Switzerland stops short of giving regulator power to fine banks

THE Swiss government stopped short of offering the country’s banking watchdog the power to fine lenders, despite widespread support for the measure – including from the finance minister.

After the near-collapse of Credit Suisse over a year ago and its takeover by UBS Group, Switzerland is grappling with how to handle an outsized financial sector dominated by a behemoth bank that is more than twice the size of its economy. Empowering financial regulator Finma to impose levies had been backed by Finance Minister Karin Keller-Sutter earlier this year, as well as by a government-appointed expert panel and by the regulator itself.

In a wide-ranging proposal for banking reform, the Cabinet in Bern said that allowing Finma to impose “pecuniary administrative sanctions” should be “examined”. While fines are a standard tool for other regulators in large financial centres, further study is needed to avoid weakening banks’ willingness to cooperate, according to the Swiss report.

The Swiss have long preferred a more consensual approach to financial oversight than is common in other jurisdictions. The stance on fines has sometimes been justified on the basis that it would destroy the cooperative atmosphere. 

Finma’s powers will still be expanded in the government’s proposed overhaul:

• The government plans to introduce a so-called senior manager regime for systemically important banks that will make leaders liable for misconduct and violations taking place in their areas of responsibility.

• The possibility to retain and claw back bonuses will be introduced for such banks.

• It will be easier for Finma to obtain information from all banks in the country, including through an extension of reporting requirements.

• The legal basis for imposing management changes will be strengthened.

Finma had called for the introduction of a ‘senior managers regime’ to facilitate personal penalties in case of bad behaviour. The government said that the introduction of such measures for smaller banks should be examined. Apart from UBS, the country’s systemically important banks include Raiffeisen Switzerland, Zuercher Kantonalbank and PostFinance.

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Finally, Finma will also get more staff and resources. So far, the Swiss philosophy of lean management has also been reflected in the relatively small size of the regulator, which employs just under 600 people.

The watchdog’s new chief, European Central Bank veteran Stefan Walter, started at the beginning of the month. BLOOMBERG