Switzerland’s Finance Sheriff Takes on UBS and Banking Elite – Mint

(Bloomberg) – After Stephen Walter became the Swiss financial regulator, he named himself among the bankers he overseen.

They call him “sheriff.”

Walter, 60, is a German citizen with decades of experience in top-level regulations, including the US, and uses turbulent periods in Switzerland to establish the open public presence of Finma, most of Zurich and Geneva accustomed to it.

Under his surveillance, FINMA has communicated penalties or investigations against seven banks and fintech companies, including Julius Baer Group Ltd.

Most notably, he has publicly promoted the strictest stance on UBS Group AG's future capital requirements, facing the bank in a showdown where interests are rising rapidly. Executives at Zurich's Global Wealth Manager are even investigating whether the full implementation of higher requirements will force them to move their headquarters completely out of their entirety, Bloomberg reports.

Interviews with more than a dozen executives and officials reveal photos of regulators excitedly disrupt the atmosphere of a cozy agreement between the Swiss financial company and the Watchdog that characterized the year leading up to the collapse of Credit Switzerland in 2023. And respected.

“I'm learning about the context here, not Switzerland,” he told Bloomberg in an interview with Finma's office in Zurich on March 17th.

UBS faces an increase in capital requirements of up to $25 billion if it takes on improved financial regulations in the country led by Finance Minister Karin Keller Sutter after Credit Suisse's final affered. His push is centered around the capitalisation of UBS's foreign units, which should be supported 100% by Parent Bank stakes, according to FINMA and the Swiss National Bank. UBS, which bought its rival for just $3 billion two years ago, says it was an overreaction to the crisis with its previous rivals and is lobbying strongly against it.

However, bigger issues are also at risk. Switzerland's status as a safe haven for the world's wealthy people has been questioned by the Credit Swiss crisis, and politicians are worried that the new combined bank will simply be too big. The current geopolitical turmoil and turning market should place a premium on the Swiss experience in managing money, but financial centres risk losing their positions in Singapore and Dubai.

This helps explain Walter's arrival at the first location. From 2014 to 2024, he was known as a tough interlocutor with Deutsche Bank AG and Nord LB, a regional lender in Germany. Bank reforms that caused a step in changing bank capital requirements. Before that, he spent over 12 years in various roles at the Federal Reserve Bank of New York.

This track record informed Keller Sutter's view that he is a good choice to implement regulators, according to officials familiar with the issue. His lack of knowledge in the established Swiss operational methods was seen as an advantage.

The Swiss Ministry of Finance and UBS declined to comment on this article.

Since Walter took office last April, FINMA has announced the confiscation of more than 20 million ($23 million) of profits from the two companies, Mirabaud & Cie SA and Leonteq AG.

The amount is less than the revenue and the initiation of some of these cases, but some cases in Walter's era still show the new CEO's willingness to impose some of the harshest penalties at the disposal of regulators.

In contrast to most major global watchdogs, FINMA is still not tasked with issuing punitive fines to financial companies so that US or UK officials can. Walter asks the body to receive its new power and ability to intervene early if it finds the bank is headed for trouble. He also calls for more staff, more resources and the establishment of a system in which it is clear that anyone in the bank is responsible for each business decision. With many of these requests, he reflects the government, and the laws to commence the road through the Swiss Parliament this year may give those boxes a check.

Finma also stepped up his actions against Julius Bear earlier this month. This is the global wealth manager that has been in the crosshair since the arrival of an increase in $700 million exposure to a single client in 2023. Banks are currently facing so-called enforcement procedures from FINMA officials, and have not been able to roll out the stock buyback programme investors have been waiting for.

Other bankers also noticed that regulators were beginning to seek significantly more documents from them, and that even branches abroad had increased the frequency of on-site inspections.

UBS CEO Sergio Ermotti rejected the offer after hours that it would not change the content of the request.

“It's not about designing that conflicts with people,” Walter told Bloomberg about his skirmish. Capital demands ensure “the correct balance between solutions and profitability,” he added.

In the past, Swiss financial regulators have placed stricter standards on paper than many of their global peers. However, enforcement was undoubtedly much lighter, in part because of the voluntary philosophy, where possible.

“I think Finma needs to be transparent and speak out about what they think about important issues. That's not something that has traditionally been,” says Walter.

“Previous financial regulations were fair weather structures that didn't work,” said Georg Lutz, a professor of political science at Lausanne University. “The credibility of banks being able to solve problems themselves when needed has been destroyed.”

Meanwhile, the banker who worked with Walter while leading the oversight of the ECB's full-body lender rejects the notion that he is overly harsh. Executives describe him as tough but fair, making his point very clear, but not acting in a standard way. The senior officials who worked there explain his ability to demand his abilities while maintaining good relations with the companies he overseen.

The question bankers are currently asking in Zurich is whether new claims from the country's regulators will become permanent features, or whether they will be easier as memory of the crises of the Credit Suisse crisis will be receding.

For now, Walter and the bold Finma have a tailwind. The Swiss government's decision to send capital reform to Parliament could be a signal that the public desire for more scrutiny has increased by banks. “In the past, calls from Elmotti would have been enough to kill such bills,” Lutz says. “But that's not the case anymore.”

– Support from Nole Irien and Nicholas Comfort.

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