Switzerland is on the fast track to revamp its banking regulations, determined to avoid a repeat of last year's Credit Suisse collapse. The upcoming legislative proposals are expected to cover a wide range of oversight aspects, from capital and liquidity requirements to governance controls, with UBS Group AG taking center stage due to its status as Switzerland's only remaining globally systemic bank, now more than twice the size of the domestic economy. A key focus of the reform is strengthening Finma, the banking watchdog that faced criticism for failing to prevent the mismanagement at Credit Suisse. This week marks the start of a significant change with the appointment of Stefan Walter, a seasoned European bank supervisor, as Finma's new CEO.
Stefan Walter's appointment signals a progressive approach to oversight, drawing from his experience in shaping the European Central Bank's supervisory framework post the sovereign debt crisis. His track record includes challenging banks on risk-taking behavior, a strategy that has been recently demonstrated through actions against major banks like Deutsche Bank and BNP Paribas. This shift in supervisory style may mark a departure from Switzerland's traditionally consensual approach to regulation, which previously lacked the power to impose fines.
The aftermath of Credit Suisse's downfall, followed by its rescue by UBS, has prompted a change in consensus towards bolstering regulatory powers. Swiss authorities are aligning on the need for expanded oversight capabilities, with even the banks signaling support for the reform agenda. The proposed senior managers regime aims to hold individuals directly accountable for their decisions, a move intended to shift the risk culture within Swiss banks. This shift is highlighted by incidents such as Julius Baer's substantial exposure to a single client that resulted in significant losses and executive resignations.
In addition to the senior managers regime, there is advocacy for tighter control over bonuses, currently only guided by Finma. The push is to enshrine in law Finma’s influence on bank bonus pools, ensuring a more responsible approach to remuneration within the sector. UBS, being the largest private wealth manager globally, is expected to face intensified scrutiny, with increased capital and liquidity requirements already in place due to its size. However, debates are emerging on the adequacy of these requirements, with calls for a review to ensure they align with the bank's systemic importance.
The potential addition of stricter domestic capital and liquidity rules, on top of global standards post-2008 crisis, may bring back the controversial "Swiss Finish" approach. While the recent rise in interest rates may have masked underlying vulnerabilities in the Swiss financial system, the lessons learned from Credit Suisse's crisis are shaping a more robust regulatory landscape. Amidst these changes, experts suggest that Switzerland's regulatory system may not undergo fundamental transformations but rather aims to enhance oversight based on the experiences gained.