The watchdog referred to how the bank had made serious breaches of risk management obligations. Credit Suisse said it was addressing the requirements that FINMA identified, and noted that the regulator hasn't ordered a confiscation of profits linked to the proceedings.

The Swiss Financial Market Supervisory Authority said yesterday that it has concluded its enforcement proceedings against Credit Suisse over the Greensill affair. FINMA said that Switzerland’s second-largest bank “seriously breached” its supervisory obligations in the case over risk management and appropriate organisational structures.

FINMA said it has ordered remedial measures. In future, the bank will have to periodically review at executive board level the most important business relationships (around 500) for counterparty risks. Credit Suisse must also record the responsibilities of its highest-ranking employees (approximately 600) in a responsibility document. The watchdog said that it has also opened four enforcement proceedings against former Credit Suisse managers.

The losses that Credit Suisse suffered due to its exposure to the now-defunct UK-based Greensill supply-chain finance group have helped to hurt the bank’s bottom line. Credit Suisse has also been hit with losses from its exposure to New York-based hedge fund/family office Archegos. These and other episodes have pushed the Zurich-listed bank into the red, forced it to restructure and seen the arrival and departure of C-suite executives.

In March 2021, Credit Suisse closed four funds at short notice that were related to companies of the financier Lex Greensill. 

These funds were distributed to qualified investors, whereupon their risk was indicated as low in the client documentation. At the time of the closure, clients had invested a total of around $10 billion in the funds, FINMA said in a statement.

Immediately after the funds were shut in March 2021, FINMA took various risk-reducing measures and opened enforcement proceedings. The focus was on the question of whether the Credit Suisse Group had violated Swiss supervisory law in its business relationship with Greensill.

“We welcome the conclusion of FINMA’s work. This marks an important step towards the final resolution of the SCFF issue. FINMA’s review has reinforced many of the findings of the board-initiated independent review and underlines the importance of the actions we have taken in recent years to strengthen our risk and compliance culture. We also continue to focus on maximising recovery for fund investors,” Ulrich Körner, chief executive of Credit Suisse, said.

The bank said all requirements identified by FINMA are being addressed through the organisational measures already underway. FINMA has not ordered any confiscation of profits in connection with the proceedings and the implementation of the additional measures is not expected to result in significant costs for Credit Suisse.
 

Background
FINMA said that in 2017, Credit Suisse launched the first of four funds in the area of supply chain finance in collaboration with Greensill. With this type of financing, the purchase price of a good with a respite is immediately refunded by a financing company (instead of the actual buyer) with a discount. In return, the financing company receives a claim against the actual buyer. If the buyer pays the full purchase price, the financing company makes a profit. Greensill acted as a financing company, securitised the claims and transferred the securities to the four Credit Suisse funds. It was planned that specific insurance cover would secure the majority of the claims against a default of buyers.

The regulator said its probe showed that overall Credit Suisse’s asset management company had “little knowledge” and control over the specific claims. 

“In fact, it was not Credit Suisse as asset manager of the funds that selected and reviewed them, but Greensill itself. Credit Suisse also left it to the latter to arrange the insurance cover in its own name,” the statement from FINMA continued. 

“Over time, the risk character of the funds changed decisively. In some instances, Greensill additionally transferred future claims to the funds that had not yet arisen and therefore also expectations of a company about possible future claims. By selling future claims to the Credit Suisse funds, Greensill financed some companies whose creditworthiness was doubtful,” it said.

“FINMA’s investigation showed that Credit Suisse did not initially realise the consequences of this change. In addition, Credit Suisse had no knowledge or control over how many claims were actually contractually owed. In this context, it relied on the insurance cover organised by Greensill,” it said.

The closure of a fund at another fund provider that had also worked with Greensill led to enquiries at Credit Suisse in 2018 about the funds associated with Greensill. Media representatives repeatedly approached the Credit Suisse executive board with critical questions and information. FINMA also repeatedly asked critical questions of the banking group’s governing bodies about its business relationship with Greensill and the associated risks, FINMA said. 

Greensill, for its part, announced to the bank that it was planning an IPO with Credit Suisse. Greensill first needed a bridging loan. The Credit Suisse risk manager responsible for the loan identified a number of risks in Greensill’s business model. He therefore recommended internally at the bank not to grant the loan. A senior manager overruled this recommendation, the regulator continued.

FINMA said its probe showed that Credit Suisse used employees who were themselves responsible for the business relationship with Greensill and were therefore “not independent to deal with critical questions or warnings.”

“Credit Suisse even repeatedly asked Lex Greensill himself and relied on his answers for its own statements. For these reasons, the bank made partly false and overly positive statements to FINMA about the claims selection process and the funds’ exposure to certain debtors,” it said. 

Credit Suisse actions
Since March 2021, the bank said it has taken actions including:

Senior management changes, involving dismissing several managers and employees, alongside implementing disciplinary measures and recovering previously granted compensation awards through malus and clawback; implementing a global operating model to improve accountability; improvements to governance, increasing the level of oversight and accountability through simplified and streamlined committees across all levels; strengthening controls by moving risk oversight into a dedicated divisional risk management function; and a “fundamental redesign” of the product development and approval process to improve global consistency, transparency and oversight.

Credit Suisse said that over the past two years it has “significantly strengthened its overall risk management and controls.”