Credit Suisse breached supervisory law over $10bn Greensill funds

The Swiss financial regulator has concluded its two-year investigation into Credit Suisse’s failings over the collapse of specialist finance firm Greensill Capital, finding there had been a “serious breach of Swiss supervisory law”.

The implosion of Greensill in March 2021 caused Credit Suisse to suspend and close $10bn worth of funds that had lent money via the supply-chain finance business, trapping the savings of 1,000 of the Swiss bank’s most prized clients.

Credit Suisse is in the middle of a fraught and expensive operation to reclaim the funds for its clients through insurance claims and lawsuits, which is expected to continue for several years. So far, it has managed to recoup $7.4bn of the $10bn invested in the funds.

Greensill was founded by Lex Greensill, a former banker who frequently touted his humble origins growing up on an Australian watermelon farm, and counted former UK prime minister David Cameron as one of its advisers.

In a statement on Tuesday, Finma, the Swiss regulator, said that Credit Suisse had failed to “adequately identify, limit and monitor risks in the context of the business relationship with Lex Greensill over a period of years”. As a result, “Finma thus concludes that there has been a serious breach of Swiss supervisory law,” it added.

The regulator does not have the power to fine companies within its remit, but it can ban individuals from acting in a senior role at an institution it supervises.

It said it had opened four enforcement proceedings against former Credit Suisse managers but would not comment further on them or reveal their identities. It did not publish its full report into the matter.

“Finma also found serious deficiencies in the bank’s organisational structures during the period under investigation. Furthermore, it did not sufficiently fulfil its supervisory duties as an asset manager,” the regulator added.

Credit Suisse must overhaul the risk management of its “significant business relationship”, with its top 500 clients now subject to regular reviews for “counterparty risks” at the “executive board level”, Finma said. The regulator will also appoint a third party to review the bank’s compliance with the measures.

Finma homed in on Credit Suisse’s failure to appreciate the risks building up in the supply-chain finance funds, which sourced all of their assets from Greensill Capital.

While these were originally all backed by corporate invoices, over time the funds began taking on loans Greensill made to “companies whose creditworthiness was doubtful” on the basis of “possible future claims”. Finma said that Credit Suisse “did not initially realise the consequences of this change”.

The process by which a corporate loan to Greensill Capital was approved also drew criticism, with Finma noting that a risk manager initially recommended not to grant the loan, before a “senior manager overruled this recommendation”.

The bank’s management of its overall relationship with Greensill Capital and Lex Greensill also came under fire from Finma, which pointed out that while “media representatives” frequently approached Credit Suisse with “critical questions and information”, the bank relied on employees that managed the Greensill relationship and were “not independent” enough to deal with these “warnings”.

“Credit Suisse even repeatedly asked Lex Greensill himself and relied on his answers for its own statements,” Finma said. “For these reasons, the bank made partly false and overly positive statements to Finma.”

Credit Suisse has produced its own report into its failings over Greensill but has not released it.

Ulrich Körner, the bank’s chief executive, said on Tuesday that the conclusion of the Finma investigation marked an important step in the resolution of the matter.

“Finma’s review has reinforced many of the findings of the board-initiated independent review and underlines the importance of the actions we have taken in recent years to strengthen our risk and compliance culture,” he added. “We also continue to focus on maximising recovery for fund investors.”

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