Finma has definitively lost patience: it opened bankruptcy proceedings for Geneva’s Flowbank on Thursday (and additionally published a Q&A catalog for Flowbank’s customers). The bank no longer possesses the minimum capital required for its operations, writes Finma. «There is also concern that the bank is over-indebted.» The bankruptcy proceedings aim to protect depositors. The law firm Walder Wyss has been appointed as liquidator to clean up the mess.

In its announcement, Finma lists the impressive register of Flowbank’s sins: following the first enforcement proceedings initiated in October 2021 (a procedure for enforcing supervisory law), Finma found serious violations of capital requirements and requirements for the bank's management organization and risk management. A year later, it ordered «comprehensive measures to restore lawful conditions» and appointed an auditor.

Long List of Sins

Due to renewed indications of deficiencies, the next enforcement proceedings followed in June 2023. This time, an investigator was appointed, who found that Flowbank had repeatedly failed to comply with capital requirements. Even more seriously: «The bank’s accounting and financial reporting were found to be incorrect and incomplete.» The bank's violation of its duty to provide information and reports to the authority completes the bleak picture.

The investigation also revealed that Flowbank engaged in high-risk business relationships without appropriate investigations. Finma reports serious violations of anti-money laundering due diligence requirements.

«Clear Violations of Capital Requirements»

On March 8, 2024, Finma withdrew Flowbank’s license and declared that it no longer ensured proper business activities. However, this decision did not become legally binding as it was appealed to the Federal Administrative Court.

The bank's board of directors only approved the 2023 annual financial statements a few days ago. Based on these secured figures, Finma had to recognize that the institution's financial situation is far worse than initially assumed. «The minimum capital requirements were clearly violated at the end of 2023 and by the end of April 2024.» Consequently, the bank failed to present Finma with an «approvable increase in capital» within a reasonable time, leading to the opening of bankruptcy proceedings.

Deposit Insurance Not Required

At least, according to Finma, the bank’s available funds should be sufficient to fully repay the privileged deposits (customer deposits of up to 100,000 swiss francs per bank). Thus, the Swiss banks' deposit insurance (Esisuisse) does not need to be called upon. Customer securities accounts will also be segregated and returned, Finma reports.

Flowbank, which has been present in Zurich since October 2021 in addition to its headquarters in Geneva, and has subsidiaries in London and the Bahamas, employs around 140 staff worldwide according to Finma, has a balance sheet total of around  680 million swiss francs, and manages more than 22,000 customer accounts. The neobank was founded in 2020 by CEO Charles Henri Sabet, an online trading veteran. He aimed to exploit the weaknesses of established financial institutions with new technology and a new mindset – but clearly stumbled over the old rules of good bank management.