Has FINMA Lost Its Way? – Opinion by Prof. Monika Roth

Tue, Jan 30th 2024

“When all is lost, there is always a lawyer you can call,” writes Nicola Lagioia in his novel “The City of the Living“. There are many moments when no lawyer is of any use. That is when public shaming takes hold and your reputation is ruined. Woody Allen can tell you a thing or two about that. His tone – which comes across clearly in his autobiography – is not heard at all. The financial market supervisory authority FINMA did not present a good picture in the Credit Suisse case and is fighting for its reputation and acceptance; many parliamentarians are among those who helped to develop the failure, some of whom are now sitting on the PUK (Parliamentary commission of inquiry – ed), which is investigating the matter. Many politicians and lobbyists deliberately wanted a weak FINMA and got it. It is therefore a good idea to keep expectations of this report low – in concrete terms, it is also about power and sovereignty of interpretation combined with the pressure to justify parliamentary failure.

Alain Girard, Head of Recovery and Resolution, Thomas Hirschi, Head of Banking, Marlene Amstad, Chairwoman of the Board and Birgit Rutishauser, Director a.i., from left, all FINMA, discussing the Credit Suisse crisis on December 19, 2023 in Bern. (KEYSTONE/Peter Schneider)

Now FINMA wants more powers – although it actually already has many that it has just not used. It is obvious that it wants to be combative, courageous, and persistent. And it may be understandable that it would like to name more banks and individuals. It is also understandable that she is calling for fining powers: okay, but that is something that only comes into play once “it” has already happened. I do not believe that the authority to impose fines would have a particularly deterrent effect – unless it is linked to the naming of the person sanctioned.

The main point of my criticism is that FINMA has not made use of the “guarantee requirement” (licensing requirement: the persons entrusted with the administration and management of the bank must enjoy a good reputation and offer a guarantee of irreproachable business conduct) and the opportunity to consistently formulate evaluations, recommendations and judgments based on this. Its predecessor authority, the SFBC, did this for individual persons from around 2001. It acted against guarantors (“Montesinos” case, removal of the bank manager). In the relevant ruling, it wrote (which it has repeated many times in other rulings) regarding organizational duties:

“An appropriate organization includes, among other things, a well-developed system of directives with clear rules of responsibility, authority and conduct. The bank must ensure that the directives and guidelines it issues are implemented and complied with.” It also stated that the General Manager of the bank was responsible for establishing and maintaining an organization that complied with the statutory provisions and ensured the proper conduct of banking business. He had not fulfilled this central duty.

The countless scandals at Credit Suisse bear witness to this. And all those responsible in terms of hierarchy remained in their seats. Nobody was told by FINMA that they had to go. In 2008, the SFBC did so in a conversation with Marcel Ospel. FINMA should have intervened with Credit Suisse in the same way long ago. The authority incomprehensibly abandoned the instruments offered by the guarantee standard and did not use them. The members of the Board of Directors and Executive Board of Credit Suisse were already able to “price this in” in their behavior – thanks to years of experience.

FINMA’s call for the senior management system should be seen in conjunction with the authority to impose fines. In light of the fact that the supervisory authority expressed clear expectations regarding the organization and the clear regulation of competencies and responsibilities decades ago, I am surprised that it is only now calling for it. In the UK, this regime has been in place for banks since March 2016. The debate on this began in 2012. And our parliamentarians actually want to wait for the PUK report.

And then?

{This article was first published in Luzerner Zeitung on 23.01.24, in German}

About the Author

Prof. Dr. iur. Advokatin Monika Roth is a noted professor and independent lawyer, and the director of studies/lecturer in the DAS Diploma of Advanced Studies Compliance Management at the IFZ Institute of Financial Services Zug and a lecturer in various other courses. She has published many books on the monetary system, corporate governance and banking compliance. Her website is found at https://www.roth-schwarz-roth.ch/. Her most recent writing is ‘Der Schutz des öffentlichen Ansehens des Gemeinwesens durch loyale und integre Amtsführung‘ (Protecting the Public Image of the Community through Loyal and Honest Conduct in Office), in the publication ‘Rechtsschutz in Theorie und Praxis’, Helbing Lichtenhahn Verlag, 2022.

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Has FINMA Lost Its Way? – Opinion by Prof. Monika Roth

Has FINMA Lost Its Way? – Opinion by Prof. Monika Roth

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