An innovative financial center is built on stability

Prof. Dr. Reto Eberle: Professor Amstad, you became Chair of FINMA’s Board of Directors on 1 January 2021, right in the middle of the pandemic. Taking over the lead of a strategic governance body is intrinsically challenging. What was particularly important to you in terms of governance of FINMA and the Board of Directors?

Prof. Amstad: In principle, what applies to the institutions we supervise also applies to FINMA. There need to be independent governance bodies and effective control mechanisms in place, i.e. a strong board of directors and a strong executive board, both of which fulfill their roles.

The pandemic was indeed a challenge for many, including us, in terms of how we work. Supervisory work thrives on direct exchange. Besides, personal contact and dialogue with colleagues is also extremely important within our organization. FINMA was well prepared and managed to switch to digital communication and tools very quickly. 

Our reviews and controls took place digitally rather than on site. In the Board of Directors, we also deliberately took more time for discussions during this phase.

From the FINMA Board of Directors to the boards of  supervised institutions – where do you see the differences  between corporate governance in general and supervisory  corporate governance at banks and insurance companies?

Many principles of corporate governance apply regardless of industry. In the case of financial institutions, however, weaknesses in corporate governance can have consequences that extend far beyond the institution itself. This is a reason why the financial industry is especially well regulated.

For example, the executive management of supervised institutions must permanently guarantee irreproachable business conduct – this is a prerequisite for licensing. In order for executive management members to fulfill their roles as ultimate management or supervisory bodies, it is important that the body as a whole is diverse enough. In addition, there are certain requirements that depend on the specific business alignment and complexity of the institution.

Also important are the size and composition of the board as well as the qualifications, experience and availability of the individual members. In our experience, the latter criteria regularly trigger discussions in the supervisory conversation when there is a change in the board members at an institution.

In its annual risk monitor, FINMA provides an overview of the most significant risks for supervised entities. In November of last year, these included the low interest rate environment, a possible correction in the real estate and mortgage market, cyber attacks and the battle against money laundering. The first three risks in particular have become accentuated since the beginning of the year. How well were the banks (and insurance companies) prepared for these risks?

All four of the risks you mention are still relevant, and some of them are increasing, as you say. Accordingly, we expect supervised institutions to manage them appropriately in light of their specific business model and risk profile.

However, it is not possible to make a blanket statement about how well this is being done. Rather, FINMA analyzes the risks with a view to each individual institution. And we dose our supervisory activities and intensity according to the risks of the institutions. We take a closer look at those institutions and areas where we see greater risks and, if necessary, also prescribe measures.

The goal is always to ensure that the institutions are stable at all times. This means that they are appropriately organized and have taken precautions, for example in the area of cyber security. But it also means that they have adequate capital and liquidity. This is particularly true with regard to any challenges in the real estate and mortgage markets.