UPDATE 2-Head of Swiss financial regulator FINMA in sudden exit

Wed Jan 15, 2014 12:19pm EST

Related Topics

* FINMA head Raaflaub cites personal reasons for exit

* Former UBS exec Branson takes over as temporary head

* Talks over U.S. probe into Swiss banks and evasion ongoing (Adds comments, details, background)

By Katharina Bart

ZURICH, Jan 15 (Reuters) - The head of Switzerland's financial regulator will step down at the end of this month in a surprise move as the watchdog helps Swiss banks to work with U.S. officials in a crackdown on wealthy Americans evading taxes.

Although Chief Executive Officer Patrick Raaflaub's five year stint at regulator FINMA was controversial, his sudden departure at one of the tensest times in recent history for Swiss banks surprised bankers in Zurich and officials in Bern.

FINMA gave little reason for the departure of the 48-year-old Raaflaub, beyond saying he had chosen to leave and that it regretted his decision. A FINMA spokesman cited personal reasons for the exit, without elaborating.

Deputy CEO Mark Branson, a British-born former UBS banker, will act as CEO from February until further notice. Switzerland's finance ministry said it too regretted Raaflaub's exit, and that it was searching for a replacement.

"The timing is most unfortunate," said Peter V. Kunz, professor of business law at Berne University, adding there were still major issues to be tackled in Swiss financial services.

Raaflaub's departure coincides with FINMA's efforts to help extract Swiss banks from the prolonged and painful crackdown by U.S. authorities into tax evasion through hidden offshore accounts.

Only seven weeks ago Raaflaub had caused a stir by urging the banks to face up to penalties or risk more costly prosecution later.

The timing of Raaflaub's departure was also problematic because it comes before global banking regulators have hammered out a new rule meant to rein in risky balance sheets from 2018, Kunz said..

In his five years at FINMA, Raaflaub won plaudits for unifying the oversight of Swiss banks and insurers, but he also became a lightning rod for criticism.

Swiss bank executives regularly complained that FINMA, chastened by the near-collapse of UBS in 2008 and a subsequent government rescue, had become far too tough as a result.

Raaflaub's tenure was also marked by territorial conflicts behind the scenes with the Swiss National Bank over regulation.

Switzerland forces its lenders to go beyond the global standards brought in to avoid a repeat of the 2008 financial crisis, a gold-plated approach bankers have dubbed the "Swiss finish".

Stricter rules on the leverage ratio may be looming for the two largest Swiss banks, UBS and Credit Suisse, and FINMA recently imposed an extra capital requirement on UBS in case it has to pay out more than expected in legal settlements.

Raaflaub's departure comes several days after a Swiss newspaper reported that FINMA chairwoman Anne Heritier-Lachat planned to retire before her term ends in 2015. On Wednesday, a FINMA spokesman denied she planned to do so.

Branson led UBS in Japan at a time when the Swiss bank's traders there were manipulating benchmark interest rates, for which it was fined $1.5 billion by regulators in 2012. Branson was later cleared by the Swiss regulator.

"It is now time for me to take on a new challenge," Raaflaub said in a statement, without elaborating. Raaflaub began his career at Credit Suisse and spent 14 years at reinsurer Swiss Re before moving to FINMA.

Through a FINMA spokesman, Raaflaub declined to comment. (Additional reporting by Alice Baghdjian; Editing by David Goodman and Matthias Williams)

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