito Privado LP, and XP Referenciado FI Referenciado DI among the funds with larger assets under management, what do these strategies bring to investors?

Even though those funds are managed by XP, they compete in equal terms to any other fund in our platform. Those funds are managed so that they beat different benchmarks and are used by clients to have a diversified portfolio in a totally independent manner. Clients like and trust the XP brand, however, they only invest in those funds after comparing them to all the options they have in our platform.

Group XP has two office branches in the US, one in New York and another one in Miami, through its affiliated company, XP Securities. The firm currently serves institutional clients, are there any future plans of servicing wealth management clients (non-US resident offshore business)?    

Actually, we are already serving Latin American clients through our US platform. We also just announced a new group of 10 bankers that are joining us to expand our European business. We aim to have USD 5 billion abroad in less than two years.

Brazilian equity and fixed income markets rallied since the beginning of the year on speculations on politic turmoil, but the Brazilian economy still faces serious challenges, and it is expected that the economy and corporate earnings will suffer from it. Are you increasing exposure to international assets? Which vehicles do you use for that purpose?

Brazil is living a very interesting moment. We are about to live an important political shift that will have major repercussions in society and economy. We can see asset prices move further and we are following the market closely in search for opportunities, constantly doing our homework. We also believe that Brazilian clients should have a diversified portfolio and that also means having US dollar denominated assets. Brazilians can access the offshore market through different vehicles. It all depends on how much money does the client have to invest and what are the client’s goals for that capital. In summary, nowadays there are several funds in Brazil that give exposure to the offshore market. Clients can also wire their money to an offshore platform and invest their money from there. 

High inflation and depreciation of the Brazilian real had a great impact last year, how are you protecting portfolios from these events?

The political shift can dramatically change this dynamic. But there are several ways to protect a portfolio from an inflation peak, such as NTN-Bs, Brazilian treasury protected inflation notes. Regarding protecting a portfolio from currency depreciation, there are also many possibilities, one of them is through funds that hold USD based assets, such as equities and global fixed income. As aforementioned, our clients with bigger portfolios also have part of their wealth abroad.

Since the beginning, Grupo XP has put a lot of effort in developing an educational model with courses and conferences for its clients, how is this effort paying back to the firm?

XP’s culture is based on education. Since inception, XP collaborators have trained thousands of investors on how to build a portfolio and trade their money. The results are definitely a consequence of the company’s main beliefs. XP wants its clients to invest better. When clients are investing better, they bring more money and recommend our platform to their friends. I strongly believe that our education culture made us reach the BRL 35 billion mark and explains part of our growth.

Nikko Asset Management and Legal & General Investment Management Announce a Business Cooperation Agreement

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Nikko Asset Management and Legal & General Investment Management Announce a Business Cooperation Agreement
Foto: Chan Chen. Nikko Asset Management distribuirá los fondos de renta fija de Legal & General Investment Management

Japanese manager Nikko Asset Management (Nikko AM) and Legal & General Investment Management (LGIM) have signed a business cooperation agreement for the provision of investment management services.

Under the agreement, LGIM and Legal & General Investment Management America (LGIMA) will provide global fixed income products that Nikko Asset Management will distribute to Japanese investors, primarily Japanese insurance companies and banks. The first funds are expected to launch in mid-2016.

LGIM has also agreed to facilitate the marketing and sale of Nikko Asset Management’s products in the UK and other countries.

Takumi Shibata, President & CEO of Nikko Asset Management said: “We are delighted to announce our business cooperation with LGIM. We are sure that this collaboration will truly benefit our clients through the provision of differentiated fixed income investment solutions offered by LGIM.”

Mark Zinkula, Chief Executive of LGIM said: “I am delighted to be working with Nikko Asset Management on this new business agreement. Japan is a key part of our strategy as we continue to build out our global asset management business. We look forward to providing Nikko Asset Management’s clients with access to our high quality range of fixed income products and services”.

Eric Varvel Appointed Global Head of Asset Management at Credit Suisse

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Eric Varvel Appointed Global Head of Asset Management at Credit Suisse
Eric Varvel, nuevo director global del negocio de Asset Management de Credit Suisse - Photo Youtube. Eric Varvel es nombrado director global del negocio de Asset Management de Credit Suisse

Credit Suisse has announced that Eric Varvel will join the International Wealth Management (IWM) division as Global Head of Asset Management, effective June 1, 2016. From New York, he will succeed Bob Jain, reporting to Iqbal Khan, CEO International Wealth Management, and will be a member of IWM’s Management Committee.

Eric Varvel, who has more than 25 years of experience at Credit Suisse,will spend a significant portion of his time in Switzerland and in various emerging markets, including in the Asia Pacific region, to drive forward the further development of the global Asset Management franchise.

Iqbal Khan, CEO of International Wealth Management, commented: “We are delighted to have such an accomplished senior leader to head our Asset Management business and look forward to working with him in this capacity. We are confident that his global experience, track record and expertise will significantly contribute to the further development of our Asset Management franchise and to the achievement of our ambitious goals. Eric’s strong relationships with many strategic clients will be a great benefit not only to the Asset Management business, but also to the IWM division overall.”

Global Asset Management has a strong US-based Alternative Investments footprint, combined with a leading Swiss-based Core Investments business and a solid foundation in emerging markets. Eric Varvel will be instrumental in growing the firms Alternative Investments franchise, fostering the partnership with the Swiss Universal Bank to further strengthen the bank´s position in Switzerland and accelerating the business’ growth in emerging markets and Europe, he added.

Eric Varvel has more than 25 years of experience at Credit Suisse. He served as a member of the Executive Board from February 2008 to October 2014. During this period, he held senior roles including CEO of the Investment Bank, and CEO of the Asia Pacific and Europe, the Middle East and Africa. Prior to his appointment to the Executive Board, he was the Co-Head of the global Investment Banking division, where he was based in New York. Before that, Eric Varvel spent 15 years building Credit Suisse’s footprint in the Asia Pacific region in a variety of senior roles, including Head of Investment Banking, Head of Emerging Markets Coverage and Head of Fixed Income Sales and Corporate Derivative Sales. During that time, he was based in Tokyo, Jakarta and Singapore. Most recently, Eric Varvel served as Chairman of the Emerging Markets and Sovereign Wealth Funds and a senior advisor to the CEO.

 

PIMCO: A Certain Trump Candidacy Leaves Much Uncertain for Investors

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According to Libby Cantrill, Executive Vice President in PIMCO’s Executive Office, now that Ted Cruz and John Kasich have dropped out of the race, Donald Trump is all but certain to receive the Republican nomination in July at the party’s convention. A Trump candidacy, however, doesn’t make it easier for investors to anticipate the possible economic and market implications of a Trump presidency if he were to win the U.S. general election in November. Here are two important reasons behind the uncertainty:

  1. Trump does not necessarily subscribe to the conventional Republican orthodoxy of lower taxes, less spending and open markets made famous by President Ronald Reagan. Indeed, Trump’s economic agenda is more ideologically varied – with some tenets of Republican orthodoxy, such as lower taxes across the board, and with some Democratic principles, such as preserving Social Security and Medicare. Most famously, Trump’s extreme policy position on trade, which calls for a total overhaul of existing U.S. trade agreements and possible punitive action against U.S. trading partners, such as a 45% tariff on Chinese imports, does not belong to the platform of either party.
  2. Trump’s stated economic policies are at times conflicting and often changing, which also makes it difficult for investors to interpret the possible consequences. For instance, several weeks ago in an interview with the Washington Post, Donald Trump called for a total elimination of the U.S. $19 trillion debt over the next eight years, which is effectively infeasible without abolishing most government spending and substantially increasing taxes. At the same time, Trump has called for a tax plan that would increase the debt by $9 trillion (according to the Tax Foundation). Trump has since walked away from the pledge to exhaust the U.S. debt but it still leaves observers wondering where he is focusing: on austerity or on fiscal expansion?

“What are investors supposed to do with a candidate whose economic ideology is divergent from that of his party’s, not to mention often inconsistent and fluid? At the very least, give it some time. Trump, who interestingly does not have much of a policy team to date, will have to hire experienced policy advisers who will help him solidify his economic agenda before heading into the convention – and certainly before he engages formally in debates with the other presumptive nominee, Hillary Clinton, a known policy wonk. At that point, we should have a better idea of what a Trump administration would mean for both the economy and the markets – for better or worse,” concludes Cantrill.
 

Martin Blessing Joins UBS’ Executive Board

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Martin Blessing will succeed Lukas Gaehwiler as President Personal & Corporate Banking and President UBS Switzerland in the Group Executive Board (GEB) of UBS, effective 1 September 2016. Blessing was CEO of Commerzbank AG until the end of April this year. During his 15 years on the Board of Managing Directors of Commerzbank, half of which as its Chairman, Blessing significantly shaped the firm. He managed the successful integration of Dresdner Bank and led the bank back to stability and a robust business model following the financial crisis. Today, Commerzbank is active in more than 50 countries, finances 30 percent of Germany’s foreign trade and is the undisputed leader in financing German SMEs. The firm serves around 15 million clients with over 50,000 employees. Prior to Commerzbank, Blessing was at Dresdner Bank and the consultancy McKinsey. He studied in St. Gallen, Switzerland, and Frankfurt am Main, Germany, following a bank apprenticeship.

Also effective 1 September 2016, Lukas Gaehwiler will take on a new strategic role as Chairman of the Region Switzerland, focusing on clients and other selected mandates. At the same time and at his own request, he will step down from his current operative roles as President UBS Switzerland and President Personal & Corporate Banking (P&C), as well as from the GEB. For more than six years, Gaehwiler has run the business of UBS in Switzerland very successfully. In that time, UBS regained its position as the unquestioned market-leading universal bank in its home market. He oversaw a sustained increase in profitability during challenging market conditions, with significant new client growth, as well as the successful digitalization of the business, continuous improvement in customer satisfaction, and the effective implementation of a new legal structure for UBS in Switzerland.

Group Chief Executive Officer Sergio P. Ermotti: “I thank Lukas Gaehwiler for his excellent work and am personally pleased that he will continue to remain close to UBS in his new role. With Martin Blessing we gain a professional with a proven track record and significant experience in all areas of the business for UBS. I am certain he will further advance our business in Switzerland and beyond.”