- In the Archegos case, UBS has reached an agreement with the authorities for the acquired Credit Suisse.
- The big bank pays fines totaling 388 million US dollars.
- With this, Finma also closes the proceedings against CS.
As part of the agreement, penalties of $269 million will be paid to the US Federal Reserve and the equivalent of $119 million to the UK Financial Services Regulatory Authority (PRA), as the authorities and UBS itself announced.
In the context of the business relationship with the Archegos family office, Credit Suisse had seriously and systematically violated financial market law, according to the Swiss Financial Market Supervisory Authority Finma, according to its own statement, as part of its enforcement proceedings.
Investigation against ex-CS manager
In March 2021, several investment banks had recorded large losses due to the collapse of the US hedge fund Archegos. CS suffered by far the biggest loss at over five billion dollars.
The investigation initiated by Finma against CS has now ended with the agreement, according to the authority. However, both the Federal Reserve and Finma themselves have ordered “corrective measures” with a view to risk management.
While the proceedings against the bank have now been concluded, Finma has simultaneously opened enforcement proceedings against a former CS manager. She did not want to say anything about the identity of this person or the details of the procedure.
“Serious deficiencies” identified
Finma found “serious” deficiencies at CS in connection with the business relationship with Archegos. “In particular, it was not possible for the bank to adequately record, limit and monitor the significant risks associated with Archegos,” Finma concludes.
For example, CS’ own position was “enormously high” for months due to the relationship with Archegos: According to the information, it was worth $ 24 billion in March 2021. That was four times the position of the next largest hedge fund client and more than half of the bank’s equity.
Archegos acquired large positions in only a few issuers. CS then in turn built up stocks of these securities in order to hedge, which in some cases led to significant market shares in these securities. The bank was thus “enormous and concentrated risk of loss”, which would then also have been realized in the later emergency sale.
Bonus award linked to risk appetite
Finma requires UBS to apply its own position restrictions related to individual clients across the financial group. In addition, there must be bonus allocation criteria in the remuneration system that take risk appetite into account. Before determining the bonus, the risks taken would first have to be assessed. According to Finma, UBS already knows the corresponding rules, which the authority is now ordering to be legally binding.
UBS says it will embed its risk management principles and culture across the combined organization. The implementation of risk management at CS has already begun. The outstanding legal cases and regulatory matters of CS should also be settled “in the best interests of all stakeholders”.