Switzerland’s finance watchdog wants to deter bankers from behaving badly by naming and shaming publicly. The approach also highlights the regulator’s own shortcomings.
For many years, Finma only communicated what punishment it had doled out in its annual report, with names removed to protect the guilty. It was widely known in Switzerland’s clubby finance circles who the black sheep were, but officially the finance overseer kept its sanctions under wraps.
That changed dramatically in the years following the financial crisis. As in many countries, what had often been a collegial or even jovial relationship between overseer and the powerful finance industry hardened into a more traditional carrot and stick approach.
Good OECD Grades
Ten years after the financial crisis, the relationship has softened into a more collaborative one. The shift coincides with the adoption of more principle-driven oversight as British authorities practice, instead of a strict rules-focused one which is dismissively referred to as «box-ticking» by bankers.
Internationally, Finma generally won good marks in a review conducted by the Organization for Economic Cooperation and Development. The group's only niggle? Finma has grown to rely on outside consultants too much as it conducts more on-site supervisory visits.
Powerful Titans
Under former UBS banker Mark Branson, the regulator has successfully demonstrated it can still listen to the industry’s concerns. At the same time, Finma has shown it isn’t afraid to take on the titans of Swiss finance like star turnaround manager Hans Ziegler or long-time Raiffeisen boss Pierin Vincenz.
The insider trading case has rattled nerves among traders, which fits into the wider strategy of setting an example as a deterrent. But the public naming-and-shaming, which has long been common in other finance centers like the U.S., the U.K. and Singapore, also reveals Finma’s own blemishes.
Finma has opened itself up to criticism in three areas, according to an overview compiled by finews.com:
New Finance Players
Switzerland is home to a hub of fintech firms, but the start-ups complained for months that Finma was slow to address their regulatory needs. The overseer lept into action last year, introducing a light-touch regime for budding finance firms. And last month, Finma granted crypto payments service Payment21 a financial intermediary permit.
Digital currency providers themselves are another story: long a haven for offshore money, Switzerland is rapidly turning into a harbor for cryptocurrencies. Countless vehicles have set up shop in Zug, which has welcomed digital currencies with open arms. Local law is permissive with granting trust status to crypto providers, and regulation of foundations is light.
What could possibly go wrong? Several high-profile scandals including Tezos, whose founders awarded themselves $20 million from its record-breaking $232 million coin offering in July, have thrust Finma into the spotlight. The regulator has no authority over foundations, but with millions flowing into often opaque Swiss structures, Finma finally moved on several cases two months ago.
Money Laundering
A slew of cases – 1MDB, Petrobras, Oudebrecht, FIFA, Uzbeki telecoms – makes it clear that criminals still love using Swiss banks to launder their money. To be sure, Finma is front and center of the issue, warning wealth managers that they are on watch-lists.
The regulator began making the rounds with private banks after the industry began looking towards higher-risk emerging markets like Russia and Brazil for new business. The message? Effectively, if banks have even a sliver of doubt about a client or a deal, they need to notify a money-laundering office, MROS, set up as a linchpin between industry and authorities.
Finma’s campaign to raise awareness with banks and coax them into registering their suspicious and potentially criminal cases is working: notifications surged to 2,500 last year, and are expected to climb again this year. To be sure, not all the notifications will be born out as money laundering, but the numbers show banks can do a better job at spotting dirty deeds sooner.
The regulator's role in this? A late convert, as finews.com has written previously. Chastened by the tax evasion crackdown in 2008, Switzerland – and Finma – shouldn’t have waited as a long as 2014 to wrangle banks into upping their guards.
Corporate Governance
Pierin Vincenz is feeling Finma’s wrath: the long-standing Raiffeisen boss is the subject of a Finma enforcement probe. The investigation is apparently linked to his personal investments in a firm the bank owns 60 percent of.
Vincenz is no longer a finance bigwig, having stepped down at Raiffeisen two years ago and relinquished the chairmanship of troubled derivatives boutique Leonteq earlier this year. However, he still oversees Swiss insurer Helvetia’s board.
If Vincenz fails the fitness and probity test over private dealings, it raises questions over Raiffeisen’s compliance. This in turn leads straight to Vincenz’s wife, Nadja Ceregato, who worked alongside Vincenz as the bank’s chief counsel for ten years. Finma apparently never had a problem with the arrangement during the ten years that it held. The regulatory roar now feels like late censuring.
Fire Warnings
The fitness and probity tests fit into a pattern of naming and shaming that the regulator has pursued since the financial crisis. Finma appears to hew to an approach more common in the U.S.: fire a warning shot, and hope the rest of the industry falls into line.
Veteran Swiss turnaround executive Ziegler is a prominent example, as are several unnamed bankers at Falcon Private Bank and the now-defunct Banca della Svizzera Italiana.
Is the approach working? Ultimately, Finma’s success needs to be measured in how well it can prevent banks from misbehaving in the future, not from how heavy-handed sanctions for past crimes are.
