The Swiss Financial Market Supervisory Authority (FINMA) announced on Thursday that it has opened bankruptcy proceedings against FlowBank SA, a Geneva-based online brokerage and trading bank. The decision comes as the bank failed to maintain the minimum capital required for its business operations and faces concerns of potential over-indebtedness.

Swiss Regulator Initiates Bankruptcy Proceedings Against FlowBank SA

FlowBank SA has been under FINMA's scrutiny since October 2021, when the regulator identified serious breaches of supervisory law, particularly concerning capital requirements, organizational adequacy, and risk management. Despite the imposition of wide-ranging measures and the appointment of an independent auditor in October 2022, the bank continued to violate capital ratio requirements and maintain deficiencies in various areas of its operations.

According to FINMA, the primary objective of the bankruptcy proceedings is to protect depositors. Current calculations suggest that privileged deposits, up to CHF 100,000 per client, can be repaid in full using the bank's available funds. The regulator has appointed the law firm Walder Wyss AG as the liquidator to oversee the bankruptcy process.

#FINMA eröffnet Konkurs über die FlowBank SA: https://t.co/DGxN8mzde5
Informationen zum Konkursverfahren stellt die FINMA auf ihrer Webseite zur Verfügung: https://t.co/S00N1ASeVo pic.twitter.com/NkCOi88mB3

— Eidgenössische Finanzmarktaufsicht FINMA (@FINMA_media) June 13, 2024

In June 2023, FINMA took further enforcement action against FlowBank SA, appointing a monitor to oversee the bank's activities and investigate its compliance failures. The monitor's report revealed repeated breaches of capital requirements, inaccurate and incomplete bookkeeping and financial reporting, and failure to fulfill disclosure and reporting obligations to the regulator.

“In addition, the investigation found that the bank entered into numerous higher-risk business relationships and processed large transactions without properly investigating the background of these business relationships and transactions,” FINMA stated in the press release.

FINMA views this as a serious breach of the bank's money laundering Money Laundering Money laundering is a blanket term to describe the process by which criminals disguise the original ownership and proceeds of criminal conduct by making such proceeds appear to be derived from a legitimate source.Money laundering is an issue that traverses countless industries and sectors, which includes the financial services space. Though criminal money may be successfully laundered without the assistance of the financial sector, billions of dollars’ worth of criminally derived money are laund Money laundering is a blanket term to describe the process by which criminals disguise the original ownership and proceeds of criminal conduct by making such proceeds appear to be derived from a legitimate source.Money laundering is an issue that traverses countless industries and sectors, which includes the financial services space. Though criminal money may be successfully laundered without the assistance of the financial sector, billions of dollars’ worth of criminally derived money are laund Read this Term due diligence obligations and a violation of the regulator's prohibition on the bank from engaging in additional higher-risk business activities.

License Withdrawal and Appeal

In light of the bank's persistent malpractice and inability to rectify its non-compliance Compliance In finance, banking, investing, and insurance compliance refers to following the rules or orders set down by the government regulatory authority, either as providing a service or processing a transaction. Compliance concerning finance would also be a state of being following established guidelines or specifications. This designation can also encompass efforts to ensure that organizations are abiding by both industry regulations and government legislation. Understanding ComplianceCompliance is a In finance, banking, investing, and insurance compliance refers to following the rules or orders set down by the government regulatory authority, either as providing a service or processing a transaction. Compliance concerning finance would also be a state of being following established guidelines or specifications. This designation can also encompass efforts to ensure that organizations are abiding by both industry regulations and government legislation. Understanding ComplianceCompliance is a Read this Term with licensing conditions, FINMA made the decision to revoke FlowBank SA's banking license on March 8, 2024. The regulator also questioned the bank's assurance of proper business conduct. Although the bank has appealed the ruling to the Federal Administrative Court, FINMA has implemented various preventivedecided measures that will remain in place throughout the appeal process to safeguard against the unauthorized withdrawal of assets by the bank.

Upon reviewing FlowBank SA's 2023 financial statements, which were recently approved by the bank's board of directors, FINMA concluded that the bank's financial health could have been more precarious than had been initially disclosed. The regulator found that the bank had significantly violated minimum capital requirements at the end of 2023 and again in April 2024. Moreover, there were substantial grounds to believe that the bank was over-indebted as of April 2024.

With a total asset base of roughly CHF 680 million, FlowBank SA maintains over 22,000 client accounts and has a global workforce of approximately 140 employees, with subsidiary operations in London and the Bahamas. As the liquidation process unfolds, the appointed liquidator will prioritize reimbursing privileged deposits to affected clients. Additionally, client custody accounts will be separated from the bank's estate and returned to their rightful owners in due course.

Earlier this year, FINMA announced the appointment of former ECB chief Stefan Walter as CEO, effective April 1, 2024. Last year, FINMA's previous CEO, Urban Angehrn, resigned from his position, citing health reasons.