Introduction
The Swiss government has unveiled a comprehensive plan affecting UBS that outlines new regulations with significant implications for the bank and its operational framework.
Context
The proposed changes require UBS to secure up to
$26 billion in additional core capital. Additionally, there are provisions aimed at enhancing access to central bank liquidity, expanding regulatory authority, and implementing bonus "clawback" mechanisms.
Developments
Following is a detailed overview of the proposals and expected timelines for the implementation of the finalized rules:
Capital Requirements
- UBS will be mandated to hold 100% of the capital in its foreign units at the parent bank, increasing from 60%.
- The government proposes a transition period of at least 6-8 years for the new capital rules.
- A draft bill will be presented for formal consultation with political parties and business associations by autumn 2025.
- The Federal Council aims to adopt the bill in 2026 before submitting it to parliament.
- Final legislation is expected to be passed by 2027 at the earliest, but will not take effect before 2028.
Additional Regulations Expected in 2027
- Stricter valuation provisions for assets that are not adequately recoverable during crises, such as software and deferred tax assets.
- These regulations will be enacted directly by the Federal Council post-feedback period.
- The government suggests facilitating banks' access to liquidity from the Swiss National Bank (SNB), requiring collateral to be prepared in advance for systemically important institutions.
- Barriers to collateral transfer to the SNB will be removed, with potential deferrals on announcements relating to banks accessing liquidity to reduce reputational damage.
- The Public Liquidity Backstop proposals will remain unchanged.
- The government will evaluate the use of covered bonds as collateral in the future.
Regulatory Powers and Accountability
- FINMA is set to receive enhanced powers to impose fines on legal entities and intervene with non-compliant institutions.
- Recovery and resolution planning requirements will be increased, allowing FINMA to mandate corrective measures for shortcomings in these plans.
- The proposed changes are on a longer legislative track, indicating implementation after 2028.
- The introduction of a senior managers regime will enforce clear individual accountability within banks for breaches of duty.
- This regime is expected to facilitate clawbacks of variable pay, cancellation of bonuses, or revocation of recognitions from FINMA.
- The government supports "effective clawbacks" specifically for systemically important banks but does not advocate for a bonus cap.
Conclusion
The proposed regulations by the Swiss government signify a substantial shift in the banking landscape, particularly for UBS, aiming to bolster the stability and accountability of the financial system. As the draft bill progresses through the legislative process, stakeholders will be closely monitoring its implications and the broader industry effects.
