The U.S. Federal Reserve Board has hit UBS Group AG with a US$268.5-million fine for misconduct by Credit Suisse AG, which UBS acquired last month.
“The misconduct involved Credit Suisse’s unsafe and unsound counterparty credit risk management practices” with failed hedge fund Archegos Capital Management LP, the Fed stated. Credit Suisse incurred approximately US$5.5 billion in losses when Archegos defaulted in 2021.
“Credit Suisse repeatedly failed to address identified risks associated with Archegos’ portfolio despite repeated escalation of red flags by staff to multiple levels of management,” the Fed said in its order.
In addition to the fine, the Fed required Credit Suisse to improve its counterparty credit risk management practices, and to “address additional longstanding deficiencies in other risk management programs at Credit Suisse’s U.S. operations.”
Those deficiencies include the firm’s counterparty credit risk management, liquidity risk management, model risk management, third-party risk management and IT management, “as well as significant data management and data quality issues,” the Fed noted in the consent order.
The Fed’s action against UBS came alongside actions by the Swiss Financial Market Supervisory Authority (FINMA) and the Bank of England’s Prudential Regulation Authority (PRA), resulting in penalties by the Fed and the PRA that totalled approximately US$387 million.
In a release, FINMA said Credit Suisse had “seriously and systematically violated financial market law in the context of its business relationship with the Archegos family office.”
The regulator ordered the firm to take corrective measures, and has opened enforcement proceedings against a former Credit Suisse manager.
The U.K.’s PRA imposed a record fine of £87 million on Credit Suisse International and Credit Suisse Securities (Europe) Ltd. for risk management and governance failures.