FlowBank's Downfall: Bankruptcy Proceedings Triggered by FINMA

The Swiss Financial Market Supervisory Authority FINMA issued an announcement on Thursday (June 13) announcing the closure of the local online bank FlowBank and the initiation of bankruptcy proceedings against it.

FINMA confirmed that FlowBank SA "no longer has sufficient capital for its operations as a bank" and has seriously violated the minimum capital requirements it should always meet. Additionally, there are "well-founded concerns that the bank is currently over-indebted". FINMA stated that "as there is no prospect of a restructuring, the bank must be wound up".

FINMA has appointed the law firm Walder Wyss AG as liquidator to carry out the bankruptcy proceedings.

According to the announcement, FINMA took its first enforcement action against FlowBank SA in October 2021 when it identified serious breaches of supervisory law, specifically with regard to capital requirements, the requirement for an adequate organisation and risk management. Although the regulator had ordered the bank in October 2022 to implement "wide-ranging measures to restore compliance with the law" and appointed an independent auditor to monitor their implementation, the bank continued to expose new compliance deficiencies, such as inaccurate and incomplete financial reports, and failure to fulfill disclosure and reporting obligations to FINMA.

Given the serious malpractice, the prolonged non-compliance with licensing conditions and the bank’s inability to restore compliance with the law, FINMA ordered the withdrawal of the bank’s licence on 8 March 2024 and disqualified its guarantee of proper business conduct. Following the initiation of the bankruptcy procedure, the bank’s licenses as bank and securities dealer has been revoked.

FlowBank also confirmed the cessation of its commercial activities on its website. In an Information Letter to its clients, the company said: "The commercial activities of the Bank stopped at the opening of the bankruptcy. The Bank is no longer authorised to carry out banking transactions or to act as securities dealer. In this regard, all payments, purchases and sales of securities can not longer be made. The Bank and its governing bodies are strictly prohibited from carrying out any legal act without the approval of the Liquidators."

The letter from FlowBank assured customers that cash deposits held in their own accounts at the bank will be reimbursed in the short term up to a maximum of CHF 100,000, with repayment terms currently being formulated. In addition, custody assets according to Article 16 of the Banking Act (such as shares, bonds, funds, certificates etc.) remain the property of the clients, do not form part of the bankrupt estate. Therefore, FlowBank will transfer these assets to clients subject to any compensation or restrictions. The liquidators are in the process of determining the transfer modalities.

FINMA stressed that its primary aim is to protect depositors. According to its current calculations, the privileged deposits can be repaid in full out of the bank’s available funds. 

FlowBank also stated in the letter that it will soon send its clients a circular describing the procedure for repayment of the secured deposits and the transfer of the custody assets.