UBS fined over $560m for Credit Suisse misconduct

The US Federal Reserve Board (Fed) and the UK’s Prudential Regulation Authority (PRA) have both handed down fines to Credit Suisse’s new owner company, the UBS Group, for what the Fed has said was ‘unsafe and unsound counterparty credit risk management practices’ at Credit Suisse.

The Fed fine

This week, the Fed issued a US$268.5 million fine ($396.92 million) to UBS Group AG for misconduct by Credit Suisse, which UBS subsequently acquired.

According to the Fed, the misconduct involved Credit Suisse’s ‘unsafe and unsound’ counterparty credit risk management practices with its former counterparty Archegos Capital Management LP.

In 2021, Credit Suisse suffered approximately $5.5 billion in losses because of the default of Archegos, an investment fund.

The Fed said that, during Credit Suisse’s relationship with Archegos, Credit Suisse failed to adequately manage the risk posed by Archegos “despite repeated warnings”.

It has therefore issued the fine and is requiring Credit Suisse to improve counterparty credit risk management practices and to address additional longstanding deficiencies in other risk management programs at Credit Suisse’s US operations.

The Fed also required the UBS board of directors along with US risk committees to jointly submit a plan within 120 days to ‘strengthen their respective oversight of the US operations, its senior management, and the remediation of outstanding regulatory issues related to deficient risk management and governance practices’.

The PRA fine

Furthermore, the PRA fined Credit Suisse £87 million ($165.92 million) for ‘significant failures in risk management and governance between 1 January 2020 and 31 March 2021’.

Along with the fine, the US board also announced a consent order in which it required UBS to ‘take appropriate steps to ensure that each branch and subsidiary of Credit Suisse in the US operates in a safe and sound manner’.

The PRA found Credit Suisse’s management and oversight practices ‘fell well below the regulatory standards required’ that saw the organisation provide brokerage services and enter into equity total return swaps with Archegos Capital Management.

It said that, when Archegos defaulted, approximately ‘US$5.1 billion of losses were booked’ to Credit Suisse and that the losses resulted in ‘significant financial and reputational damage’.

Deputy governor for prudential regulation and chief executive of the PRA, Sam Woods, commented: “Credit Suisse’s failures to manage risks effectively were extremely serious, and created a major threat to the safety and soundness of the firm.

“The seriousness and widespread nature of those failures has led to today’s fine, which is the largest ever imposed by the PRA.”

The PRA has said Credit Suisse was eligible for a 30 per cent reduction in the fine imposed due to agreeing to resolve the matter, without the discount the fine would have been £124.4 million ($237.29 million).

FINMA – the Swiss Financial Market Supervisory Authority – has acknowledged the actions by the Fed and PRA and said it was undertaking enforcement proceedings against a former Credit Suisse manager.

It said ‘there were serious deficiencies at Credit Suisse’ and that it ‘seriously and systematically violated the organisational requirements under banking law’.

However, FINMA has said it ‘is not commenting on the identity of this person or details of the proceedings’.

The Fed previously labelled Credit Suisse’s misconduct along with the collapse of several US financial institutions as part of the reason for the tightening of lending standards.

[Related: ‘Devote resources’ to financial stability risks, warns IMF]