This is the theme on which Finma was the most alarmist: there is a “clear tendency to overheat” in residential real estate, warned Urban Angehrn. Director of the gendarme of the Swiss financial center since last November, he estimated that “various factors suggest an overvaluation of such goods”.
Speaking at the institution’s annual press conference in Bern on Tuesday morning, the successor to Mark Branson, who left to lead his German counterpart, recalled that “property prices have increased more than consumer prices, wages or GDP over the past 20 years”. A trend, added the former chief investment officer of Zurich Insurance Group, which has accelerated since the pandemic.
Need for recapitalization
However, in the event of a serious real estate crisis, banks and insurance companies would see their equity fall below the legal requirements, which would force them to recapitalize, warned Urban Angehrn. The latter recalled that the Swiss mortgage market and its 1,100 billion francs are larger than the balance sheet of a large bank and represent one and a half times the Swiss GDP. Thus, the person in charge clearly opposed a relaxation as regards granting of mortgage loans, which would push the prices of the real estate still higher.
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The risks associated with real estate are one of the reasons why Finma has recalled the importance of good capitalization of banks and of implementing the latest recommendations of international regulations (Basel III) in this area. The regulator believes that the financial center is stable, which puts it in a good position to “use the opportunities offered by digitization and joint efforts for more sustainability”, said Marlène Amstad, who became president. of Finma last year, having been a member of its board of directors since 2016.
“Strict” compliance with sanctions
As for the war in Ukraine, it creates “multiple risks for the Swiss financial sector, even particularly acute risks for certain establishments”, warned Urban Angehrn. Without it representing “a generalized risk for the Swiss financial market”. In fact, the manager speaks of “business relations [qui] are certainly not insignificant, but remain rather modest compared to the banks’ main target markets.
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Finma focuses on financial risks (loans granted to Russian debtors, derivative transactions, Lombard loans or commodity trading) and compliance. The authority expects “strict compliance with the sanctions”, but ensures “to have for the moment no clue which would indicate that it would not be so”, affirms Urban Angehrn. For the latter, it is clear that the “banks take the subject of sanctions very seriously”. A theme that is not new, but whose volume and complexity have “increased sharply”, he added.
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Urban Angehrn also warned of the increased risk of cyberattacks in the context of the Russian invasion of Ukraine. An issue that Marlène Amstad also addressed. Since the obligation to announce cyberattacks in May 2020, the authority has received “a hundred reports, of which around half concerned banks”, she detailed. More than half concern acts aimed at availability via fairly basic denial of service attacks (DDOS), which flood the victim’s computer system with numerous requests, the regulator specifies in its annual report, published at the same time.
Finma also claims to have organized three times more checks in banks in 2021 than in 2019 on these issues and there will be even more this year. She adds that she found that “a few institutions did not have a clear definition of the volume and content of their own critical and/or sensitive data. Consequently, these establishments have shown difficulties in establishing a targeted protection system.
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Finma conducted 650 investigations last year (compared to 628 in 2020) and 20 procedures forenforcement (33 in 2020) to enforce financial market rules. Corporate governance, risk management and money laundering were the main subjects of these proceedings.