Financial Crime World

Swiss Banks Face Mounting Risks Amidst LIBOR Transition and Pandemic

Zurich - The Swiss Financial Market Supervisory Authority (FINMA) has issued a warning about the growing risks facing Switzerland’s banking sector, including the transition away from London Interbank Offered Rate (LIBOR) and an increase in cyberattacks.

LIBOR Transition Challenges

According to FINMA’s latest Risk Monitor, 26 major banks and securities firms have reported significant obstacles in winding down their LIBOR-based contracts. The main challenges include:

  • Lack of operational readiness
  • Opposition from counterparties
  • Low market liquidity for alternative interest rates

The self-assessments also revealed that LIBOR-based contract volumes had increased again in the first half of 2020, despite efforts to reduce reliance on the benchmark rate.

Growing Cyber Threats

The report highlights the growing cyber threat facing Swiss financial institutions, with a significant increase in:

  • Malware distribution
  • Phishing emails
  • Distributed denial-of-service (DDoS) attacks
  • Blackmail demands seeking bitcoin payments to prevent further attacks

A FINMA spokesperson emphasized that “cybercrime is on the rise, and we are seeing increasingly sophisticated attacks. The consequences of a successful cyberattack could be severe, disrupting critical services and functions in the Swiss financial centre.”

Money-Laundering Risks

The report also emphasizes the ongoing money-laundering risks facing Switzerland’s cross- border wealth management sector. FINMA warns that shrinking margins may lead financial institutions to pursue high-risk clients from emerging markets, increasing the risk of corruption and money laundering.

A FINMA official stated that “the enforcement cases we’ve seen underscore the importance of adapting compliance frameworks in line with risk appetite. Financial institutions must be vigilant in identifying beneficial owners of assets and reporting suspicious transactions.”

The report also highlights new risks related to blockchain technology and digital assets, which promise efficiency improvements but also increase anonymity and cross-border transaction speeds.

Conclusion

Overall, the Risk Monitor 2020 paints a picture of a Swiss banking sector facing numerous challenges amid the LIBOR transition, pandemic, and evolving cyber and money-laundering threats. The report serves as a reminder for financial institutions to be vigilant in addressing these risks and adapting to the changing landscape.