The Swiss Financial Market Supervisory Authority (FINMA) initiated bankruptcy proceedings against FlowBank SA on 13 June 2024.
FINMA found last week that FlowBank SA no longer has sufficient funds for its operations as a bank. Minimum capital requirements, which must be met at all times, have been significantly and seriously breached. FlowBank SA and its governing bodies were unable to take steps to sustainably restore compliance with capital requirements within the required time frame.
In addition, there are valid concerns that the bank is currently over-leveraged. As there is no prospect of restructuring, the bank must be liquidated. FINMA has appointed the law firm Walder Wyss AG as liquidator to conduct the bankruptcy proceedings.
FINMA took its first enforcement action against FlowBank SA in October 2021 when it found serious violations of supervisory legislation, especially regarding capital requirements, the requirement for adequate organization and risk management. Therefore, in October 2022 FINMA ordered broad measures to restore compliance with the law and appointed an independent auditor to monitor their implementation.
When new information came to light about various compliance deficiencies – including ongoing capital ratio violations – FINMA took new enforcement action against the bank in June 2023 and appointed a supervisor to oversee the bank’s activities and investigate compliance weaknesses her. The monitoring stated that FlowBank SA repeatedly breached capital requirements, while its organization remained deficient in various areas of the bank.
The bank’s bookkeeping and financial reporting were found to be inaccurate and incomplete. The bank also failed to fulfill its disclosure and reporting obligations to FINMA.
In addition, the investigation found that the bank entered into numerous higher-risk business relationships and processed large transactions without properly investigating the history of those business relationships and transactions. The bank significantly increased its risks by entering into these relationships, even though it had not yet resolved its organizational deficiencies.
In FINMA’s view, this represented a serious breach of the bank’s anti-money laundering due diligence obligations and FINMA’s ban on the bank engaging in additional higher-risk business activities.
Given the serious misconduct, prolonged non-compliance with licensing conditions and the bank’s inability to restore compliance with the law, FINMA ordered the bank’s license to be revoked on March 8, 2024 and suspended the guarantee of sound business conduct. This decision does not yet have legal force due to a pending appeal to the Federal Administrative Court. However, during the appeal, various preventive measures decided by FINMA apply, e.g. to prevent the bank from taking over assets.
After the bank’s board of directors approved the 2023 financial statements just a few days ago and confirmed that the data for the assessment of insolvency risk was only available for a short period of time, FINMA found that the financial situation of FlowBank SA is much worse than what the bank had originally reported.
The bank clearly breached the minimum capital requirements at the end of 2023 and again at the end of April 2024. In addition, there are valid concerns that the bank is over-leveraged at the end of April 2024. The bank was unable to raise eligible capital within the required time frame. This new situation requires the immediate intervention of FINMA to protect depositors, which is why it has put the bank into bankruptcy.
FINMA’s primary objective is to protect depositors. Therefore, in a first step, the liquidator will repay deposits of up to CHF 100,000 (preferential deposits) to the customers concerned as soon as possible. According to current calculations, preferential deposits can be fully repaid from the bank’s available funds.
FINMA therefore does not expect the Swiss banks’ deposit insurance scheme (esisuisse) to become involved. Client custody accounts will also be separated from the estate and paid off.
FlowBank SA is a bank offering online brokerage and trading based in Geneva with subsidiaries in London and the Bahamas. The bank has total assets of CHF 680 million, has more than 22,000 customer accounts and employs approximately 140 people worldwide.