One thing is clear. The ratification of the Hague Convention on trusts by Switzerland has opened the door to a wave of new entrants. That is a legitimate reason for those who previously had held back now to set up shop. But what is the business plan and where do these companies expect to find quality staff?

Andrew Cleeton of UK accountants Saffery Champness, which also has offices in Geneva, says that many of the new-comers are following a “me too” strategy. “There is a sense in which many trust companies see the flood of companies establishing a presence in Switzerland, and especially Geneva, and believe that they need also to be represented in this important financial centre,” he says.

Other industry practitioners are less convinced. One issue is certainly staff related. “There is a clear lack of quality staff,” says Glenn Mellor, managing director of IFG , a  longer established trust company. This seems likely to continue even though there are more people registered to study for the Society of Trust and Estate Practitioners qualifications in the French-speaking part of Switzerland than anywhere else outside of London.

Daniel Martineau of Close Summit Trust in Geneva is more blunt in his assessment of the situation. “Some of these companies are setting up to offshore business that is deemed to be 'sensitive' in the context of more strictly regulated jurisdictions,” he says. “This is a significant issue because it suggests that Switzerland is a good place to put business that would not be possible in other jurisdictions.”

That is why the industry has formed the Swiss Association of Trust Companies to bring together like-minded trust companies who adhere to a set of principals and values. This group does not admit just any applicant and has strict criteria to provide for a form of regulatory environment in the absence of any explicit legal framework. No-one wants excessive regulation, but the almost total lack of regulation in Switzerland is not healthy.

“The barriers to entry are few and anyone can set themselves up as a trust company in Switzerland – no licence is required,” Mr Martineau says. There are no capital requirements, no requirements for competence or qualifications and no oversight of the business taken in with the exception of anti-money laundering provisions.

The Association Romande des Intermediares is a self-regulating body that concerns itself with preventing money laundering among financial intermediaries and trust companies. But it has no intention of getting involved in regulation of the Swiss trust industry and had no comment on the concept when approached by WealthBriefing.

This causes many practitioners to worry about the future reputation of the Swiss trust sector. There is certainly no obvious rush on behalf of the authorities to regulate it. “ Switzerland is probably 10 years behind the Channel Islands in terms of regulation of trust companies,” says one industry source. “But is a one-off case involving a small unregulated trust company a real risk to Switzerland’s reputation as compared to what we have seen recently with UBS and LGT?” That, of course depends on the case in question and the way that the press deals with it.

It is fairly certain that regulation will come but will the Swiss authorities get to grips with the trust business before there is a problem and the attention of the world’s press is once again on the Swiss financial industry? The relevant Swiss Financial Regulatory body to deal with such issues is the Federal Banking Commission. However, emails requesting comment on potential licensing requirements for trust companies or any intention to regulate have gone unanswered.

One other question remains. How can these businesses all make money? It is a generally accepted fact of life that many trust departments of private banks are not profitable. The future for all these nascent trust companies appears uncertain and the rush to establish them could be followed by a wave of consolidation. No-one in the business wants to go on record as suggesting that the boom may turn to bust but there does seem to be a consensus that the rate of growth is not sustainable. “Of course a number of these companies will fail,” says an anonymous source.

On the other hand, there is certainly a future for trust companies in Switzerland. “I think that Switzerland will become the pre-eminent private client trust jurisdiction in Europe in the next 10 years,” says Mr Martineau. He agrees that there will be bumps on the way and that not everyone will succeed but with proper regulation and the benefit of time to train experienced staff he feels that the future is rosy.

Another potential direction is for the Swiss trust business is to move more up-market to become quasi family office operations, adding value and servicing the wealthier end of the market. That would be a logical development given the country’s large slice of the ultra high net worth market. But for now, Swiss based trust companies need the one thing that some of them may be here to avoid – a sound, non-intrusive regulatory environment. The only question is when will the authorities act?