Archegos scandal: The list of CS omissions is too long

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UBS is now starting to pay its fines for acquiring Credit Suisse (CS). On Monday, it was announced that UBS had to pay a fine of approximately $387 million over Credit Suisse Group’s misconduct in its dealings with Archegos Capital Management.

In connection with the fine, the Financial Markets Authority (Finma) recorded the abuse it found in CS in connection with the Archegos incident. The list is long and does not report well to the bank that got into trouble in 2021 because of the Archegos.

clear words from Finma

Finma cites “serious shortcomings” with administrative organization and states that it is not possible for CS to “appropriately record, limit and monitor significant risks associated with Archegos.” This was a serious violation of the Banking Law.

Organizational shortcomings include, for example, the fact that CS held a very high position in its relationship with Archegos for months. It was valued at US$24 billion in March 2021 – more than half of CS Group’s equity. Despite the associated risks, members of the bank’s management were not made aware of the facts. In such cases, there must inevitably be standardized processes involving members of management.

Internal risk monitoring showed a high risk of loss. “But the responsible employees acted on the side of the customer,” Finma analyzes. The exceeded limits were repeatedly increased, further increasing the risk of loss.

When Archegos requested a $2.4 billion payment from CS two weeks before its debut, the bank complied. Based on the contract, but without examining whether payment can be refused given the circumstances or whether Archegos will bring more guarantees. In this way, CS took the enormous risks.

UBS needs to be set

The culture surrounding such failures contributed to the demise of CS, which was eventually swallowed up by UBS. And Finma is now applying “corrective measures” to its new owner. This includes restrictions on own positions in connection with individual clients across the UBS Group. In addition, the compensation system should provide criteria for the allocation of bonuses that “take into account risk appetite”. According to Finma, UBS already knows the rules.

Source :Blick