Corporate governance after the financial crisis: Overview of some major evolutions in the United Kingdom and in Switzerland

Elsa Muhaxheri, LLM in International Financial Law, King’s College London

The global financial crisis between 2007 and 2009 resulted in the resounding collapse of a number of large financial institutions and highlighted weaknesses in the financial sector. Factors such as the democratization of house mortgages, complex credit securization, the wrong evaluation of financial products by rating agencies and the underestimation of risks taken by financial institutions played a significant role. Failures in corporate management and lack of efficient control mechanisms also contributed to the financial crisis and highlighted the need for reform in bank corporate governance rules across all states. Although such reforms are important to reassure investors and contribute to the good functioning of the financial sector, they need to be balanced against issues of competitiveness and dynamism in the industry.

The following article attempts to give an overview of the main regulatory responses by global institutions in the wake of the financial crisis. An analysis of the normative developments in the United Kingdom and Switzerland will serve to highlight how States have adapted their corporate governance regulations to prevent further failures within banking and financial institutions.

International standards on corporate governance, as set in particular by the Basel Committee in its recommendations published in October 2010[1] and July 2015[2], made recommendations on both the determination of the allocation of authority and responsibility by which the board and senior management should carry out the affairs of banks and financial institutions and how they should set the strategy and objectives, select and oversee personnel, protect the interests of depositors, shareholders and stakeholders and establish control functions. The Organisation for Economic Cooperation and Development (OECD) reports on corporate governance of June 2009[3] and of February 2010[4], as well as the Green Paper of the European Commission of June 2010[5], also give guidance on how to improve governance of banks and financial institutions.

In the aftermath of the financial crisis, the United Kingdom took several measures to strengthen its corporate governance regime. The Financial Reporting Council (FRC)[6] issued a new Corporate Governance Code in 2010[7] setting standards of good practice in relation to board leadership and effectiveness, remuneration, accountability and relations with shareholders. This Code has been amended throughout the years. In February 2017, the FRC announced plans for a fundamental review of the UK Corporate Governance Code to take account of work on corporate culture and succession planning as well as the issues raised in the Government’s Green Paper published in November 2016[8] and the report by the Business Enterprise and Industrial Strategy (BEIS) Select Committee Inquiry.[9] The Financial Reporting Council also issued a new Stewardship Code in 2010[10] aiming to enhance the quality of engagement between investors and companies to help improve long-term returns to shareholders. The revised Code was last published in September 2012 and will be revised in 2018. The Financial Conduct Authority (FCA)[11] and the Prudential Regulation Authority (PRA)[12] have also implemented the European Capital Requirements Directive IV (CRD IV)[13] and strengthened the directors’ remuneration structure in the banking and financial sector as well as the corporate governance principles. Furthermore, a new liability regime for senior management in the banking and financial sector was introduced.[14]

Following the new international standards on corporate governance, Switzerland also amended its corporate governance rules. The Swiss Code of Best Practice for Corporate Governance of 2002[15] was amended to incorporate new international developments and to embody the highest standards of practice which are now being widely observed by many companies in Switzerland. In 2013, guidelines for institutional investors governing the exercise of participation rights in public limited companies were also adopted.[16] Furthermore, major changes were brought to the board remuneration structure following the Swiss vote on the Minder Initiative in 2013, which resulted in the amendment of Section 95 of the Federal Constitution of the Swiss Confederation[17] and the adoption of the Federal Ordinance against excessive compensation in listed stock companies. In the banking and financial sector, the Swiss Financial Market Supervisory Authority (FINMA)[18] also reinforced its corporate governance requirements and revised its circular 2008/24[19] dealing with supervision and internal control of banks and issued a new circular 2017/1[20] on Corporate governance. The FINMA has also revised the circular 2008/21[21] on operational risks and the circular 2010/1 on remuneration schemes. These revised circulars came into force on 1st July 2017. Finally, on 5 December 2017, the FINMA announced the publication of the revised circular 2018/3 which updates regulatory requirements on outsourcing for banks and, for the first time, covers insurance companies. In this circular, the FINMA has notably clarified the rules governing the outsourcing of risk management and compliance functions. It will enter into force on 1st April 2018.[22]


In their reports, the Basel Committee, as well as the OECD, notably pointed out that financial institutions have made in the past poor decisions about strategy and risk, neglecting to assess the viability of their business and sometimes lacking the expertise to address the possible consequences of their activities, particularly in adverse market conditions. Even leading financial institutions operating with sophisticated corporate governance were unable to prevent the 2007-2009 financial catastrophe. Furthermore, it was also observed that the different governance actors, such as shareholders and stakeholders, failed to fulfil their control function and to counterbalance bad corporate strategies. The introduction of new rules on governance aiming to achieve a better control of the allocation of authority and responsibility between the different organs of the banks appeared therefore crucial to the good functioning of the finance sector and ultimately to contribute to its stability.

This overview of the different measures adopted in the United Kingdom and in Switzerland shows that there is a trend towards strengthening the corporate governance rules on risk management and internal control as well as the compensation structure of the board. The regulators’ and supervisors’ interventions proved to be indispensable to regain public confidence. However, a fair balance must be found in order to maintain the competitiveness of the banking sector. The new governance rules have notably enhanced the powers of the risk-management functions but they have also imposed new responsibilities on banks and financial institutions for the good implementation of these new regulations which are much more stringent and detailed. Similarly, the new rules on executive remuneration have considerably reduced the flexibility of the remuneration committees. Actors of the finance sector have raised concerns about the increase of regulations enhancing the risk of undermining the sector’s dynamism.


[1] Basel Committee on Banking Supervision, “Principles for enhancing corporate governance”, October 2010.

[2] Basel Committee on Banking Supervision, Guidelines, “Corporate governance principles for banks”, July 2015.

[3] OECD, “Corporate Governance and the Financial Crisis: Key Findings and Main Messages”, June 2009.

[4] OECD, “Corporate Governance and the Financial Crisis, Conclusions and emerging good practices to enhance implementations of the Principles”, 24 February 2010.

[5] European Commission, Green Paper “Corporate governance in financial institutions and remuneration policies”, 2 June 2010.

[6] Financial Reporting Council:

[7] Financial Reporting Council, The UK Corporate Governance Code, April 2016.

[8] Department for Business, Energy & Industrial Strategy , The Government’s Green Paper, November 2016.

[9] The Report of the Business, Energy and Industrial Strategy Committee of 5 April 2017:

[10] Financial Reporting Council, The UK Stewardship Code, September 2012.

[11] Financial Conduct Authority:

[12] Bank of England:

[13] Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013.

[14] Financial Services and Markets Act 2000 as amended by the Financial Services (Banking Reform) Act 2013.

[15] Economiesuisse:

[16] Economiesuisse, Guidelines for institutional investors governing the exercising of participation rights in public limited companies, 5 March 2013.

[17] Federal Constitution of the Swiss Confederation of 18 April 1999 (Status as of 12 February 2017), SR 101, Article 95.

[18] Swiss Financial Market Supervisory Authority:

[19] FINMA, Circular 2008/24, 20 November 2008.

[20] FINMA, Circular 2017/1, 22 September 2016.

[21] FINMA Circular 2008/21, 20 November 2008.

[22] FINMA Circular 2018/3, 21 September 2017.