FINMA has opened proceedings against four managers as it orders the bank to improve its controls
The Swiss Financial Market Supervisory Authority FINMA has concluded its enforcement proceedings against Credit Suisse in connection with its business relationship with financier Lex Greensill and his companies.
It found that Credit Suisse seriously breached its supervisory obligations in this context with regard to risk management and appropriate organisational structures.
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) in particular for counterparty risks.
In addition, the bank is required to record the responsibilities of its approximately 600 highest-ranking employees in a responsibility document.
FINMA has also opened four enforcement proceedings against former Credit Suisse managers. The regulator has not named the individuals who are being investigated.
Threat to supply chains
The high profile collapse of Greensill Capital threatened to disrupt supply chains across the globe, after Credit Suisse and GAM Holdings AG withdrew their support its insurer did not renew the firm’s trade credit coverage.
The supply chain lending was overexposed to a single client, the conglomerate GFG Alliance owned by steel tycoon Sanjeev Gupta, which employs over 35,000 individuals around the globe.
At the time there were fears it could cause a ripple effect on the supply chain finance market as a whole, to the detriment of small businesses in need of liquidity.
According to a UK House of Commons Treasury Committee report in 2021, the Greensill failure “highlighted risks around the growth of the nonbank sector and the expansion of non-banks into areas of financial intermediation traditionally dominated by banks”.
Deficiencies in risk management
In its proceedings, FINMA concluded that Credit Suisse Group seriously breached its supervisory duty to adequately identify, limit and monitor risks in the context of the business relationship with Lex Greensill over a period of years.
The regulator also found serious deficiencies in the bank’s organisational structures during the period under investigation. It concluded there had been a serious breach of Swiss supervisory law.
Credit Suisse has adopted a wide range of organisational measures based on its own investigation of the case. Governance structures were revised and control processes strengthened, namely in the approval and monitoring of fund products.
At the same time, FINMA is ordering a number of other measures to further improve the banking group’s risk management and governance.
It notes there was “a lack of an overall view as well as regular, consistent engagement with the risks associated with Greensill at the highest level”.
The Swiss regulator is therefore ordering the banking group to prospectively assess its significant business relationships according to risks. From now on, the bank’s most important (approximately 500) business relationships are to be reviewed periodically and holistically for counterparty risks at executive board level.
In addition, the areas of responsibility of the bank’s (approximately 600) highest managers must in future be recorded in a document of responsibility.
“If they do not organise and manage their business area in such a way that misconduct is prevented as far as possible, they must be sanctioned by the bank, for example through a reduction of their variable compensation,” said FINMA.
The collapse of the supply chain finance firm Greensill Capital in 2021 caused significant disruption to global supply chains. Several legal and regulatory probes are ongoing into the firm and others implicated in its insolvency.