Swiss Council of States Committee Presents Proposal for Future Regulation of UBS

Triggers and Sanctions

The Federal Council's proposal had, by contrast, envisaged more far-reaching requirements for UBS and its foreign subsidiaries. A broad majority in the committee had formed against these plans. The counter-proposal now presented is therefore understood as a compromise between the Federal Council and the bourgeois majority in the Council of States.

Erich Ettlin, who had led the deliberations in the committee, expressed satisfaction with the result. The committee had deliberately refrained from excessively restricting the major bank's international activities and instead focused on equity capital requirements and a strengthening of resolution options.

Capital Requirements in Focus

The regulatory levers in the new proposal relate in particular to the bank's capital base. A higher equity capital ratio is intended to increase UBS's resilience and reduce the risk that, in a worst-case scenario, state guarantees would once again become necessary. The committee argues that capital requirements should remain internationally compatible in order to avoid locational disadvantages.

At the same time, the draft provides for stricter rules on executive compensation. Bonuses are to be more closely tied to long-term risks in the future and significantly reduced if a trigger is activated. This is intended to prevent wrong decisions by individual managers from resulting in short-term high bonuses.

Further points concern UBS's governance. The committee wants to strengthen the supervisory authorities' say in strategic decisions. The role of the Swiss Financial Market Supervisory Authority (Finma) in assessing risks is also to be strengthened, without intervening in the bank's operational management.

Reactions from Business and Politics

Reactions from banking circles and the business associations were cautiously positive. The business associations emphasized that moderate regulation is important in order not to jeopardize Switzerland as a financial center. Critics from the left-wing political spectrum, however, complained that the proposal did not go far enough.

The draft will be debated in the Council of States plenary during the autumn session. Afterwards, it will be the turn of the National Council. Should the Lower Chamber also back the counter-proposal, the legislative process could be concluded as early as this year. It remains open whether the Federal Council will stick to its original plans during the reconciliation of differences.

Outlook on the Further Procedure

With the regulation, politicians are responding to UBS's emergency takeover of Credit Suisse in 2023. At the time, the federal government had secured the merger with extensive guarantees and loss participation via AT1 bonds. The new regulation is intended to prevent the taxpayer from once again being liable for a major bank in any future crisis.

Overall, it is becoming apparent that UBS will be subject to stricter rules in the future than before, without the bank – as emphasized by the committee – fully losing its international competitiveness. The coming weeks will show to what extent the National Council and the Federal Council will adopt this compromise.