Switzerland’s Finance Sheriff Takes on UBS and Banking Elite

(Bloomberg) — In the year since Stefan Walter has been in charge of Switzerland’s financial regulator, he’s made a name for himself among the bankers he oversees. 

They call him “The Sheriff.” 

Walter, 60, a German citizen with decades of experience in top-level regulation including in the US, is using a tumultuous period in Swiss finance to establish a forthright, public presence for Finma that few in Zurich or Geneva are accustomed to. 

Under his watch, Finma has communicated penalties or investigations against seven banks and fintech firms, including Julius Baer Group Ltd, using the limited powers that the body has to the full.

Most conspicuously, he’s publicly pushed for the strictest possible stance on the future capital requirements for UBS Group AG, facing off against the bank in a showdown where the stakes are rising rapidly. Executives at the global wealth manager in Zurich are even exploring whether the full introduction of the higher requirement could compel them to move their headquarters out of the country altogether, Bloomberg has reported.

In interviews with more than a dozen executives and officials, a picture of a regulator emerges who is bent on disrupting the cozy, consensual atmosphere between Switzerland’s financial firms and their watchdog that characterized the years leading up to Credit Suisse’s collapse in 2023. Walter’s sometimes-abrupt manner and unexpected demands raised laughs at first among some bankers more used to Swiss politeness — but he now inspires a combination of animosity and respect.

“I’m not Swiss, and I’m learning about the context here,” he told Bloomberg in an interview at Finma’s offices in Zurich on March 17. “It’s a consensus-based country and trying to get the right balance between coming from the outside and having certain perspectives, and understanding how things are going here, is something that I’m still finding my way in.”

UBS is facing an increase in capital requirements of as much as $25 billion, if Walter gets his way in a revamp of the country’s financial regulation led by Finance Minister Karin Keller-Sutter after the demise of Credit Suisse. His push centers around the capitalization of UBS’s foreign units, which, according to Finma and the Swiss National Bank, ought to be backed 100% by equity of the parent bank. UBS, which bought its rival for just $3 billion two years ago, has said that this is an overreaction to the crisis at its former rival, and is lobbying strongly against it.

But a larger issue is also at stake. Switzerland’s status as a safe haven for the world’s wealthy has been called into question by the Credit Suisse crisis, and politicians also worry that the new combined bank is simply too large — twice the size of the domestic economy. Current geopolitical turmoil and gyrating markets should put a premium on Swiss experience in managing money — yet the financial center is at risk of losing ground to the likes of Singapore and Dubai.

That helps explain Walter’s arrival in the first place. Known since his time at the European Central Bank, from 2014 to 2024, as a tough interlocutor with the likes of Deutsche Bank AG and embattled German regional lender Nord LB, he helped rebuild confidence in the region’s financial sector following the sovereign debt meltdown.Previously, as the secretary general of the Basel Committee on Banking Supervision from 2006 to 2011, he was also a pivotal figure in forging the post-crisis global bank reforms that triggered a step change in banks’ capital requirements. Before that, he spent more than a dozen years at the Federal Reserve Bank of New York in various roles. 

That track record informed Keller-Sutter’s view that he is a good choice to run the regulator, according to an official familiar with the matter. His lack of familiarity with the established Swiss ways of operating was seen as an advantage.

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

Since Walter took office last April, Finma has announced the confiscation of a total of more than 20 million Swiss francs ($23 million) in profits from two firms — Mirabaud & Cie SA and Leonteq AG — for weak risk management or lapses in money laundering controls. 

While the amounts are small compared to revenues and the start of some of those cases pre-date Walter’s time, they are still indicative of the new chief executive’s willingness to impose some of the stiffest penalties that the regulator has at its disposal — and be open about doing so. 

In contrast to most major global watchdogs, Finma does not, yet, have the mandate to issue punitive fines on financial firms in the way that officials in the US or the UK can. Walter has called for the body to receive that new power, as well as the ability to intervene earlier if he spots that a bank is steering toward trouble. He’s also seeking more staff, more resources and the establishment of a system in which it is clear who in a bank is responsible for each business decision. In many of these requests, he’s echoing the government, and legislation due to start its path through the Swiss parliament this year may tick those boxes. 

Finma also stepped up its actions against Julius Baer earlier this month, a global wealth manager that’s been in the crosshairs since it emerged in 2023 that it had run up a $700 million exposure to a single client — bankrupt Austrian property tycoon Rene Benko. As the bank now faces a so-called enforcement procedure from Finma officials, it has been unable to roll out a share buyback program long awaited by investors. 

Bankers elsewhere have also noticed that the regulator has begun asking them for significantly more documentation and increased the frequency of its on-site inspections, even in branches outside the country. 

UBS’s Chief Executive Officer, Sergio Ermotti, dismissed the offer hours later as not changing the substance of the demands.

“It’s not by design to get in conflict with people,” Walter told Bloomberg of his skirmishes. The capital demand ensures the “right balance between resolvability and profitability,” he added. 

In the past, Switzerland’s financial regulators have had, on paper, tougher standards than many of its global peers. The enforcement, however, was arguably much lighter, partly due to a philosophy of self-regulation where possible. 

“I think that Finma needs to be transparent and vocal about what it thinks about key issues, and that’s not something which it traditionally did,” Walter said.

“Financial regulation before was a fair-weather construct that did not work,” said Georg Lutz, a professor of political science at the University of Lausanne. “The credibility that the banks can solve problems on their own if necessary has been destroyed.”

Meanwhile, bankers who worked with Walter while he headed the ECB’s supervision of systemic lenders reject the notion that he’s overly harsh. Executives describe him as tough but fair, making his point very clear, but not acting in a formulaic way. A senior official who worked with him there describes his ability to be demanding, while maintaining good relationships with the firms he oversaw.  

The question bankers now ask in Zurich is whether the new assertiveness from the country’s regulator will become a permanent feature, or ease as the memory of the Credit Suisse crisis recedes. 

For the time being, Walter and an emboldened Finma have a tailwind. The Swiss government’s decision to send the capital reforms to parliament may be a signal that public appetite for more scrutiny of the banks has risen. “In the past, a phone call from Ermotti would have been enough to kill a bill like that,” Lutz says. “But that’s no longer the case.”

–With assistance from Noele Illien and Nicholas Comfort.

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