Today’s lunchtime lecture.

What’s on the mind of financial market supervision today? A look at current topics and focal points, Urban Angehrn, Director of the Swiss Financial Market Supervisory Authority FINMA, Bern.

Angehrn divided the lecture into three parts: “Environment”, “Digitalisation” and, derived from this, the “Consequences for Finma”.

Environment: According to Angehrn, Finma’s main task is prudential supervision, i.e. the anticipating supervision of the financial sector. FINMA supervises most thoroughly where the risk is the greatest.

Angehrn stated that in a risk assessment financial institutions are “more robustly positioned” today compared to the situation that presented itself in 2007.  He went on to say that these days financial institutions are more risk-proof, better capitalised and thus more resilient than they used to be. However, some steps still need to be taken in order to complete the too-big-to-fail planning. More than ten years after the global financial crisis lessons have been learned, and banks, financial market infrastructures as well as authorities need to make the necessary efforts to close the last remaining gaps.

Angehrn sees the second gap in the implementation of capital requirements for banks. FINMA has, therefore, revised the capital adequacy regulations. In doing so, Switzerland has been adopting the last improvements to banking regulations provided for by the international Basel III standard. FINMA is currently conducting a consultation, which runs until 25 October 2022.

According to Angehrn, effective conduct supervision strengthens confidence in the financial centre. Conduct supervision focuses on the implementation of efficient money laundering legislation. The use of sanctions, especially targeted financial sanctions, is nothing new. In addition to the freezing of assets of persons, organisations or groups affected, there is always a reporting obligation to the State Secretariat for Economic Affairs (SECO), which is responsible for imposing sanctions.

Angehrn also touched upon sustainability by stating that FINMA’s mandate is to protect clients and investors in the financial market from unfair business practices, especially fraud and deception. When preventing “green washing”, FINMA is primarily concerned with ensuring that clients and investors are not misled about products and distribution. However, Anghern pointed out that FINMA’s scope for effective green washing prevention is seriously limited. For example, there are no specific sustainability-related transparency obligations and there is no effective regulatory basis for measures to be taken at the “point of sale”. Angehrn stated that regulatory measures could provide FINMA with additional tools to make the fight against green washing more effective and extensive.

Digitalisation: Angehrn explained that ongoing digitalisation has been triggering fundamental changes in the Swiss financial centre. Clear location factors such as stability, security and trust apply though new elements, such as the ability to use new technologies, are proving to be the longer the more important. New digital technologies (digital finance) with new products and players challenge traditional financial service providers, e.g. there the question of how financial services are provided and by whom.

The role of the state is to create the best possible framework of conditions, namely processes that support and enable change, address risks, ensure stability and integrity as well as international competitiveness and promote the sustainability and interconnectedness of the financial centre. The guiding principle for FINMA, however, is technological and competitive neutrality and thus it is imperative that the same business models and the same risks are treated the same.

In his concluding summary, Angehrn admitted that not much has changed in terms of supervision and conduct supervision. What has changed fundamentally, however, is the population of financial institutions to be supervised. In the future, about 530 FTEs will have to supervise about 14,000 licensed entities (including funds, asset managers and trustees).

Source: Luncheon lecture series, today’s event / FINMA website

The commentary

The answers to questions from the audience were answered concisely. One member of the audience asked whether a real estate crisis in 2022 would have similar consequences as the one we had in 1988/89. An other questions was about what Switzerland’s relationship to EU regulations in the financial sector was and whether Switzerland did not simply follow other foreign regulators. Someone wanted to know why one had not yet come up with more precise definitions of the term “sustainability”. The questions whether a major Swiss bank could simply be taken over was met with some humour.

 

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