Mark Branson is leading the regulatory body, known as FINMA, in an interim capacity after its chief executive Patrick Raaflaub announced his departure earlier this month in a surprise move at a pivotal time for the Swiss banking sector.

The Schweiz am Sonntag newspaper said FINMA's board of directors had hoped to announce last week that Branson, the deputy CEO, would take over.

But the Swiss cabinet has twice rejected his outright appointment, preferring to first examine any alternative candidates, on the recommendation of Finance Minister Eveline Widmer-Schlumpf, who told the paper in an interview that she wanted to see an open competition.

But she said it was ultimately up to the FINMA board to pick the chief executive and the cabinet would approve the appointment.

Branson is seen as facing two obstacles: his nationality and his past as a banker, which could prove a handicap, the paper previously quoted a parliamentarian as saying.

Branson led UBS in Japan at a time when the Swiss bank's traders there manipulated benchmark interest rates, for which it was fined $1.5 billion by regulators in 2012. Branson himself was later cleared by the Swiss regulator.

He was also the public face of UBS in 2009 when he testified to a U.S. Senate committee about tax evasion. The Zurich lender later paid $780 million to settle an investigation into how it helped wealthy Americans dodge taxes, and handed over more than 4,000 sets of client data.

As head of FINMA, he is responsible for helping Swiss banks to work with U.S. officials in a crackdown on wealthy Americans evading taxes.

The U.S. Justice Department has received 106 requests from second-tier Swiss entities to participate in a U.S. settlement program aimed at ending a long-running investigation of tax-dodging by Americans using Swiss bank accounts, a senior U.S. government official said on Saturday.

(Reporting by Tom Miles; Editing by Janet Lawrence)