Fed fines UBS $269M for Credit Suisse’s Archegos failures

The penalty, announced Monday, was accompanied by a record fine of 87 million pounds (U.S. $112 million) levied by the Bank of England’s Prudential Regulation Authority (PRA). The U.S. and U.K. agencies coordinated with the Swiss Financial Market Supervisory Authority (FINMA), which ordered UBS to implement corrective measures.

Credit Suisse took a $5.5 billion loss when Archegos collapsed in 2021. The bank that year commissioned an independent report that detailed its risk management failings regarding its relationship with the hedge fund.

Compliance considerations: UBS completed its acquisition of Credit Suisse in June and is on the hook for resolving the latter’s legacy matters.

As part of the consent order it agreed to with the Fed, UBS must require Credit Suisse to improve its counterparty credit risk management practices and address “longstanding deficiencies” in other risk management programs affecting Credit Suisse’s U.S. operations, according to the agency. Remedial measures targeted at Credit Suisse U.S. include clearly defining roles and responsibilities for risk management staff and adherence to written risk tolerance guideline limits.

The PRA in its release said the case marked the only time one of its enforcement investigations found breaches of four of its fundamental rules, including:

• Rule 2 requiring a firm to conduct its business with due skill, care, and diligence;
• Rule 3 requiring a firm must act in a prudent manner;
• Rule 5 requiring a firm must have effective risk strategies and risk management systems; and
• Rule 6 requiring a firm must organize and control its affairs responsibly and effectively.

“Credit Suisse’s failures to manage risks effectively were extremely serious and created a major threat to the safety and soundness of the firm,” stated Sam Woods, deputy governor for prudential regulation and PRA chief executive. “The seriousness and widespread nature of those failures has led to today’s fine, which is the largest ever imposed by the PRA.”

UBS received a 30 percent discount on the penalty for agreeing to resolve the matter.

The resolution with FINMA requires the bank to adjust its compensation system to account for risk appetite as a factor in bonus allocation.

“[F]or employees with particular risk exposure, a control function must assess and record the risks taken before the bonus is determined,” FINMA said. “UBS already has corresponding rules in place, which FINMA is now ordering to be legally binding.”

The regulator said it also opened enforcement proceedings against an unnamed former Credit Suisse manager.

Bank response: “UBS will implement its operational and risk management discipline and its culture across the combined organization,” the bank said in a press release. “It has already begun implementing its risk framework, including actions addressing these regulatory findings, across Credit Suisse. UBS intends to resolve Credit Suisse’s outstanding litigation and regulatory matters in the best interest of its stakeholders, including investors, clients, and employees.”