The Swiss Financial Market Supervisory Authority (Finma) has initiated bankruptcy proceedings against the investment banking challenger FlowBank. This drastic measure comes in response to serious and repeated breaches of capital requirements by FlowBank, which offers online brokerage and trading services.
Headquartered in Geneva with subsidiaries in London and the Bahamas, FlowBank holds over 22,000 client accounts and employs around 140 staff worldwide. The winding-up decision aims to protect depositors amid concerns of the bank’s over-indebtedness.
A History of Breaches and Oversight
Finma first took enforcement action against FlowBank in October 2021, identifying significant breaches of supervisory law, particularly regarding capital requirements, organizational adequacy, and risk management. In October 2022, Finma mandated comprehensive measures to ensure compliance, including the appointment of an independent auditor to oversee their implementation.
Despite these interventions, the bank’s issues escalated. An independent monitor was installed to investigate compliance failures and oversee activities. The monitor reported continuous breaches of capital requirements and organizational deficiencies.
Operational Failures and Compliance Issues
FlowBank’s financial reporting and bookkeeping were found to be inaccurate and incomplete. Running on a Temenos core banking platform, the bank also failed in its disclosure and reporting obligations to Finma. Moreover, the bank engaged in numerous high-risk business relationships and processed large transactions without adequate Anti-Money Laundering (AML) checks.
Withdrawal of License and Insolvency Proceedings
In March, Finma withdrew FlowBank’s license, following the bank’s 2023 financial statements, which indicated clear breaches of minimum capital requirements at the end of 2023 and April 2024. Subsequently, Finma initiated insolvency proceedings.
The law firm Walder Wyss AG has been appointed as the liquidator to manage the bankruptcy proceedings. The initial step involves repaying deposits up to CHF 100,000 to the bank’s clients. Current calculations suggest that privileged deposits can be fully repaid from the bank’s available funds, without recourse to the Swiss banks’ deposit insurance scheme. Additionally, client custody accounts will be segregated from the estate and repaid.
For more updates on the situation, follow the developments on Finma’s official website.
