UBS Under Watch for Vetting Credit Suisse Wealthy Clients

FINMA, Switzerland's financial authority, is closely examining how UBS verifies affluent customers who pose risks when being moved from Credit Suisse. This thorough analysis emphasizes how aggressively the regulator is in supervising the two financial giants' mergers.

FINMA looked into the criteria UBS uses to assess clients for wealth management earlier this year. It is hoped that the biggest bank in Switzerland does not inherit troublesome customers. Sources familiar with the issue who spoke under cover of anonymity provided this information to Reuters. These sources were not approved for talking about the subject openly.

As part of their compliance initiatives, banks find possible customer problems using sophisticated screening technologies. This covers reducing threats like money laundering. Over these filters and the “know your client” (KYC) policies—processes banks employ to confirm the identities and related data of their clients—FINMA participated in thorough negotiations with UBS. The regulator also looked at UBS's risk-based prospective customer rating system, which spans high to low.

Although it needs to be clarified whether FINMA asked UBS to carry out certain actions after its checks, insiders suggest the regulator could investigate further if UBS keeps including Credit Suisse customers in its systems.

In response to questions about FINMA's participation, a UBS spokesman said the firm maintains strict customer due diligence policies. “UBS maintains the strict client due diligence policies it already had prior to the acquisition as it gets ready for the migration of Credit Suisse clients onto its platforms,” the spokesman added. “Based on UBS's long-standing policies, which fit regulatory criteria, the client review is based.”

Examining UBS's customer screening by FINMA highlights the regulator's aim for strict control when the company interacts with its erstwhile competitor. Since the global financial crisis of 2008, this merger represents the most important consolidation of banks. FINMA's handling of Credit Suisse's March 2023 crisis drew strong criticism. Stefan Walter, the recently appointed CEO of the regulator who started in April, has demanded additional legislative authority to oversee banks properly.

Leading by CEO Sergio Ermotti, the thorough evaluation process also highlights UBS's operational difficulties. UBS wants to move at least hundreds of thousands of customers and save $13 billion by 2026 using around 2,000 staff committed to the integration.

The UBS-Credit Suisse merger is highly supervisory for FINMA. The regulator is attentively monitoring the financial as well as non-financial risks connected to the merger. It has so enlarged the staff supervising UBS and uses many tools, including on-site inspections.

FINMA aimed to be engaged from the start of the merger process. The regulator's objective is to safeguard Switzerland's financial stability after the acquisition, therefore establishing an economic entity with assets almost twice the size of the Swiss national GDP.

With more than half of the group's $40.8 billion in total income in 2023 coming from UBS's worldwide wealth management unit, By 2028, the bank wants to oversee assets worth over $5 trillion. In a lecture in Lucerne, CEO Ermotti underlined in great detail how the operations and culture of UBS depend critically on risk management.

UBS shares have surged by over 57%, outperforming the 44% advance in the STOXX Europe 600 Banks index since the emergency acquisition of Credit Suisse was announced in March 2023. Investors are now, however, concentrating on the difficult chore of onboarding new customers and satisfying the Swiss government's need for more money.

Andreas Venditti, a financial analyst from asset management Vontobel, detailed the integration as addressing the banks' duplication structures in particular. “It's a Herculean job, a massive job,” he remarked.

Aiming to finish this phase by the end of the year, UBS intends to draw affluent customers to Singapore and Hong Kong initially. Client movement to Switzerland is planned for 2025. Early 2025 could see large cost reductions, according to UBS's Chief Financial Officer Todd Tuckner, if customers are wholly integrated into UBS systems and Credit Suisse infrastructures are closed. UBS has already cut gross costs by $5 billion by the end of March 2024.

Under CEO Walter, FINMA has strengthened its personnel, consisting of around 60 employees assigned under UBS control. There is a core crew of twenty-two persons that only watch the bank. “Our job is to spot hazards and act early in solving issues,” Walter stated in a May speech. “We will do this even more deliberately going forward.”

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