(Provides details into FINMA findings and background)
By Brenna Hughes Neghaiwi
ZURICH, June 14 (Reuters) - Swiss financial market supervisor FINMA found serious breaches at Raiffeisen Switzerland in a probe related to fraud allegations against former Chief Executive Pierin Vincenz.
"FINMA has found that the bank's handling of conflicts of interest was inadequate. In addition, Raiffeisen's board of directors failed to adequately supervise its former CEO, thereby enabling him, at least potentially, to generate personal financial gain at the bank's expense," the watchdog said in a statement on Thursday.
It told Switzerland's third-largest bank, which is owned cooperatively by 1.9 million customers and is not listed, to conduct a detailed analysis of converting into a limited company "since a company's legal form and group structure have a significant impact on corporate governance requirements".
Prosecutors are investigating Vincenz, who denies wrongdoing but has been forced to resign from business roles, on suspicion of breach of trust linked to cashless payments business Aduno as well as private equity firm Investnet.
Vincenz was released from investigative custody on Tuesday after being held for three months.
FINMA's investigation focused on the bank's handling of ownership in Investnet, a firm majority owned by Raiffeisen from 2015 in which a minority stake was sold to Vincenz.
"Although (Vincenz), as CEO of the bank, was selling shares in Investnet Holding AG and at the same time, as a private individual, buying the same shares and was therefore involved in a clear conflict of interest, he did not recuse himself, as he should have done under the bank's internal policies," FINMA said.
"For its part, the board of directors of Raiffeisen Switzerland also failed to investigate the obvious potential conflicts of interest and enforce the internal rules on disclosure and recusal."
FINMA said Raiffeisen needed "fresh blood" on its board with stepped-up banking and compliance expertise, as well as appropriate qualifications for its audit and risk officers.
Raiffeisen said it acknowledged FINMA's findings and had already begun implementing many of the measures, noting five board members had or would soon be stepping down, and two new members were proposed for election at the group's delegate assembly on Saturday.
Current Chief Executive Patrik Gisel, who worked with Vincenz for years before taking the helm in 2015, has also come under pressure from the probe.
FINMA said it had thus far not found any evidence that would justify launching enforcement proceedings against current Raiffeisen officials, adding it would wait for findings from the bank's internal investigation to determine whether it would launch further individual proceedings. (Reporting by Brenna Hughes Neghaiwi; Editing by Michael Shields)