"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 Prudential Regulation Authority has fined Credit Suisse International and Credit Suisse Securities (Europe) £87 million for "significant failures in risk management and governance" between January 2020 and March 2021, in connection with the firms’ exposures to Archegos Capital Management.
This is the PRA’s highest fine and the only time a PRA enforcement investigation has established breaches of four PRA Fundamental Rules.
The PRA action is part of a co-ordinated global effort, incorporating action by the Swiss Financial Market Supervisory Authority (FINMA) and the Federal Reserve Board, resulting in combined penalties in excess of $387.5 million being imposed by the PRA and Federal Reserve Board.
The PRA's investigation found that Credit Suisse provided prime brokerage services and entered into equity total return swaps (TRS) with Archegos. All such TRS positions were remotely booked into the firms in the UK via other entities in the Credit Suisse group. When Archegos defaulted in March 2021, around US$5.1 billion of losses were booked to the firms. The PRA says these losses for Credit Suisse resulted in "significant financial and reputational damage". Credit Suisse was ultimately acquired by UBS Group AG in 2023.
The PRA judged that the firms’ risk management oversight and practices fell "well below the regulatory standards required".
In a statement, the PRA said: "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. Broadly, this resulted in a failure by the firms to address the risk arising from Archegos’ portfolio, a confusion of responsibilities and failures to adequately respond when limit breaches were exceeded. The firms had failed to learn from past similar experiences and had insufficiently addressed concerns previously raised by the PRA."
As a result, the Firms breached Fundamental Rules 2, 3, 5 and 6 of the PRA Rulebook. Fundamental Rule 2 requires that a firm to conduct its business with due skill, care and diligence. Fundamental Rule 3 requires that a firm must act in a prudent manner. Fundamental Rule 5 requires that a firm must have effective risk strategies and risk management systems. Fundamental Rule 6 requires that a firm must organise and control its affairs responsibly and effectively.
The firms agreed to resolve this matter and therefore qualified for a 30% reduction in the fine imposed by the PRA. Without this discount, the fine imposed by the PRA would have been £124.4 million.
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."
