Swiss Regulator Seeks Power to Name and Shame Rule-Breaking Banks

The Swiss financial regulator, FINMA, is advocating for the authority to publicly call out banks that violate regulatory rules. Chief Executive Stefan Walter recently emphasized the necessity of enhanced transparency and accountability in the financial sector during an interview with the Swiss newspaper NZZ. Last year, FINMA was criticized for its management of the Credit Suisse collapse, which led to this drive for enhanced enforcement powers.

FINMA currently discloses enforcement actions against financial institutions infrequently. The disciplinary impact of reversing this practice—making non-disclosure the exception—would be substantial, according to Walter. “If financial institutions were aware that their punishments would be announced publicly, they would be more inclined to comply,” he stated. Walter thinks that this method would serve as a testament to the efficacy of FINMA's supervision initiatives, as accomplishments in safeguarding against problems frequently go unnoticed.

As Walter, who assumed his position in April, stated, banks must be more transparent and provide comprehensive information. If banks refuse to cooperate, FINMA may boost on-site inspections to enforce this. In severe circumstances, Walter recommended that it may be necessary to hold individuals accountable and potentially remove them from their positions. He suggested that a senior management regime be implemented, which would make it simpler to identify those at fault by assigning responsibility to specific individuals.

Following the Credit Suisse crisis, the Swiss government issued 22 recommendations in April to improve the regulation of the country's financial sector, which included the implementation of more stringent capital requirements. UBS, Switzerland's largest bank, which acquired Credit Suisse after its collapse, has expressed concerns about these potential regulatory changes. The chairman of UBS, Colm Kelleher, has contended that increased capital requirements are not the appropriate solution.

Walter, however, emphasized the necessity of maintaining an adequate capital level to prevent future crises. “Capital requirements increase as the size of the organization increases.” However, this does not resolve the issue of capital distribution: “We desire the parent company to have an adequate buffer to prevent it from becoming a bottleneck during a crisis,” he stated. The Credit Suisse crisis underlined the necessity of proper capital distribution within banks, emphasizing the necessity of sufficient reserves at the parent company level to maintain stability.

Although Walter denied his intention to incite a conflict with UBS management, he emphasized the importance of strong capital buffers in mitigating the risk and impact of potential crises. The financial sector in Switzerland is intended to be more transparent and resilient as a result of the proposed regulatory changes, which will ultimately improve public trust and accountability.

The financial community and regulatory authorities, who recognize the significant implications for the future of Swiss banking regulation, will closely monitor FINMA's pursuit of these increased powers.

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