(Bloomberg) -- Switzerland's financial regulator should step up its on-site inspections of the country's biggest banks, the International Monetary Fund said, in a rebuke to Finma's approach to regulating the Swiss multi-trillion dollar financial industry.
The current practice of allowing banks to contract auditors for regulatory reviews creates potential conflicts of interest, given there are relatively few audit firms and they also provide consulting services to the banks, the Washington-based IMF also warned in its annual review of Swiss finance. The IMF also called on Finma to increase the independence of its governance framework.
“To better manage conflict of interest and objectivity concerns, Finma should have the authority to directly contract and pay audit firms for supervisory audits of banks, and should itself conduct more on-site inspections, especially of the largest banks,” the IMF said.
The fund's comments raise the question of whether Finma with its 500 or so employees is big enough to properly regulate a financial industry that is home to 253 banks including giants like UBS Group AG and Credit Suisse Group AG, investment firms with $7.3 trillion under management, and 28 percent of the world's total cross border assets. Some of the biggest financial scandals over the past decade including 1MDB in Malaysia and Petrobras in Brazil have had links to private banks in Switzerland, making rigorous oversight all the more important.
“Switzerland has a very very large financial system and Finma is a small operation,” Paul Mathieu, adviser in the IMF's Monetary and Capital Markets Department said Monday at an IMF press conference in Zurich.
“I wouldn't say it's too small but we've called for additional resources to meet it's growing mandate.”
Finma acknowledges the IMF report and will analyze its findings, according to a Finma spokesman who declined to comment further.
--With assistance from Catherine Bosley.
To contact the reporters on this story: Jan Dahinten in Zurich at jdahinten@bloomberg.net;Hugo Miller in Geneva at hugomiller@bloomberg.net
To contact the editors responsible for this story: Anthony Aarons at aaarons@bloomberg.net, Peter Chapman
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