Switzerland’s financial regulator, the Swiss Financial Market Supervisory Authority (FINMA), has acknowledged the shortcomings in its approach following the collapse of Credit Suisse. The 167-year-old bank faced a series of risk management failures and scandals that led to a client and investor exodus, pushing it to the brink of insolvency. In a report released on Tuesday, FINMA called for greater legal powers to effectively regulate and supervise financial institutions. It emphasized the importance of instruments like the Senior Managers Regime, the ability to impose fines, and stricter rules regarding corporate governance.
In addition to seeking stronger legal basis, FINMA also recognized the need to adapt its supervisory approach in certain areas. The regulator intends to review whether stabilisation measures are readily implementable and to enhance its oversight of emergency preparedness. FINMA acknowledges that the strategic changes announced by Credit Suisse to de-risk its operations were not consistently implemented, and recurrent scandals further undermined the bank’s reputation.
FINMA highlighted the issue of variable remuneration at Credit Suisse, noting that even during years of heavy financial losses, executive pay remained high. Shareholders apparently made little use of opportunities to influence pay packets. The regulator conducted numerous preliminary investigations, issuing reprimands, filing criminal charges, and initiating enforcement proceedings against the bank and individuals. It also intervened in the bank’s governance and remuneration, implementing extensive capital and liquidity measures, as well as restrictions on business activities.
Between 2018 and 2022, FINMA conducted 108 on-site supervisory reviews at Credit Suisse, identifying 382 points requiring action. Of these, 113 were classified as high or critical risk. The regulator stressed that it exhausted its options and legal powers in trying to address the issues at the bank. Despite these efforts, Credit Suisse’s solvency continued to deteriorate, leading to the need for a rescue deal brokered by domestic rival UBS.
The collapse of Credit Suisse was not solely attributed to external market factors, but also to the bank’s own failures. FINMA emphasized the importance of rectifying deficiencies in the bank’s corporate governance and risk management. It was clear that the bank failed to consistently implement its de-risking measures, such as downsizing the investment bank and focusing on asset management. This lack of consistency, coupled with recurrent scandals, undermined the bank’s reputation and contributed to its downfall.
To prevent similar collapses in the future, FINMA stressed the need for extended options to exert more influence on the governance of supervised institutions. This includes implementing a Senior Managers Regime, the power to impose fines, and the regular publication of enforcement proceedings. The regulator also called for a more solid legal mandate to effectively intervene in remuneration systems. It is clear that stronger legal powers and a more adaptive supervisory approach are necessary to ensure the stability and solvency of Swiss financial institutions.
The collapse of Credit Suisse serves as a stark reminder of the importance of effective regulation and oversight in the financial sector. FINMA has acknowledged its own shortcomings and the need for greater legal powers to address issues like risk management failures and scandals. Adapting the supervisory approach and enforcing responsible remuneration practices are also vital steps towards preventing future collapses. By learning from the past, Switzerland’s financial regulator can pave the way for a more stable and resilient banking sector.