The outrage over Credit Suisse after a series of scandals is causing Switzerland to rethink a system in which top bankers were largely inviolable.
Credit Suisse’s heavy losses from the collapse of the Archegos family office and the decimation of billions in client investments backed by bankrupt UK financier Greensill have angered regulators and sparked a rare debate among lawmakers about fining bankers.
The debate, the largest public discussion of banking reform since the financial crash, centers on ending the current laissez-faire regime, where fines against bankers are not possible in order to copy the stricter British regulatory framework.
“Bank directors do not take responsibility for their actions because it is not necessary. There are no real sanctions for mismanagement,” said Gerhard Andrey, a green member of the Swiss parliament.
“The scandals that hit Credit Suisse from Mozambique to Greensill are damaging Switzerland’s reputation. We have proposed reform … that would mean that if something goes wrong, the manager is on the hook,” he said.
Andrey’s proposals, which follow the pioneering British model that puts the top management of financial companies directly accountable for their actions, will be discussed by Swiss legislators in the coming days.
The debate unfolded after Credit Suisse lost more than $ 5 billion to the Archegos family office collapse and faced a flurry of legal action totaling over $ 10 billion in customer investments related to Greensill .
A bank spokesman said his board of directors had started investigations that would reflect “the broader consequences” of these events, adding that he had made changes to management in investment banking and risk control.
The series of scandals angered FINMA officials, who have difficulty holding bankers accountable because Swiss regulations only allow directors to be sanctioned if they are directly involved in misconduct, not if the management is forfeited .
A FINMA spokesman told Reuters that he welcomed a discussion on “optimizing” “personal responsibility issues” and that other financial centers “go much further than Switzerland”.
He said current Swiss regulations allow penalties, such as banning the work of bankers, only when there is a direct link between the manager and the wrongdoing and showing that that person is simply responsible is insufficient.
Despite more than $ 15 billion in write-offs and fines at Credit Suisse and multiple scandals, FINMA struggled to get the bank under control and dissenting shareholders were unable to oust its chairman Urs Rohner before joining this year retired.
In addition to Archegos and Greensill, Credit Suisse had other problems, including a spy scandal that forced the departure of its former CEO.
Bankers also faced proceedings in the UK and the United States related to loans granted to Mozambique that plunged it into a debt crisis.
The US prosecutor said last year it was investigating Credit Suisse’s role in the $ 2 billion corruption case stemming from loans the bank helped develop Mozambique’s coastal defense. The bank has said it is cooperating with the investigation.
Regarding the recent setbacks, the bank said it had suspended some compensation for the employees involved, including board members, so it could reclaim the money if needed.
Monika Roth, a Swiss lawyer and compliance expert, said it was prohibitively expensive for bank shareholders to seek justice by prosecuting directors for negligence in Swiss courts and that regulators should be allowed to reclaim directors’ remuneration.
However, any reform is likely to meet with resistance. The Swiss Bankers Association stated that current supervision is “balanced” and strict, and that improvements should take into account the “specifics” of the Swiss banking sector.
Dominik Gross from the Swiss Alliance of Development Organizations predicted that Swiss lawmakers would be reluctant to change.
“Everyone agrees that a strong financial center is an essential part of Switzerland – just like watches and chocolate. A large part of the population benefits from the money that comes in. “
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