The relationship between a supervisor and those it supervises can, when both sides represent their own interests, naturally never be entirely free of tension. This also applies to Finma and its relationship with banks, insurers and asset managers.

Accordingly, there was good reason to be curious about the remarks of Finma Director Stefan Walter, who on Thursday delivered a speech before representatives of the Ticino financial centre at the Centro Studi Villa Negroni in Vezia (near Lugano). Walter paid tribute to this by highlighting at the outset the great importance of the business of managing domestic and foreign wealth for the Swiss financial centre and, in particular, for the Lugano location.

The Risks Firmly in View

He then turned to the question of why Finma is "focusing intensively on asset management" and what approach it is taking – and first served up a few figures. 

"We are not interested solely in which licensing category an activity is carried out under. We are interested in what activity is being carried out and what risks are associated with it. That is why, for the past two years, we have been collecting cross-industry data on asset management." Asset management mandates handled in Switzerland and assets managed in funds were roughly balanced and totalled CHF 4,222 billion. 

"Do Not Want to Make the Business More Difficult"

In terms of licence category, managers of collective assets accounted for the largest share of these assets at 38%, followed by banks and securities firms with 32%. According to Walter, two-thirds of the latter is individual mandate business.

The supervisory authority takes a close look, "not because we want to make this business more difficult – quite the opposite: because its importance for clients and for the Swiss financial centre is correspondingly great." This also entails considerable risks, in particular the loss of client assets and possible reputational damage for the entire industry, Walter warned.

"A Great Opportunity for the Financial Centre"

This time, however, the Finma director spoke not only about risks, but also about opportunities for the Swiss financial centre, not least in light of the uncertain international environment. "For the Swiss financial centre, this is a great opportunity. Switzerland's seal of quality in global competition is the stability of its politics, economy and currency," Walter said, sounding almost like a representative of the Swiss Bankers Association. He also stressed the importance of "principles-based regulation, risk-based and effective financial market supervision, and the proportional implementation of supervision."

"These strengths form the foundation for the competitiveness of the Swiss financial centre," Walter said. For the good reputation of the financial centre, it is also important to meet "high standards in the implementation of national and international sanctions regulations, in the effective fight against money laundering and in investor protection."

More Cases: "It Would Be Wrong to Draw a Conclusion About the Industry From This" 

Walter then turned to the issue of client protection and referred to the supervisory communication on risks in the use of products in individual asset management, which Finma published in June. The background is that the number of supervisory cases opened by Finma (and escalated to Finma by the supervisory organisations of asset managers or by other sources) has risen sharply. In 2023 there were 7 supervisory cases, and two years later already 60. "It would be wrong to derive a general judgement about an entire industry from this," Walter said in defence of asset managers, before immediately pointing to "important recurring risk patterns".

One example is the use of complex, high-risk or illiquid products in client portfolios without their suitability having been adequately assessed, or a poor consideration of clients' ability and willingness to bear risk.

"The decisive question is: does the product fit the client? That is the essence of the suitability assessment," Walter said.

"Not More Supervision Everywhere"

A second pattern concerns conflicts of interest and is particularly relevant for banks, because they simultaneously act as asset managers, product providers, distributors or custodians.

And how does Finma respond to these (and other) risks in the asset management business? "Our answer is not: more supervision everywhere," Walter assured, again referring to the "risk-based and proportional approach."

"Prevention Makes Further Supervisory Measures Unnecessary"

It is also crucial to identify problems as early as possible. That begins with the licensing of asset managers. In ongoing supervision, Finma relies on data analysis and early-warning indicators, supervisory discussions, deep dives and on-site inspections.

Walter's credo: "By identifying recurring patterns, we want to make these findings transparent so that institutions can critically review their own business models and controls and thus take preventive measures, so that further supervisory measures become unnecessary."

"A Competitive and Future-proof Financial Centre"

Effective risk management and effective supervision help equally to protect clients and investors and strengthen the functionality and integrity of the financial market. "This, in turn, contributes to a competitive and future-proof Swiss financial centre."

Is it just a gut feeling that, in this speech, the Finma director attached significantly more importance to the competitiveness of the Swiss financial centre than in his previous appearances?