Note: this article was published prior to reports that former Swiss central bank governor Hildebrand resigned – see updated information here.
The much-awaited press conference from the Swiss National Bank's (SNB) Philipp Hildebrand probably did not have the effect the central bank had hoped.
On Friday, the Swiss franc fell to a three-week low versus the US dollar as market participants reacted negatively to the news that Hildebrand would be staying on as president of the central bank, after being cleared of "any wrongdoing" when his wife Kashya sold Swiss francs just a few days before the currency's devaluation.
In the press conference the details of his family's transactions were made clear:
In April and May, and subsequently in October, we purchased euros for a total value of
around CHF114,000 to buy paintings and a boat; the regulations classify these
transactions as the purchase of non-financial assets, and as such they are not subject to
In the critical period prior to the decision to impose a minimum exchange rate against the
euro, there were two foreign exchange transactions on August 15, 2011, in which around
USD504,477 was purchased, costing CHF400,000 in total. The bank statements show two
transactions at the same exchange rate (USD484,477.24 against CHF384,142, and
USD20,000 against CHF15,858 – a total of CHF400,000), because I opened a subaccount for
our daughter; USD20,000 was transferred to this account on my instructions.
This corresponds to around one-third of the sub-account’s value at that time. The large
transaction was requested by my wife – who has always had power of attorney for my
accounts – on August 15, 2011 at 1.20pm, by means of an email to our account manager
at Bank Sarasin, and without my knowledge. As you can see from the PwC report, she
wanted to raise the share of US dollars in our financial assets (liquid funds) to around
50%. The account manager confirmed the request at 3.10pm on the same day, and sent
me a copy. The next morning, I read the bank confirmations and at 7.36am informed our
account manager that, in future, he was not to carry out any foreign exchange
transactions without first obtaining an instruction or confirmation from me.
The matter first came to the public's attention when the SNB released a statement in December, addressing the "rumours" that had apparently been flying round the market:
We had followed rumours that Philipp Hildebrand's wife Kashya made insider trading in the foreign exchange area.
Specifically, it concerned two transactions, three weeks prior to the connection on the franc to the euro 6 September occurred.
The Bank Council – the supervisory body for the SNB – has had to request the president of the SNB's transactions and all account movements of the family to examine retrospectively Hildebrand.
The findings: Hildebrand had done nothing wrong.
While the SNB cleared him of any wrongdoing, Hildebrand was also very adamant to emphasise that he had not broken any law and was within the correct parameters under banking secrecy:
A comment on the legal situation: Activities of relevance in terms of penal
law are to be found in the infringement of banking secrecy (art. 47 of the Banking Act),
the possible inducement to and abetting of such infringement, as well as the exploitation
of such activities, but not, in any way, within the area of insider offences (art. 161 of the
Swiss Penal Code
The SNB regulations on own-account transactions conform to European standards.
However, these turbulent times and the exceptional monetary policy circumstances require
a higher level of transparency.
However, outrage by market participants quickly spread across the internet, with some saying "abuse of the law".
While the transactions did not break any law, there have been three main issues surrounding the event.
1. Confidence and trust in the Swiss central bank
2. Perceived loopholes in the law that allow these transactions to happen
3. Swiss banking secrecy
Currently, investors of foreign exchange cannot be accused or convicted of insider trading. Unlike stocks, futures or options, FX trading is not regulated by a central governing body, and there are no clearing houses to guarantee trades and no arbitration panel or process if a case like this is disputed.
So even though, in a case like this, it involves a family of someone in control of devaluing or putting floors on a currency, there is no legal wrongdoing for trading that said currency before the event, even if they knew it would happen – even though Hildebrand was careful to say:
With hindsight, if I reproach myself for anything, it is that I allowed the transaction requested by my wife,
who is not informed of monetary policy decisions, to stand rather than acting more
decisively and ordering that all the foreign currency transactions of August 15, 2011, be
Furthermore, Swiss banking secrecy is something that needs to be addressed, several market participants tell Euromoney. The whole Hildebrand family FX transaction scandal was not even brought to light until theSwiss private bank Bank Sarasin decided to address media reports and confirmed:
Bank Sarasin has announced that an employee illegally passed bank data to an external third party. This data concerned currency transactions by the family of Philipp Hildebrand, chairman of the Swiss National Bank.
The employee admitted his criminal misconduct to the bank today.
The employee presented himself to Zurich Cantonal Police on January 1, 2012.
The employment relationship between Bank Sarasin and the employee has been terminated with immediate effect.
Philipp Hildebrand has been personally notified by the bank. Bank Sarasin is extremely regretful about this incident and has apologized to the client for the considerable unpleasantness caused by the infringement of bank-client confidentiality. The bank condemns the misuse of confidential bank data for political purposes in the strongest possible terms.
Bank Sarasin has informed the Federal Financial Market Supervisory Authority and reserves the right to take legal action. Because of ongoing investigations, no further details can be published at this time.
The employee, who worked in IT support, said that he disclosed documents relating to the transactions to a lawyer with close links to the Swiss People’s Party (Schweizerische Volkspartei, SVP).
Knowing that confidence and trust has now fallen for a Hildebrand-led SNB, and the level of secrecy surrounding the case initially, Hildebrand did say that there were several steps to rectify this:
For this reason, I, together with my colleagues on the Governing Board, will take steps to
ensure that transparency over compliance with SNB regulations is guaranteed fully and at
all times. I am thinking of measures such as the following:
• Members of the Governing Board should be required to submit all financial
transactions exceeding CHF20,000 to the external and internal auditors for a
compliance check before such transactions are carried out.
• At the General Meeting of Shareholders, all such transactions should be published
by the external auditors.
• The SNB’s external auditors should have unrestricted access at all times to all
account documentation of Governing Board members.
For more up to date market news on the Swiss franc, check out Euromoneyfxnews.com
- Euromoney Skew Blog