FINMA’s supervision of smaller banks operates on a principle of proportionality, where supervisory intensity is determined by an institution’s risk profile rather than its size. The Swiss financial regulator argues that strict oversight is unnecessary for low-risk entities, while high-risk banks—regardless of scale—face comparable scrutiny. This approach contrasts with criticism that FINMA imposes disproportionately heavy burdens on small institutions, citing data that shows fewer inspections for smaller banks, even though risk-based assessments drive enforcement priorities.
According to FINMA’s figures, large banks like UBS undergo over 40 on-site inspections annually, whereas small banks receive on-site visits only every eight to ten years. Risk classification further shapes supervisory focus: institutions rated as medium or high risk receive twelve times more inspections than those with low risk. This pattern extends to regulatory requirements, such as guarantee applications, where FINMA imposes stricter checks on large banks (~30%) compared to small banks (~10%).
FINMA’s small banks regime, introduced in 2020 and voluntary, offers relief to stable, liquid institutions in categories 4 and 5. Participants—56 banks currently—avoid calculating risk-weighted assets and the net stable funding ratio, alongside qualitative simplifications in risk management and disclosure. The regime’s conditions ensure relief is granted only to institutions deemed sufficiently robust, reinforcing the principle that regulatory relief must align with stability objectives.
Beyond the small banks regime, FINMA applies proportionality to other areas. For instance, exemptions exist for banks under the small banks regime from circulars on nature-related financial risks, provided they meet liquidity and capitalization criteria. Even for non-participants, supervisory measures adapt to size, complexity, and risk profile. However, FINMA clarifies that proportionality has limits. Requirements for compliance with anti-money laundering, market conduct, and sanctions laws remain uniform, as size does not inherently reduce systemic risks in these areas.
Cyber risks and outsourcing further illustrate FINMA’s balanced approach. While smaller banks may leverage external technology more efficiently, they retain full responsibility for managing associated risks. The rise of AI and cloud services introduces new dependencies and concentration risks, prompting FINMA to emphasize that institutions—regardless of size—must demonstrate effective risk management. Geopolitical tensions, including sanctions and cyber threats, also pose cross-cutting risks, as seen in 2023’s regional bank crisis in the U.S., where systemic instability could affect Swiss-based institutions through market exposure or client relationships.
FINMA’s symposium on small banks underscores its commitment to dialogue with stakeholders to address regulatory challenges. The regulator seeks to balance flexibility with rigor, ensuring oversight is both targeted and adaptive. By focusing supervisory resources on high-risk areas and offering tailored relief for stable institutions, FINMA aims to protect financial stability while mitigating unnecessary burdens on smaller players.
