PRA has imposed a record fine of £87m on Credit Suisse for serious risk management and governance failures between 1 January 2020 and 31 March 2021 in connection with its exposures to Archegos Capital Management. This case is the only time a PRA enforcement investigation has established breaches of four PRA Fundamental Rules.
Credit Suisse entities had provided prime brokerage services and entered into equity total return swaps with Archegos. When Archegos defaulted in March 2021, around $5.1 bn of losses were booked to Credit Suisse entities, resulting in significant financial and reputational damage. The failings were found to be part of a culture which did not properly balance risk considerations against commercial reward. Credit Suisse had failed to learn from past similar experiences and insufficiently addressed concerns previously raised by PRA.
In particular, Credit Suisse had breached Fundamental Rules 2 (requiring firms to conduct business with due skill, care and diligence), 3 (requiring firms to act in a prudent manner), 5 (requiring firms to have effective risk strategies and management systems) and 6 (requiring firms to organise and control their affairs responsibly and effectively) of the Rulebook. This resulted in it failing to:
- Instil a culture within the investment banking division that appropriately balanced the considerations of risk against commercial reward;
- Evaluate and take due account of the risks arising from exposures in relation to Archegos’ portfolio;
- Appropriately escalate the risks within Archegos’ portfolio with the result that there was inadequate oversight in the UK of risk remotely booked into the business;
- Take sufficient steps to implement an effective risk mitigation strategy in respect of Archegos’ portfolio. Including a failure to take reasonable steps to reduce risk when it would have been prudent to do so; and
- Have a governance framework that adequately scrutinised or discussed the risks posed by Archegos’ portfolio.
As Credit Suisse agreed to resolve the matter with PRA, the figure of £87m represents a 30% reduction to the original proposed fine of £124.4m.