Urban Angehrn, the CEO designate of Swiss regulator Finma, will bring a broad range of experience to the job, and he will need it as not only will he have to climb the paper mountain and wade through the money-laundering swamp but above all maintain a sense of perspective.
It is almost as if the board of directors at Swiss financial watchdog Finma are following some kind of unwritten rule on choosing the CEO that they should come from outside the regulator and alternate between someone from banking and someone from insurance.
This definitely applies to Urban Angehrn (pictured below) even though his appointment was preceded, according to Finma, by an extensive search.
Since the re-organization of financial market supervision in 2009, the CEO post has alternated between former insurance man Patrick Raaflaub, former banker Mark Branson and now Angehrn, who was chief investment officer at insurer Zurich.
More Leeway Allowed
Angehrn has had experience right across financial services sector. He has worked in banking asset management as well as insurance in both Switzerland and abroad.
He will take over an authority which, under finance minister Ueli Maurer, has allowed the industry it supervises more leeway and expects it to take responsibility for itself rather than laying down detailed regulations. This approach, based on the firmly held principles of Angehrn’s predecessor Branson, has created very favorable conditions for fintechs.
Strategy Already in Place
Over its latest strategy period from 2021 to 2024 the watchdog intends to place greater emphasis on digitization, innovation and sustainability.
This will also lay down the framework within which the new CEO will operate. However, rather like is predecessor did, he may well find out how quickly unpleasant surprises and external events can require Finma’s full attention. The latest example of this is Credit Suisse’s woes.
1. Credit Suisse, a Regulatory Challenge
Finma is carrying out several investigations into Credit Suisse. In April the regulator began an enforcement procedure against the bank in connection with the collapse of the Archegos hedge fund. This will look into whether there was a failure of risk management.
Since March Finma has been investigating Credit Suisse over its «Greensill Funds». Issues surrounding the adequacy of risk management are also at the heart of this probe. The regulator instructed the bank to take immediate precautionary measures which included an equity capital hike and a reduction in risk.
Another enforcement procedure is underway in connection with «Spygate», the surveillance of former Credit Suisse employees. In this instance the bank took Finma to court and lost over its choice of outside investigator Thomas Werlen. The bank accused Werlen of bias.
2. Tightening Capital Rules, Gently
Credit Suisse presented those demanding stricter regulation of the big banks with a golden opportunity. The Swiss Social Democratic Party (SP) has recently urged a ban on bankers’ bonuses at systemically important institutions as well as a massive hike in equity capital by the big banks in parliamentary motions.
In March 2020, when the coronavirus crisis hit, Finma in agreement with the Swiss National Bank eased some of the capital requirements for banks.
Now these will have to be carefully tightened again. By the end of 2022 all of the final work on the Basel III international regulatory framework will have to be passed and this July the new rules on dealing with liquidity risks will come into force.
The SP’s move shows that Finma is in the politicians’ sights. During the Branson era there were several attempts to rein in the regulator’s influence.
3. Defending Switzerland’s Fintech Advantage
By introducing digital opening of bank accounts, fintech licenses, the first regulated crypto exchanges and banks as well as a distributed ledger law, the government and Finma have given the Swiss financial center a head start on innovation and startups.
Although Finma does not see itself as a promoter of Switzerland, there are echoes of this in its four-year strategy in which it set itself the goal of enhancing «confidence in the proper functioning, integrity, competitiveness and future sustainability of Switzerland’s financial center».
The issue will be whether the regulator will find itself stretched to defend this advantage over the next few years.
The financial authorities in other countries are unashamedly acting as venture capitalists or drawing up laws which are tailor-made for up and coming sectors.
4. Money Laundering: Draining the Swamp
From a regulatory perspective innovation and digitization in particular bring with them a whole series of new risks. One example of this is cyber attacks which have increased enormously since the move online during the coronavirus crisis.
The other is the risk of money laundering using cryptocurrencies. In its 2020 Risk Monitor, Finma identified the problem for the first time. This was while Swiss finance seemed tangled up in money laundering. Die Finma has had to deal with highly complex international cases and has recently imposed sanctions on important companies such as Credit Suisse and Julius Bär.
However, muddling on and hoping for the best is no solution and both the regulator and the government will need to step up. The verdict on Switzerland from the Financial Action Task Force, an intergovernmental organization set up to combat money laundering is expected in 2022.
5. Drowning in Paperwork from Independent Wealth Managers
By the end of 2022 all independent wealth managers in Switzerland will have to apply for a license. That is estimated to be well over 2,500 companies of varying sizes and structures. The aim of the exercise is to put them under licensed regulatory organizations.
That is when the financial institutions law, which has been in force since 2020 will apply to them. The wealth managers have to apply to one of the regulatory organizations for a license which then examines the application. Once they have been accepted by a regulatory organization Finma checks every single application.
There is speculation that Finma could extend the deadline in light of the mountain of paperwork it has to wade through. This will probably be one of the first important decisions Angehrn will have to take.
6. Sustainability: Nailing down Climate-change Risks
Finma said in its 2020 annual report that environmental, social and governance topics could in future also lead to permanent changes in the lending business and investment banking. In the meantime Finma has nailed its colors to the mast and obliged major Swiss insurers and banks to report on potential climate risks related to their business from July. This obligation could be extended to smaller banks and insurers.
Finma continues to leave capital coverage for environmental risk to companies. A totally different approach to the EU where extra requirements and concessions when making loans are being discussed.
Not least in light of events at Credit Suisse, Finma said it intended to examine the balance of power at the operational level and the position of the second line of defense (risk management and compliance) within the companies in greater detail. A Finma spokesman recently told finews.com that it would not be changing the bank governance rules passed in 2016.
