Switzerland: Financial Sector Stability Assessment; imf country Report 14/143; April 16, 2014

The cantonal banks have highly concentrated exposures, largely on mortgages and real 
estate, and some exhibit weak governance. Some are increasing their national and cross-border 
business while others remain locally based, but difficulties in one could spread to the group as a 
whole. Most have portfolios highly concentrated in local real estate, and the interrelationships 
between the banks and their cantons may threaten the banks’ soundness. Increasing intensity of 
supervision, and adoption throughout the system of “best practices” in governance, could reduce 
vulnerabilities.
Litigation risk—and potential damage to confidence in Swiss banks—has become a 
significant vulnerability. Overseas tax authorities have been challenging Swiss banks that provide 
services to foreign citizens for apparent tax avoidance, forcing withdrawals and potentially 
threatening business models, particularly of some private banks. The large Swiss banks are also 
being investigated in relation to mis-selling of mortgage-backed securities, the London Interbank 
Offer Rate (LIBOR) and Tokyo Interbank Offer Rate (TIBOR) scandals, and more recently the foreign 
exchange manipulation scandal. 
 

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SWITZERLAND
8 
INTERNATIONAL MONETARY FUND
Financial market supervision is the responsibility of FINMA, which has made marked strides 
in recent years. High-quality staff have been recruited. There is strong compliance with many 
Basel Core Principles (BCPs) and Insurance Core Principles (ICPs), although compliance with the 
International Organization of Securities Commissions’ (IOSCO) Objectives and Principles of 
Securities Regulation is more moderate. 
Nevertheless, significant weaknesses in supervision remain. FINMA’s use of external auditors 
for onsite supervision of banks and securities companies provides benefits, but the model needs to 
be applied carefully. FINMA should provide more guidance to the auditors; ensure greater 
supervisory harmonization across entities; and complement the auditors’ work with more “deep 
dives” on selected issues. The auditors should not be paid by the supervised entities, but rather 
from a FINMA-administered bank-financed fund. The regulatory and financial bank audit functions 
could be split across audit firms, and audit firms could be periodically rotated. On the insurance 
side, high-quality off-site work lacks sufficient complementary onsite inspections. Securities market 
regulation was not the first priority to date, and the envisaged comprehensive reform agenda 
should be taken forward forcefully.