Banking Crisis

Swiss Regulator To Enforce Bank, Insurer Pay Curbs

Tom Burroughes, Editor, London, 12 November 2009

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Financial regulators have told Switzerland's largest banks, wealth managers and insurance firms to defer the bulk of executive bonuses and ensure pay is more closely aligned with performance as part of an attempt to control high risks.

The new rules, which are designed to take effect from 1 January, 2010, are part of moves by the Swiss authorities to control what is seen as the short-termist, high-risk lending practices blamed for help causing the credit crunch. The Swiss, and other national regulators, are looking at ways to prevent a repeat of the recent market turmoil.

Finma, the Swiss regulator, said that following objections from the industry during a consultation process, its rules on pay will only apply to the seven biggest banks and five largest insurers.

It has also changed a proposed link between pay and economic profit to “economic performance”. This test “must reflect the full cost of capital (including the cost of equity) and the risk profile of the institution”, the regulator said in a statement yesterday.

The regulator said it has rejected calls to impose a relative or absolute cap on salaries or that its proposals only apply to the country’s two biggest banks. These banks are Credit Suisse and UBS.

“Implementation is obligatory for firms required to have at least SFr2 billion in equity capital or as solvency. By increasing the threshold values as against the consultation draft, FINMA wishes to prevent a disproportionate cost being imposed on small and medium-sized institutions,” the statement said.

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