The online magazine of the Swiss Bankers Association
September 26, 2019


“From my point of view, there is a significant overlap”

“From my point of view, there is a significant overlap”

Jan Blöchliger, Member of the Executive Board of the Swiss Financial Market Supervisory Authority FINMA and Head of the Banks division, talks about the role of FINMA, working with the banks and what he sees in store for the future.

Jan Blöchliger
Jan Blöchliger - FINMA Head of the Banks division
You have been a member of the FINMA Executive Board and Head of the Banks division for over a year now: What are the greatest challenges you have faced during that time?

Fortunately, there hasn't been a real crisis yet, but there is always an urgent issue that needs to be addressed when you supervise around 300 banks and securities dealers as well as various licensing approval processes. The challenge has above all been of a general nature: to learn the ropes quickly in order to be able to make decisions. This is because the organisation and the institutions it supervises need decisions to be made on an ongoing basis. It goes without saying that you don't want to stand in the way of that.

In the ten or so years since the financial crisis, there has been a substantial surge in regulation: In your opinion, what have the greatest improvements been in this regard?

Governments and regulators have indeed learned a number of lessons from the recent crisis and have made substantial improvements in the regulation and supervision of banks worldwide, notably in the area of capital and liquidity requirements. Although this process has reached an advanced stage, it has not yet been fully implemented, the “Basel III: Finalising post-crisis reforms” document being one example. The same applies for the resolution capability of systemically important banks in a crisis: this has been significantly improved and the five banks concerned in Switzerland have already made very good progress. However, if we are really to achieve the targets set for the "too big to fail" problem in Switzerland, further efforts are needed. 

Asking you to assess the Swiss banking system in just a few sentences is, of course, an unreasonable request: Nevertheless, in your opinion, what kind of shape are the banks in Switzerland in?

Overall, the banks are in good shape in terms of capital and profitability. This should not be taken for granted, given the challenging environment of the last few years: a strong franc, negative interest rates, the cessation of old cross-border business models founded on tax-related bank-client confidentiality, necessary investments in digitalisation, competition from new banks, new regulatory requirements arising out of lessons learned from the crisis. That’s a lot. It is also clear that in a bank population of several hundred institutions, there are always a few negative outliers. Nevertheless, the situation at present is quite positive.

What about the outlook?

If I look towards the future, then of course the ongoing low interest rate environment in particular, but also strong political uncertainties, such as EU market access, dampen the outlook. There are a number of question marks: will today's business models continue to function in the long term? Will it be possible to address the challenges in the longer term with cost savings and efficiency gains alone? What will the new sources of revenue be?

"The prevailing interest rate situation can also lead to misallocation of loans, the wrong incentives and therefore the formation of bubbles in various markets."

The prevailing interest rate situation can also lead to misallocation of loans, the wrong incentives and therefore the formation of bubbles in various markets. This situation and the question of where the next crisis will arise is very challenging not only for the sector, but also for supervisory authorities.

FINMA and the SBA have in recent months worked intensively on a new regime for small banks, which is to come into force at the beginning of next year: What do you think of this regime overall, and where do you see strengths and weaknesses?

The objective behind the regime launched by FINMA in 2017 is to reduce the unnecessary administrative burden for Category 4 and 5 banks while at the same time upholding the stability and security level for creditors and customers. What was very positive was that we succeeded in developing the idea in close collaboration with the sector and fleshing it out rapidly. Many countries are now also considering such an approach. With the pilot project that is currently underway, Switzerland is the global leader in this area. Of course, in the end, the new regime has to prove effective in practice, but I’m confident on that front.

One of the most important upcoming regulatory projects is the implementation of “Basel III: Finalising post-crisis reforms” in Switzerland. Where do you expect to have the biggest discussions with the banks in this matter?

As mentioned, I see this as an important milestone that still has to be reached in post-crisis reforms for the financial centre. The meetings of the national working group with the authorities and the sector are now starting. I have my suspicions in terms of where things could get heated, but I don’t want to ruin the suspense...

The authorities and the banks reached an agreement for the Swiss implementation of “Basel III: Finalising post-crisis reforms”, whereby the implementation in relevant, comparable financial centres will also be taken into account. How do you ensure that, or which instruments does FINMA use to Monitor developments abroad?

We Monitor developments very closely and of course also foster contacts in international working groups such as the Financial Stability Board (FSB) and the Basel Committee on Banking Supervision. We are also in close contact with the State Secretariat for International Finance (SIF). In general, however, I am not worried that we might be too far ahead of the game in some regards on this issue. At the moment, I see a danger of the opposite. For our export-oriented financial centre, however, it would not be an advantage if Switzerland were to not to keep pace with the key financial centres when implementing international reforms. This is particularly true for the majority of our financial institutions, which depend on market access abroad.

Fintech, crypto, cloud and cyber: how is FINMA addressing new technologies, business models and risks, and what kind of a regulatory strategy are you pursuing for these “new worlds”?

We are pursuing a technology-neutral approach. We do not want to favour or disadvantage established or new business models. Whether digital or analogue, the same rules must apply everywhere for the same risks, especially in the fight against money laundering. We want to remove unnecessary hurdles. Here's one example of an adjustment in the banking sector: clients can now be identified online as well as in person. In addition, Switzerland has established a sandbox and, with the fintech licence, a licence that makes it easier for start-ups to access public deposits.

"We want to remove unnecessary hurdles."

This makes it possible for innovation to develop in a clearly defined and secure area. We also recently approved the first two crypto banks in Switzerland. Digitalisation brings opportunities with it, but also risks. We currently see cyber risk, for example, as the greatest operational risk for the banks. We will therefore expand our supervisory activities in the areas of cyber, IT and outsourcing in the coming years.

FINMA is also facing rapid international developments and an intensive regulatory policy discussion: Where do you see the priorities in your work in the next five years, and what should the banks expect?

Provided no new crisis arises, we can say that the regulatory cycle is now drawing to a close. FINMA will therefore be less involved in regulatory projects. Contrary to the prevailing opinion in certain circles, this also corresponds much more closely to our core mandate, which clearly lies in supervision. Although we are often called “the regulator”, regulation in Switzerland is mainly a matter for Parliament and the Federal Council.

I assume that FINMA’s Head of the Banks division could sometimes have concerns about the future. What kind of things keep you awake at night?

Thankfully, I generally sleep well at night. It goes without saying, however, that everyone worries about the future every once in a while – be it with regards to their personal or professional life. An important part of my job is thinking about stress scenarios. Some of those would definitely result in lost sleep if they were ever to actually happen.

If the SBA could grant you a wish, what would you wish for?

I can’t, of course, say that all my wishes have been granted when it comes to the dossiers we work on together. But that's ok, the SBA and FINMA have different mandates and priorities. As a result, there will always be a certain amount of friction in our interactions. As long as good compromises remain possible, that doesn’t hurt. From my point of view, there is also a significant overlap: we are interested in secure and profitable banks that enjoy a good reputation. In return, I hope that the SBA will remain interested in strong, independent and credible financial market supervision, because without it there will be no prosperous financial centre with international appeal in the long term.