In June, the Swiss Financial Market Supervisory Authority (FINMA) lost patience with Flowbank, initiating the liquidation of the Geneva-based digital bank. However, by October, some clients were still waiting for their deposits or securities.

Deposits of up to 100,000 francs with banks are protected as privileged claims by the Swiss deposit insurance scheme (Esisuisse); amounts exceeding this fall under third-tier claims. Customer securities managed by Flowbank, while not part of the bank’s balance sheet, were expected to be transferred to another bank's custody relatively quickly.

Sales Platform Finally Operational

On Friday, some progress was made. The liquidator, the law firm Walder Wyss, announced on Flowbank’s website that securities holders could now sell their assets via an online platform, available in the customer area. According to the update, transferring securities has proven to be time-consuming and costly, whereas selling them and transferring the proceeds as cash is faster and simpler.

«The liquidators encourage you to use this efficient solution to retrieve your assets more quickly,» Walder Wyss stated. The sale of the securities would take place at market price, and the platform would be open to clients until November 15.

Proceeds Expected to Flow Quickly

«Once the positions are fully sold, the funds will be credited to a separate account and transferred to the customer's chosen account at another bank within a few days, either in CHF or EUR, according to the customer's preference», Walder Wyss explained. However, the launch of the platform has the side effect of halting securities transfers for two weeks.

In late August, Walder Wyss reported that of the 9,000 accounts with privileged deposits amounting to a total of 53.5 million francs, around 5,800 accounts with 45 million francs, or 84 pervent, had already been repaid. For securities, by August 23, approximately 900 million of the total 1.3 billion securities had been transferred.

Outstanding Privileged Deposits

In response to an inquiry from finews.ch regarding the current status of repayments and transfers, Walder Wyss referred to FINMA, which promptly issued a statement.

The supervisory authority emphasized that repayments of privileged deposits must be made within seven days after receiving customer transfer instructions, as required by law. The process for returning privileged deposits has been working well at Flowbank. By early October, around 47 million CHF of the 53 million francs in privileged deposits had been repaid (88 percent).

Majority of Customer Portfolios Still Not Transferred

«With the exception of a few cases requiring clarification, all individuals who submitted proper transfer instructions have received their privileged deposits within a few days of submitting their request,» FINMA confirmed. The remaining amounts pertain to individuals who have not responded to repeated requests from the liquidators.

By early October, 89 percent of the securities had been transferred—around 1,155,000,000 financial instruments out of a total of 1,298,359,221, according to FINMA’s meticulous records. However, this high percentage does not reflect the amount of work still needed, as the majority of customer portfolios have yet to be transferred.

Manual Processes and Information Exchange Delays

What’s causing the long delays in securities transfers? FINMA attributes it to the «significant administrative effort» involved. The remaining Flowbank staff, working under the liquidator’s direction, must send information for each type of security to the institution where the securities are held.

The counterparty typically responds with instructions after a few days. Next, it's essential to ensure that the receiving bank has the same customer information, and a transfer date must be agreed upon. These instructions are then manually entered —a somewhat ironic situation for a digital bank. The more diverse the securities held by customers, the longer this process takes, which also depends on the response times of the receiving banks.

Significant Limitation on Property Rights

FINMA specifically refers to the creditor letter from late August, which is also available on the recently launched Flowbank liquidation website. There, Walder Wyss outlines the reasons behind the lengthy securities transfer process, largely consistent with FINMA's account.

A lesson for investors from the Flowbank debacle is clear: even though securities are theoretically safe in the event of a bank failure, they should not be held with institutions whose creditworthiness and reputation are questionable. Waiting weeks or even months to regain access to one’s securities, though temporary, represents a significant limitation on property rights and can be a nerve-wracking experience.

A Taste for Pop Art

To end on a lighter note: the aforementioned creditor letter also mentions that Charles Henri Sabet, the flamboyant founder and CEO of Flowbank, claims ownership of three paintings located in the bank’s premises. These include two works by Roy Lichtenstein («Two Nudes» and «Seascape») and one by Andy Warhol («Nine Dollars»).

Thus, the Flowbank liquidation not only reveals weaknesses in practical asset protection but also brings some intriguing pop art into the spotlight.