In the aftermath of the collapse of Credit Suisse, Switzerland’s financial regulator, the Swiss Financial Market Supervisory Authority (FINMA), has conducted a comprehensive review and called for greater legal powers to prevent such incidents in the future. The 167-year-old bank’s rescue by domestic rival UBS, after a series of risk management failures and scandals, highlighted the pressing need for regulatory reforms. This article critically evaluates the key findings of FINMA’s report and examines the necessary changes to ensure financial stability.
FINMA’s report acknowledged the successful collaboration between the government, the Swiss National Bank, and FINMA itself in safeguarding Credit Suisse’s solvency and preserving financial stability. The report also highlighted the significant efforts made by the regulator to supervise the bank and rectify the deficiencies in corporate governance, risk management, and risk culture. However, despite these measures, the collapse of Credit Suisse raises questions about the effectiveness of the existing regulatory framework.
The report draws several crucial lessons from the Credit Suisse collapse. Firstly, it emphasizes the need for a stronger legal basis, specifically instruments such as the Senior Managers Regime and the power to impose fines. Secondly, the report calls for more stringent rules regarding corporate governance to address the bank’s recurring scandals and reputation undermining. Overall, the report suggests that a more robust regulatory framework is essential to prevent similar incidents in the future.
Inadequate Implementation of Strategic Changes
FINMA’s report raises concerns about the inconsistent implementation of strategic changes by Credit Suisse, intended to de-risk the bank. Measures such as downsizing the investment bank, focusing on asset management, and reducing earnings volatility were found to be inadequately implemented. This failure further compromised the bank’s reputation and highlighted the need for stricter oversight and enforcement mechanisms.
Ineffective Variable Remuneration Policies
The report also highlights the issue of excessive variable remuneration at Credit Suisse, even during years of heavy financial losses. Shareholders were found to have little influence over pay packets, suggesting a lack of accountability and transparency. This observation underscores the importance of reforming remuneration systems and empowering shareholders to hold executives accountable for their actions.
FINMA’s report reveals the extent of its efforts to address the risks and deficiencies within Credit Suisse. Over the years, the regulator conducted numerous preliminary investigations, issued reprimands, filed criminal charges, and initiated enforcement proceedings. Additionally, it imposed extensive capital and liquidity measures, intervened in governance and remuneration, and placed restrictions on business activities. Despite these significant measures, the collapse of Credit Suisse indicates the need for a more proactive regulatory approach.
Required Regulatory Changes
Based on the findings of the report, FINMA acknowledges the need for significant changes in its approach. The regulator intends to adapt its supervisory approach in specific areas and enhance its review of stabilisation measures. It also calls for extended options that would enable it to have more influence on the governance of supervised institutions. Additionally, FINMA seeks a more solid legal mandate to effectively intervene in remuneration systems and potentially impose fines. Regular publication of enforcement proceedings is also proposed to enhance transparency and accountability.
The collapse of Credit Suisse serves as a wake-up call for regulators and the financial industry as a whole. FINMA’s report provides valuable insights into the deficiencies and risks faced by the bank, as well as the shortcomings of the regulatory framework. The report calls for a stronger legal basis, enhanced supervisory approach, and more robust oversight of strategic changes and remuneration policies. Implementing these necessary changes will be critical to prevent similar incidents and safeguard financial stability in Switzerland.
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