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Financial regulator says crisis not over

Anne Héritier Lachat speaks to the media in Bern Reuters

The financial crisis is real with risks still hidden in the heart of the system, says the new president of the Swiss Financial Markets Supervisory Authority (Finma).

Anne Héritier Lachat, who took on her role at the beginning of the year, also pointed to the sovereign debt crises and the evolution of interest rates as worrying factors.

Finma was created just over two years ago with the merger of the Federal Banking Commission, the Anti-Money Laundering Control Authority and the Federal Office of Private Insurance. Héritier Lachat intends to build on the combined strengths of these three parts. Your predecessor Eugen Haltiner was criticised for his closeness to UBS, bailed out by the state. Does Finma have a credibility problem with the public?

Anne Héritier Lachat: You have to ask the public that … After a period of internal construction and reaction to the crisis, we now have the good fortune to be able to develop a certain number of projects and to use internal synergies, which will make Finma more credible. If we have lost credibility, that is. The goal for us is to no longer be talked about. That the invisible work behind the scenes is evident and no longer talked about. Switzerland and its financial sector are under strong international pressure. How serious are these pressures and what do they mean for Finma?

A.H.L.: What is evident is that there is a whole series of international trends, particularly regarding regulation, that we cannot ignore and in which Finma participates actively. Whether that is Basel [Basel Committee on Banking Supervision], the IOSCO [International Organization of Securities Commissions], or in other international groupings. There we try to find a Swiss solution that is compatible at the international level.

On the question of the pressure from the US following a number of cross-border affairs [problems of UBS, then Credit Suisse employees and other Swiss banks with the US tax authorities for encouraging clients to commit tax fraud] Finma is not in the first line. That’s more the role of other authorities.

We are involved because we watch over the banks and we are interested in the manner in which they manage the risks connected to these activities. Also because we are the correspondents of the Securities Exchange Commission [US markets watchdog] in a certain number of judicial assistance cases. That’s all. More generally speaking is the financial crisis now over?

A.H.L.: No, it is not over. And it’s difficult to say it in Switzerland where the general situation is better than elsewhere. But there is still the problem of the debts of neighbouring states, the problem of risks accumulated somewhere in the system that no one can really keep control of. And then all the risk connected to the movement in interest rates, whether they keep going down or start rising [with the risk of destabilising the whole financial system]. No, the crisis is not over. To supervise the banks, Finma largely depends on information provided by them and on the banks’ own risk evaluation models. But the crisis has shown their failure. Are you going to seek to put in place a more effective structure?

A.H.L.: We have not waited for the end of the crisis to do this. On the one hand integration has allowed us to be able to count on new skills and to exchange internally. And we have become more intrusive as a regulator. We conduct more on-site inspections. We send Finma people to the [banking] institutes, and not just the big ones. And we collaborate differently with audit firms, who remain the first involved, as required by law.

Thanks to these controls on site and this rather more critical dialogue, we have learned about ourselves, our skills, our weaknesses but also a lot about the institutes. Because, in the end, when you see people, when you see how they react, it is easier to see if they are in the process of facing their risks and if they are dealing with them correctly. The crisis has raised the issue of “too big to fail” – big banks that governments can’t let go bust. Something parliament will soon discuss. Will the solvency requirements of Basel III and the “Swiss finish”, which subjects big Swiss banks to an extra layer of rules that go beyond international standards, be enough to prevent serious problems in the next few years?


A.H.L.: I don’t know if it will be enough. But I do know that we’re going in the right direction and we have to continue doing so. When dealing with money belonging to the leaders of Tunisia, Egypt and Libya, have Swiss banks respected due diligence concerning money laundering? And is the current system satisfactory?


A.H.L.: It’s a bit too early to give the results of our enquiry. A dozen banks are involved, and we’re looking into whether they broke their obligations regarding diligence.

The current mechanism seems to me to work properly, so long as the financial intermediaries – and not only the banks – do their job. We don’t have any real reason to think that the level of diligence has dropped in recent years. On the contrary: checks by watchdogs on individuals have increased.

The Swiss Financial Market Supervisory Authority (Finma) was created on January 1, 2009, following a merger of the Federal Banking Commission, the Anti-Money laundering Control Authority and the Federal Office of Private Insurance.

The body also regulates stock exchanges and securities dealers in Switzerland.

The reorganisation of the separate supervisory bodies was in response to the deepening and ever more complex relationship between the various sectors of the financial community.

Besides regulating the Swiss financial market, Finma is present on about 50 international working groups.

Former judge, lawyer and professor at the University of Geneva specialising in banking and finance law, Anne Héritier Lachat (61) has presided over the board of Finma since the beginning of the year. She has been a member of the former Federal Banking Commission since 2005.

Héritier Lachat’s predecessor was Eugen Haltiner, who came under fire for his perceived lack of independence towards his previous employer UBS. The bank was bailed out by the authorities when they took on billions in bad debt in October 2008.

(Translated from French by Clare O’Dea)

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