The Swiss Financial Market Supervisory Authority (FINMA) sees more unease in the Swiss financial hub than in the previous year.
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In addition to the main risks, FINMA identified two new problem areas in its “Risk Monitor 2023”. According to the report published on Thursday, these are in the areas of liquidity and refinancing as well as the outsourcing of business activities.
According to FINMA, the liquidity and refinancing risk includes the danger that institutions do not have sufficient liquid funds to fulfil their obligations in the event of a crisis. This problem could be fuelled, for example, by an increased need for collateral, rating downgrades or rapid outflows of client funds.
The latter was one of the main causes of the collapse of Credit Suisse, which was then taken over by UBS. According to FINMA, such a so-called “bank run” can trigger a “stress situation with an unstoppable downward spiral”.
Need to catch up on outsourcing
FINMA also identified a second new risk for financial institutions in the form of outsourcing business activities. The transfer of “essential functions to third parties acts as a driver of operational risks”, according to its verdict.
In extreme cases, the interruption of such functions could jeopardise the stability of the financial market. The management and monitoring of service providers is therefore also the responsibility of the client in order to ensure operational functionality.
“Responsibility for the proper conduct of business cannot be delegated and therefore also extends to outsourcing,” the report states. In this area, FINMA found that there is still some catching up to do, particularly in terms of “identifying the entire supply chain and the associated risks”.
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