Credit Suisse fined £87 million for Archegos failings
25 July 2023 UK
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The Prudential Regulation Authority has imposed a fine of £87 million on Swiss bank Credit Suisse for risk management failures relating to its dealings with Archegos Capital Management, the limited partnership family office managed by Bill Hwang that collapsed in March 2021.
The UK regulator indicates that this is the highest penalty that it has applied and the only time that a PRA enforcement investigation has confirmed breaches of four PRA fundamental rules.
These financial penalties have been imposed on Credit Suisse International (CSI) and Credit Suisse Securities (Europe) Ltd (CSSEL) following a coordinated global resolution that involved judgements by the Swiss Financial Supervisory Authority (FINMA) and the US Federal Reserve Board.
Credit Suisse was acquired by UBS Group on 12 March 2023.
The Federal Reserve Board had previously applied fines of US$268.5 million on Credit Suisse entities in the US that had been found to be in breach relating to their engagement with Archegos.
The PRA identified failings at CSI and CSSEL that it ruled to be symptomatic of an unsound risk culture that failed to balance risk considerations against commercial reward. These Credit Suisse entities had failed to address risks arising from Archegos’ investment portfolio and, in providing prime services to Archegos, they had failed to respond effectively when limit breaches were exceeded.
The PRA ruled that the firms had also failed to learn lessons from past experiences and to address concerns that the regulator had raised previously.
In its ruling, the PRA indicates that Credit Suisse breached rules 2, 3, 5 and 6 of the PRA Rulebook.
Specifically, the firms had failed to promote a culture within the investment bank which balanced risk considerations effectively against commercial reward.
The regulator found that the Credit Suisse entities had neglected to put an effective risk mitigation strategy in place for Archegos’s portfolio and failed to escalate the issue and take appropriate action as this risk exposure increased. It noted that risk oversight was inadequate in the UK for equity total return swap positions that CS entered into with Archegos that were booked remotely into the UK firms via other CS entities.
The PRA also ruled that the firms had failed to assess and respond to the risks presented by their exposures relating to Archegos’ portfolio. When Archegos defaulted in March 2021, these Credit Suisse entities suffered US$5.1 billion in losses from their combined exposures to the Archegos portfolio.
More broadly, CSI and CSSEL had failed to install an effective governance framework that effectively monitored or discussed the risks presented by Archegos portfolio.
SFT has provided a more detailed review of Credit Suisse’s dealings with Archegos and the risks that it faced through Archegos’s default in SFT Issue 284 and Issue 289.
Commenting on the PRA’s ruling, Sam Woods, PRA deputy governor for prudential regulation and chief executive officer says: "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 UK regulator indicates that this is the highest penalty that it has applied and the only time that a PRA enforcement investigation has confirmed breaches of four PRA fundamental rules.
These financial penalties have been imposed on Credit Suisse International (CSI) and Credit Suisse Securities (Europe) Ltd (CSSEL) following a coordinated global resolution that involved judgements by the Swiss Financial Supervisory Authority (FINMA) and the US Federal Reserve Board.
Credit Suisse was acquired by UBS Group on 12 March 2023.
The Federal Reserve Board had previously applied fines of US$268.5 million on Credit Suisse entities in the US that had been found to be in breach relating to their engagement with Archegos.
The PRA identified failings at CSI and CSSEL that it ruled to be symptomatic of an unsound risk culture that failed to balance risk considerations against commercial reward. These Credit Suisse entities had failed to address risks arising from Archegos’ investment portfolio and, in providing prime services to Archegos, they had failed to respond effectively when limit breaches were exceeded.
The PRA ruled that the firms had also failed to learn lessons from past experiences and to address concerns that the regulator had raised previously.
In its ruling, the PRA indicates that Credit Suisse breached rules 2, 3, 5 and 6 of the PRA Rulebook.
Specifically, the firms had failed to promote a culture within the investment bank which balanced risk considerations effectively against commercial reward.
The regulator found that the Credit Suisse entities had neglected to put an effective risk mitigation strategy in place for Archegos’s portfolio and failed to escalate the issue and take appropriate action as this risk exposure increased. It noted that risk oversight was inadequate in the UK for equity total return swap positions that CS entered into with Archegos that were booked remotely into the UK firms via other CS entities.
The PRA also ruled that the firms had failed to assess and respond to the risks presented by their exposures relating to Archegos’ portfolio. When Archegos defaulted in March 2021, these Credit Suisse entities suffered US$5.1 billion in losses from their combined exposures to the Archegos portfolio.
More broadly, CSI and CSSEL had failed to install an effective governance framework that effectively monitored or discussed the risks presented by Archegos portfolio.
SFT has provided a more detailed review of Credit Suisse’s dealings with Archegos and the risks that it faced through Archegos’s default in SFT Issue 284 and Issue 289.
Commenting on the PRA’s ruling, Sam Woods, PRA deputy governor for prudential regulation and chief executive officer says: "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."
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