A year of significant change in the Swiss banking sector has the country’s financial regulator prioritizing new risk areas on its radar.
The Swiss Financial Market Supervisory Authority (FINMA) released its 2023 risk monitor report on Thursday. Within the report, the regulator identifies nine principal risks for the financial sector, two of which are new following a tumultuous year that saw Switzerland’s largest bank acquire its second largest bank to bail the latter out of significant turmoil.
UBS completed its acquisition of Credit Suisse in June, though FINMA said it is still “intensively” supervising the merged bank during integration.
“Credit Suisse AG must be restructured so that the combined large bank’s earnings power and expenses are rebalanced. This also includes the disentanglement and integration of the legal structure,” the regulator said. “UBS must ensure that the integration takes place in line with its risk appetite and culture.
“The risks of IT disruptions, cyberattacks, or fraud are significantly increased during the integration process. … FINMA has clearly expressed its supervisory expectations to the bank and will also appoint third parties to monitor compliance.”
The regulator added UBS’s ability to stabilize itself must be maintained regarding recovery and resolution.
For the Swiss banking sector as a whole, seven principal risk areas remain a priority: interest rates, credit risks associated with mortgages, credit risks associated with other loans, credit spread risks, cyberattack risks, money laundering risks, and risks from increased impediments to cross-border market access. New to the list this year are risks associated with liquidity and funding and the outsourcing of business activities.
FINMA noted ongoing geopolitical tensions and regional conflicts, slower economic growth because of high inflation, and rising interest rates and energy costs among factors contributing to the risk environment.
The regulator also cited artificial intelligence (AI) as a trend with the potential for significant impact to the Swiss financial market.
“FINMA expects supervised institutions to respond to the associated risks appropriately,” it said in a press release. “FINMA will review the use of AI by supervised institutions in line with the risk-based approach and the principle of proportionality. It will also continue to monitor developments in the use of artificial intelligence in the financial industry, remain in discussions with relevant stakeholders, and stay abreast of international developments.”