Switzerland needs to strengthen banking supervision and its rules for handling failing lenders without burdening taxpayers, following UBS' forced takeover of Credit Suisse last year, the G20's risk watchdog said on Thursday.
The review said that Swiss regulator FINMA continues to rely considerably on external auditors when checking on banks.
"While such reliance may be necessary to some extent, the fact that banks pay for the audits directly may lead external auditors to hesitate in informing FINMA of major weaknesses identified," the review said.
"FINMA should reconsider the weight it gives to external audits and consider measures that could address governance and conflicts of interest issues."
It was also important that the legislation for a public liquidity backstop facility is adopted, so as to provide an effective funding mechanism for use as a last resort when necessary.
Those rules were aimed at showing that no lender is "too big to fail", meaning taxpayers won't have to bail them out again in a crisis. To make the deal happen, Swiss authorities weighed in with a financial backstop.
The Financial Stability Board (FSB), which drew up the resolution rules, said its "peer review" of Swiss financial rules concluded that "additional steps can be taken to further strengthen" the rules, and recommends increasing supervisory resources, strengthening early intervention powers, and enhancing the recovery and resolution regime.
A structured framework for early intervention should be put in place that includes forward-looking grounds for powers to intervene, it said.
"This is particularly important after the merger of the two Swiss globally systemically important banks into an even bigger G-SIB, whose failure could have severe impact on the Swiss economy and the global financial system," the FSB said in a statement.
"The review also notes while the recent reforms made to the Swiss deposit insurance system represent an improvement, some gaps still exist that the authorities may want to consider addressing."
