FINMA’s regime for small banks: on the right path, but the objective not yet reached

In October 2017, at an information event, FINMA provided an overview of its concept for reducing the regulatory burden on small banks, or in other words, institutions that belong to the existing supervisory categories 4 and 5. This concept focuses primarily on three different areas: firstly, particularly secure small banks are to have the possibility of specific exemptions and facilitation in terms of regulatory requirements. Secondly, FINMA wants to establish additional relaxations for small banks without the need for these to provide evidence of particular security. And thirdly, in the area of auditing, FINMA is revising the modalities for regulatory audits. 

The first area of focus, the actual regime for small banks, will enter into a pilot phase in the coming days. The SBA has been in intensive discussions with FINMA regarding this matter since autumn 2017. In a constructive exchange, the SBA contributed its views on the desirable design of the pilot and the ensuing, definitive regime for secure small banks. As part of this process, the admission criteria relating to the leverage ratio and the liquidity coverage ratio were on the one hand given a sound methodological and practicable foundation. On the other hand, it was also possible to establish an attractive framework aiming at reducing burdens related to prudential supervision for the participating institutions, even if, in our opinion, these must be rendered even more pragmatic.

For the upcoming pilot, which will involve 67 banks, the focus will be on gaining experience with the details of the new concept in order to be able to use this as a basis for making further adjustments to the definitive regime. Further to this, in collaboration with FINMA, the pilot phase is also to be used to explore additional potential in terms of how the burden of regulatory requirements on small banks can be further reduced. This is urgently needed, particularly in light of their lack of systemic importance as well as the fixed-cost nature of the internal implementation of regulatory requirements at banks.  

Together with the participating banks, the SBA will closely monitor the further activities, also during the pilot phase, and will make recommendations and table arguments as the process progresses. The focus here will in particular be on qualitative relaxation, which allows further facilitation for small banks while ensuring system stability. Overall, we very much welcome FINMA’s initiative. FINMA’s words, its announcements since last autumn, must now be followed by further actions, namely palpable and effective improvements to the regulatory situation of small banks.