Swiss watchdog scrutinises UBS vetting of wealthy Credit Suisse clients, sources say

Vontobel Holding AG

30/07/2024 07:05

By Stefania  Spezzati and Oliver Hirt
       LONDON/ZURICH, July 30 (Reuters) - Switzerland's
financial supervisor has been scrutinising how UBS vets risky
wealthy clients that it wants to transfer from Credit Suisse,
sources said, as the regulator takes a hands-on approach to the
bank's integration of its fallen rival. 
    Earlier this year, watchdog FINMA reviewed the filters UBS,
currently worth $105 billion on the market, applies to screen
Credit Suisse wealth management customers to ensure
Switzerland's banking giant doesn't end up with problematic
clients on its books, two sources with knowledge of the matter
told Reuters, speaking on condition of anonymity because they
were not authorized to speak to the media.
    Banks use filtering technology to identify potential issues
associated with clients as part of their compliance rules to
mitigate risks including money laundering.
    The Swiss financial regulator entered into a back and forth
with UBS over filters and "know your client" rules, a set of
procedures that banks use to verify the customers' identity and
information linked to them. It also reviewed how UBS applies
ratings ranging from high to low risk to prospective clients,
the people said.
        Reuters couldn't establish whether FINMA requested UBS
to take any specific measure as result of its reviews.
    FINMA could undertake further reviews as UBS progresses with
its integration of Credit Suisse clients onto its own platforms,
the sources said. 
    In response to Reuters' questions on FINMA's involvement in
UBS's processes, a UBS spokesperson said that "as it prepares
for the transition of Credit Suisse clients onto its platforms,
UBS upholds the stringent client due diligence procedures it
already had in place prior to the acquisition."
    "The client review is based on UBS's longstanding
procedures, which are in line with regulatory requirements." 
        FINMA's review of UBS' clients vetting shows how closely
involved the regulator wants to be as UBS integrates its former
competitor in the largest banking merger since the global
financial crisis of 2008. 
    The financial watchdog was heavily criticised in Switzerland
for its handling of Credit Suisse's collapse in March 2023. Its
new CEO Stefan Walter, who took charge in April, has called for
more regulatory power to supervise banks. 
    The scrutiny also points to the operational challenges for
the bank run by CEO Sergio Ermotti as it enters a trickier
phase, with about 2,000 dedicated bank employees working on the
integration of at least hundreds of thousands of clients to
deliver a promised $13 billion in cost savings by the end of
2026.
    Addressing questions from Reuters about the regulator's
review of UBS' integration of Credit Suisse, FINMA said the
merger is a top supervisory concern and that it's closely
monitoring developments related to both financial and
non-financial risks.
    It said it had expanded the team supervising UBS and is
using all instruments at its disposal, including on-site
inspections.
            
    PROTECTING SWITZERLAND
    FINMA has sought to be involved closely in the integration
since the start, the two sources said. 
    It is trying to safeguard Switzerland's financial stability
following the takeover, which created a financial behemoth with
assets nearly twice the size of the Swiss economy. 
    Global wealth management is UBS's flagship business, making
up more than half of total group revenue of $40.8 billion in
2023. The bank said it aims to have more than $5 trillion of
invested assets by 2028. 
    Ermotti said in May in a speech in Lucerne that risk
management was "one of the most important parts of our work and
culture."
    UBS shares have risen about 57% since the last trading day
before the announcement of an emergency takeover of Credit
Suisse in March 2023 , against a 44% increase in the STOXX
Europe 600 Banks index  .SX7P . But investor focus has shifted
to the knottier task of onboarding clients and to Swiss
government requests for further capital. 
    Andreas Venditti, a financial analyst at asset manager
Vontobel said the integration was just beginning to address the
banks' duplicate structures in detail.  
    "It's a Herculean task, a massive job," he said.
    UBS has said it will first absorb wealthy customers in 
Singapore and Hong Kong, aiming to complete the transfer by the
end of the year before moving to clients in Switzerland in 2025.
    Chief Financial Officer Todd Tuckner said in May that a
significant portion of expected cost savings would be realised
in early 2025 when clients move on to UBS platforms and Credit
Suisse infrastructures are closed. 
        UBS' gross cost savings reached $5 billion by the end of
March 2024. 
  
    FINMA's head Walter has increased its team, the regulator
told Reuters, with about 60 staff providing services related to
the UBS supervision and a core team of 22 people exclusively
responsible for monitoring the bank.
    "Our task is to identify risks and be proactive to remediate
problems," Walter said in a speech in May. "We will do this even
more deliberately in future".

 (Reporting by Stefania Spezzati in London and Oliver Hirt in
Zurich; additional reporting by Dave Graham and Danilo Masoni;
Editing by Tommy Reggiori Wilkes and Lisa Jucca)
 ((Stefania.Spezzati@thomsonreuters.com;))