Credit Suisse and UBS fined $400m for Archegos risk management failings

Credit Suisse and new owner UBS have been fined a combined $387m by UK and US regulators for risk management failures at Credit Suisse over dealings with collapsed hedge fund Archegos Capital Management. In coordinated action, Swiss financial regulator FINMA agreed Credit Suisse had “seriously and systematically violated financial market law” in its relationship with Archegos. As well as ordering corrective measures from UBS, the regulator has also launched action against a former Credit Suisse manager. Archegos collapsed in 2021 leaving Credit Suisse with losses of $5.5bn. FINMA said Credit Suisse “incurred enormous and concentrated risks of loss”, which contributed to the fire sale to UBS that completed last month. The US Federal Reserve Board issued UBS with a fine of $268.5m for “unsafe and unsound counterparty credit risk management practices” between Credit Suisse and Archegos. The US regulator said Credit Suisse “failed to adequately manage the risk posed by Archegos despite repeated warnings”. A consent order requires Credit Suisse to improve its counterparty credit risk management and address “deficiencies” in other risk management programmes at the bank’s US operations. The UK’s Prudential Regulation Authority (PRA) imposed a record fine of £87m ($118.5m) for Credit Suisse’s “serious risk management and governance failures”, which left it exposed to Archegos. “The firms’ risk management oversight and practices fell well below the regulatory standards required. The failings were found to be symptomatic of an unsound risk culture within the business line that failed to balance considerations of risk against commercial reward appropriately,” the PRA said. It said Credit Suisse failed to address the risks within Archegos’s portfolio, adding that confusion over responsibilities meant the bank was unable to adequately respond when limit breaches were exceeded. Even though most of the events took place in New York, internal reorganisation meant most of the losses were incurred by Credit Suisse’s London unit. Sam Woods, deputy governor for prudential regulation and CEO of the PRA, said: “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.” PRA said the fine was reduced by 30% from £124.4m after Credit Suisse agreed to resolve the issues raised by the regulator. FINMA, which has not issued a fine, said Credit Suisse took “too big a position and risks” in Archegos, Credit Suisse’s largest hedge fund client with a value of $24bn in March 2021. This was more than half the equity of Credit Suisse Group. “There was no requirement that responsible executive board members address significant and risky business relationships on their own initiative as standard,” it added. FINMA said that employees responsible for the Archegos account acted in favour of the fund and increased limits despite risk monitoring flagging they had been exceeded. Credit Suisse paid out $2.4bn to Archegos just two weeks before it collapsed.

Credit Suisse and UBS fined $400m for Archegos risk management failings

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