Swiss regulator Finma has seized millions from banks in recent years in so-called disgorgements, where banks are forced to expel unfairly earned profits in cases such as market-rigging or dealing in illicit assets. What happens to these profits? finews.ch investigates.
Banca della Svizzera Italiana, or BSI, was ordered to cough up 95 million Swiss francs to Finma for dealing with scandal-hit Malaysian state fund 1MDB, a move which the bank is challenging in court.
Clawbacks can’t be planned or budgeted, and the income from them is lumpy from year to year.
What is clear is that Finma, which has become a more vigilant and effective regulator since the financial crisis as well as under former UBS executive Mark Branson, doesn’t shy away from enforcing penalties when it can.
Record Clawback
UBS paid Finma 134 million francs two years ago as part of a series of regulatory sanctions for rigging foreign exchange markets – the regulator’s largest such clawback since the measure was adopted into Swiss law following the financial crisis.
That dwarfs the regulator’s modest budget of roughly 120 million francs annually. The proceeds of fines and financial penalties don’t actually go towards the regulator’s budget, which is funded instead in large part by supervisory fees and levies.
Paying Down Swiss Debt
So what happens to the clawbacks? Those proceeds are used to pay down Switzerland’s debt and maintain a healthy budget – Switzerland traditionally posts a budget surplus, though it recorded a surprise deficit for 2014.
The profit clawbacks were introduced in 2009 as part of measures to give the financial regulator more wide-ranging powers. Finma under Branson has wasted little time in making use of them.
Four Cases
Finma has ordered four such profit disgorgements in the last two years, typically in cases of market manipulation or rigging. The UBS forex case, a global probe involving several regulators, agencies, and jurisdictions, is the most notable example. Far more common are similar cases on a much smaller scale.
The clawbacks flow into Switzerland’s budget as extraordinary income – the same type of revenue as antitrust fines or disposals of shares in holdings such as Swisscom, which is majority-owned by the Swiss government.
2.5 Billion in Income
Extraordinary profits of this sort have contributed a whopping 2.5 billion francs since Switzerland began tallying them in 2010, when additional rules governing its so-called debt brake were introduced.
The Swiss budget has recorded a surplus of extraordinary income in recent years, but unexpected spending related to the migrant and refugee crisis could also tip it into deficit.
Since Switzerland's budget is subject to strict controls over how much debt it can rack up, Finma's activism is generating more clawbacks from banks for Switzerland’s household budget would probably be most welcome in Berne.
