Market Analysis

Swiss Watchdog Probes UBS's Vetting of Wealthy Credit Suisse Clients, Sources Say

Amos Simanungkalit · 30 Jul6.2K Views

Image Credit: Reuters

Switzerland's financial regulator, FINMA, has been closely examining how UBS vets high-risk wealthy clients from Credit Suisse, according to sources. This scrutiny is part of FINMA's proactive approach to overseeing the integration of Credit Suisse into UBS.

Earlier this year, FINMA assessed the filtering mechanisms UBS, currently valued at $105 billion, uses to screen Credit Suisse's wealth management clients. This step aims to prevent UBS from inheriting problematic clients, sources familiar with the matter told Reuters on the condition of anonymity.

Banks employ filtering technologies as part of their compliance efforts to mitigate risks such as money laundering. FINMA engaged in extensive discussions with UBS regarding its filters and "know your client" (KYC) protocols, which verify the identities and backgrounds of clients. Additionally, FINMA reviewed how UBS assigns risk ratings to prospective clients, ranging from high to low risk, the sources said.

Reuters was unable to determine if FINMA requested specific actions from UBS following its reviews. The regulator may conduct further assessments as UBS continues integrating Credit Suisse clients onto its platforms.

In response to inquiries from Reuters, a UBS spokesperson emphasized that the bank adheres to stringent client due diligence procedures as it prepares to transition Credit Suisse clients. "The client review is based on UBS's longstanding procedures, which comply with regulatory requirements," the spokesperson stated.

FINMA's scrutiny of UBS's client vetting process highlights the regulator's active involvement in the largest banking merger since the 2008 financial crisis. FINMA faced significant criticism in Switzerland for its handling of Credit Suisse's collapse in March 2023. Stefan Walter, FINMA's new CEO, who took office in April, has called for increased regulatory authority to oversee banks.

This scrutiny also underscores the operational challenges UBS faces under CEO Sergio Ermotti. Approximately 2,000 dedicated employees are working on integrating hundreds of thousands of clients to achieve the targeted $13 billion in cost savings by the end of 2026.

FINMA described the merger as a top supervisory priority and said it is closely monitoring both financial and non-financial risks associated with it. The regulator has expanded its team overseeing UBS and is utilizing all available tools, including on-site inspections.

From the beginning, FINMA has sought to be closely involved in the integration process, the sources noted. Its aim is to protect Switzerland's financial stability following the takeover, which created a financial entity with assets nearly double the size of the Swiss economy.

Global wealth management is UBS's core business, accounting for more than half of its total revenue of $40.8 billion in 2023. UBS aims to manage over $5 trillion in invested assets by 2028. In a May speech in Lucerne, Ermotti emphasized the importance of risk management in UBS's operations and culture.

UBS shares have risen about 57% since the announcement of the emergency takeover of Credit Suisse in March 2023, outperforming the 44% increase in the STOXX Europe 600 Banks index. However, investors are now focused on the complex task of onboarding clients and meeting Swiss government requests for additional capital.

Andreas Venditti, a financial analyst at asset manager Vontobel, described the integration as a "Herculean task." UBS has announced plans to first integrate wealthy clients in Singapore and Hong Kong by the end of the year, followed by clients in Switzerland in 2025.

Chief Financial Officer Todd Tuckner mentioned in May that a significant portion of the anticipated cost savings would materialize in early 2025, once clients transition to UBS platforms and Credit Suisse infrastructures are decommissioned. By the end of March 2024, UBS had achieved $5 billion in gross cost savings.

FINMA's CEO Walter has strengthened the supervisory team, with around 60 staff members dedicated to UBS oversight, including a core team of 22 focused exclusively on monitoring the bank. "Our task is to identify risks and proactively address issues," Walter said in a May speech. "We will do this even more deliberately in the future."