The recent liquidation of Flowbank, a digital bank based in Geneva, has exposed vulnerabilities in asset protection and the complexities of transferring securities.
This highlights the importance of choosing banks with strong reputations and creditworthiness. Some customers were still waiting for access to their funds as of October, emphasizing the risks of holding securities in financially unstable institutions.
Under Swiss law, deposits up to 100,000 francs are protected by the Esisuisse deposit insurance scheme, while amounts exceeding this threshold fall under third-tier claims. Although customer securities managed by Flowbank were not part of the bank's balance sheet, they were expected to be transferred to another bank's custody. However, the liquidation process has proven to be more complicated than anticipated.
Progress has been made in the liquidation process with the launch of an online platform by the law firm Walder Wyss, acting as the liquidator. This platform allows securities holders to sell their assets directly, expediting the retrieval of assets. The liquidators encourage clients to use this solution, which will be available until November 15. However, securities transfers have been temporarily halted for two weeks due to this development.
As of early October, approximately 88 percent of privileged deposits had been repaid, with around 47 million CHF returned to clients. The process for returning these deposits has been functioning effectively. However, a substantial portion of customer portfolios is still awaiting the transfer of securities. Delays in transferring securities have been attributed to administrative efforts and coordination with receiving institutions.
The delays in the transfer process have raised concerns about property rights for investors. Each type of security requires specific information to be sent to the institution where it is held, and response times from counterparties can further complicate matters. This highlights the challenges of accessing securities in the event of a bank failure.
The liquidation process has revealed a reliance on outdated administrative practices, despite Flowbank being positioned as a digital bank. This irony adds to the frustrations and anxieties experienced by investors.
In a lighter twist, the creditor letter reveals the personal interests of Flowbank's founder and CEO, Charles Henri Sabet, who claims ownership of notable paintings within the bank's premises. This detail adds intrigue to the Flowbank narrative, contrasting with the serious nature of the liquidation.
The lessons learned from Flowbank's challenges serve as a cautionary tale for investors. Thorough due diligence is crucial when selecting financial institutions, as the stability of banks can significantly impact asset protection and access. The ongoing situation at Flowbank reminds us that traditional banking vulnerabilities can persist in the digital age.