(Adds comment from FINMA spokesman)
ZURICH, Jan 19 (Reuters) - A British-born former UBS banker is tipped to lead Switzerland's financial regulator after the current head's surprise exit, reported Schweiz am Sonntag, citing undisclosed sources.
Mark Branson, named temporary head of FINMA when Chief Executive Patrick Raaflaub stepped down suddenly last Wednesday, is favored by the regulator's board and the outgoing CEO to take over permanently, the paper said.
A spokesman for FINMA said the search to replace Raaflaub as CEO was under way, and declined further comment.
Branson faces two obstacles to clinch the top job: his nationality - which will play a role in the politically charged nomination process - and his past as a banker, which could prove a handicap, the paper quoted one parliamentarian saying.
Branson led UBS in Japan at a time when the Swiss bank's traders there manipulated benchmark interest rates, for which it was fined $1.5 billion by regulators in 2012. Branson himself was later cleared by the Swiss regulator.
He was also the public face of UBS in 2009 when he testified to a U.S. Senate committee about tax evasion. The Zurich lender later paid $780 million to settle a wide-ranging probe into how it helped wealthy Americans dodge taxes, and handed over more than 4,000 sets of client data.
That probe prompted a second wave of investigation by U.S. officials, ensnaring Credit Suisse, Julius Baer and several local government-backed banks.
Though Branson spent ten years at UBS and worked for Credit Suisse before that, has settled in Bern and speaks at least one Swiss language, it is unclear whether a British national as financial overseer would be politically acceptable. (Reporting By Katharina Bart; Editing by Sophie Walker)