Finma calls for tougher instruments
Published: Tuesday, Dec 19th 2023, 10:00
Updated At: Tuesday, Dec 19th 2023, 10:01
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The Swiss Financial Market Supervisory Authority Finma is calling for tougher instruments as a consequence of the downfall of Credit Suisse. In particular, it considers the authority to impose fines or clearer responsibilities at the banks to be appropriate, as the supervisory authority writes in a report on the CS crisis published on Tuesday.
According to the Finma report, Finma has increasingly intensified its supervisory activities at Credit Suisse, which was taken over by UBS in 2023, in recent years due to the accumulation of problems and deficiencies and has imposed increasingly drastic measures. In doing so, it has gone "to the limits of its legal possibilities". The authority is now in favor of extended possibilities to exert greater influence on the governance of supervised institutions.
New instruments
In addition to the authority to impose fines and the clearer allocation of responsibilities at banks (senior manager regime), FINMA also considers the possibility of regularly publishing enforcement proceedings to be expedient. At present, these are often not made public. In addition, effective intervention in remuneration systems would require a more solid legal mandate for FINMA. Finma is also suggesting improvements to the capital adequacy requirements for systemically important banks at the level of individual institutions.
At a political level, more stringent instruments for FINMA remain controversial. Last week, the Council of States rejected a corresponding motion from its Committee for Economic Affairs and Taxation (WAK-S). However, a majority of the small chamber argued above all that they did not want to pre-empt ongoing work in connection with the CS crisis.
CS failed due to deficiencies
Credit Suisse failed due to shortcomings in its strategy and management, Finma concluded in its report. Due to the inadequate implementation of its strategic thrusts and repeated scandals and management errors, it had lost the trust of clients and the markets. Due to the resulting high withdrawals of client funds, there was a risk of immediate insolvency in mid-March 2023.
"Serious deficiencies in risk management played a role in practically all of the problems", according to FINMA. Due to reorganizations as well as high costs, fines and losses, CS had to repeatedly raise capital. At the same time, CS's major shareholders had hardly exercised their influence on remuneration.
108 On-site inspections
In its report, Finma emphasizes that it has exercised its supervision of Credit Suisse very extensively within the framework of the applicable legal requirements. Since 2012, it has conducted 43 preliminary investigations against Credit Suisse for possible enforcement proceedings. It has issued nine reprimands, filed 16 criminal complaints and concluded eleven enforcement proceedings against the institution and three against natural persons.
It also consistently drew CS's attention to risks within the scope of its powers, demanded improvements and imposed drastic measures. Between 2018 and 2022, it carried out a total of 108 on-site inspections at CS and identified 382 points that required action. In the summer of 2022, FINMA had already demanded concrete measures to prepare for a crisis, such as the sale of parts of the business and later the sale of the entire bank.
Finma had prepared the restructuring in March 2023, so that this option was available as an alternative scenario. "However, the authorities came to the conclusion that the takeover of Credit Suisse by UBS could stabilize the situation as quickly as possible with a lower risk."
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