The IMF argues that the European country's regulator needs to be more assertive and aware of vulnerabilities to the banking system.

The Swiss financial regulator should intensify on-site inspections of the country's largest banks, the International Monetary Fund said, highlighting what it claimed are vulnerabilities to the Alpine's state's financial system and economy.

The Washington DC-based organisation said that Swiss financial regulator FINMA should have more autonomy and freedom to keep a close eye on the banking system.

"Considerable progress has been made to strengthen supervision, although important deficiencies remain," the IMF said in a statement earlier this week. "To better manage conflict of interest and objectivity concerns, FINMA should have the authority to directly contract and pay audit firms for supervisory audits of banks, and should itself conduct more on-site inspections, especially of the largest banks," it continued.

"Progress in strengthening financial-sector safety net and crisis management arrangements has been made, but more work is needed to further improve banks’ recovery and resolvability and to create a publicly-mandated and fully-funded bank deposit insurance agency, in line with international norms," the organisation said.

A decade ago, Switzerland's largest bank, UBS, was bailed out by the government - an event that dented the image of the country's rock-solid banking system. International pressure on the country to end its decades-old bank secrecy laws, which had allowed firms to operate high-margin businesses, have forced major changes. With more than 300 banks a decade ago, the number of Swiss-based banks has contracted to 253. Negative interest rates, part of a central bank policy to curb a high Swiss franc exchange rate, have squeezed banks' margins, encouraging mergers and acquisitions.

A low-inflation, low-interest rate environment increases pressures on firms and advisors to find yield, creating new vulnerabilities, the IMF warned.

"A persistent low growth - low inflation environment is sustaining search for yield and driving risks in the real estate market, especially for residential investment properties. The financial sector’s large exposure to real estate calls for measures to dampen risks, along the lines of those recently proposed. Given the vulnerabilities and the large size and complexity of the Swiss financial system, continual upgrading of regulatory and supervisory frameworks and capacities is strongly encouraged," it said.

The IMF also referred to the UK's departure from the European Union (Switzerland isn't an EU member) as a cause for potential difficulty.

"External and domestic risks to the outlook are pointed to the downside. A more sustained regional slowdown, intensification of global trade tensions and a disruptive Brexit would adversely affect the highly-open Swiss economy," it said.

"A persistent low growth - low inflation environment would sustain search for yield pressures and drive risks in the real estate market, especially for residential investment property. Uncertainty regarding the finalisation of a framework agreement with the European Union could weaken investor sentiment and trigger counter-measures. Uncertainty over outcomes of the reform agenda, including corporate taxation and old-age pensions, could increase volatility for business operations," the IMF added.