Report on the Credit Suisse debacle presented: Finma calls for stricter instruments

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The financial markets regulator, Finma, is calling for stricter instruments as a result of Credit Suisse’s decline. She considers the power to impose fines or impose clearer responsibilities on banks to be particularly useful, as the supervisor writes in a report on the CS crisis published on Tuesday.

At Credit Suisse, which was acquired by UBS in 2023, Finma has increasingly intensified its supervisory activities in recent years and taken increasingly drastic measures due to the accumulation of problems and shortcomings, the Finma report said. She went “to the limits of her legal options”. The authority is now in favor of expanded opportunities to gain greater influence over the governance of those under its supervision.

Increase equity

In addition to the power to impose fines and a clearer division of responsibilities at banks (senior manager regime), Finma also considers the possibility of regularly publishing enforcement procedures useful. These are often not made public at the moment. In addition, a stronger legal mandate for Finma is needed for effective interventions in reward systems.

Finma also proposes improvements to the capital requirements of systemically important banks at the individual institution level.

At a political level, stricter instruments for Finma remain controversial. Last week, the Council of States rejected a corresponding motion from its Committee for Economic Affairs and Taxes (WAK). A majority of the small chamber mainly argued that they did not want to anticipate the ongoing work in connection with the CS crisis.

CS failed because of its own shortcomings

Credit Suisse failed due to shortcomings in strategy and management, Finma concludes in its report. Due to the inadequate implementation of strategic priorities and due to repeated scandals and management mistakes, the company lost the trust of customers and markets. Due to the resulting high withdrawals of customer funds, there was a risk of immediate insolvency by mid-March 2023.

“Serious shortcomings in risk management played a role in almost all problems,” says Finma. Due to reorganizations and high costs, fines and losses, CS had to repeatedly raise capital. At the same time, CS’s major shareholders had made little use of their ability to influence compensation.

The supervision is experienced as “very far-reaching”.

The authority emphasizes in its report that Finma has exercised its supervision of Credit Suisse very extensively within the framework of the applicable legal requirements. Since 2012, she has conducted 43 preliminary investigations into possible foreclosure proceedings against Credit Suisse. She issued nine reprimands, filed sixteen criminal complaints and completed eleven enforcement proceedings against the institute and three against natural persons.

She has also consistently made CS aware of the risks within its jurisdiction, demanded improvements and imposed drastic measures. Between 2018 and 2022, she carried out a total of 108 on-site inspections at CS and identified 382 areas requiring action. As early as the summer of 2022, Finma demanded concrete measures to prepare for a crisis, such as the sale of parts of the company and later the sale of the entire bank.

The restructuring was prepared by Finma in March 2023, so this possibility was available as an alternative scenario. “However, the authorities concluded that the acquisition of Credit Suisse by UBS made it possible to stabilize the situation as quickly as possible with less risk.” (SDA)

Source:Blick