Written By Credit Suisse is facing repercussions after it was discovered that the bank breached supervisory law in relation to $10 billion of funds invested in Greensill Capital. The Swiss Financial Market Supervisory Authority (FINMA) said on Tuesday that the bank had to return more than $750 million to clients over mis-selling and lax monitoring of the fund’s investments. The case highlights how banks are often put under intense pressure to maintain high levels of profitability and can become careless in their duties if they don’t have adequate oversight systems in place. In this article, we will take a look at what happened with Credit Suisse’s Greensill Capital fund, why the supervisory law was breached, and what lessons can be learned from this incident.
What is Credit Suisse?
Credit Suisse breached supervisory law over $bn Greensill funds
Credit Suisse has been fined CHF134m ($140m) by Switzerland’s financial regulator for breaches of supervisory law in its handling of $10bn of collapsed UK-based lender Greensill’s money.
The Zurich-based bank failed to carry out adequate due diligence on Greensill and three of its funds, the Swiss Financial Market Supervisory Authority (Finma) said.
It also did not inform the regulator of the scale of its exposure to the scandal-hit firm in a timely manner, Finma added.
The penalty is one of the largest ever handed out by Finma.
What is Greensill?
Greensill is a financial technology company that offers working capital finance to businesses. It was founded in 2011 by Lex Greensill, who previously worked at Morgan Stanley and Citigroup.
Greensill provides financing to companies by purchasing their invoices at a discount and then collecting the full amount from the debtor. This allows businesses to free up cash flow and access financing at a lower cost than traditional methods such as bank loans.
In March 2020, Greensill Capital collapsed into administration after its main insurer withdrew coverage for its products. This led to Credit Suisse halting all further investment into Greensill funds, which caused losses for some of the bank’s clients.
What happened?
In February, Credit Suisse agreed to a $5.3 billion settlement with the U.S. Justice Department and Securities and Exchange Commission over its role in the collapse of Greensill Capital, a now-insolvent financial firm that provided financing to companies using supply-chain finance programs.
According to the authorities, Credit Suisse failed to properly assess the risks associated with Greensill’s business model and activities, and as a result, the bank extended more than $10 billion in loans to Greensill that were not properly collateralized. As a result of these actions, Credit Suisse breached supervisory law.
Who is to blame?
It has been revealed that Credit Suisse breached supervisory law when it invested $2.3 billion of its own money in Greensill funds. The investment bank has been criticised for its handling of the matter, with some accusing it of putting its own interests ahead of those of its clients.
Credit Suisse has denied any wrongdoing, saying that it acted in accordance with all applicable laws and regulations. However, the Swiss financial regulator has launched an investigation into the matter, and it is possible that the bank could face sanctions if found guilty of breaching supervisory rules.
Critics have argued that Credit Suisse should have done more to ensure that the Greensill funds were safe investments before putting such a large amount of money into them. They say that the bank should have carried out more due diligence on the funds, and warned clients about the risks involved in investing in them.
Some have also blamed Greensill for the collapse of the funds, arguing that the firm should have been more transparent about how they were being used to finance companies like Sanjeev Gupta’s GFG Alliance. Others have said that Gupta himself is to blame for the problems at Greensill, as he was ultimately responsible for approving the loans that were issued by the firm.
So who is to blame for the collapse of Greensill? Is it Credit Suisse, for failing to properly assess the risks involved in investing in the firm’s funds? Or is it Greensill itself, for not being transparent about
Why does this matter?
It is important to note that Credit Suisse breached supervisory law not because of the underlying investment in Greensill – which was, and remains, a sound one – but because it failed to obtain proper approval from its top management for the activity.
This is a serious issue because it highlights the potential for conflicts of interest when banks get involved in activities beyond traditional lending. In this case, Credit Suisse appears to have put its own interests ahead of those of its clients, which is unacceptable.
We believe that this matter highlights the need for stronger regulation and oversight of banks’ activities, particularly with regard to their involvement in new and innovative financial products.
What’s next?
As the fallout from the Greensill scandal continues, Credit Suisse has admitted that it breached supervisory law in its handling of $10 billion of funds.
This is a serious development, and raises questions about what comes next for the bank. Here’s what we know so far:
1. Credit Suisse has admitted to breaching supervisory law in its handling of $10 billion of funds from Greensill Capital.
2. The admissions relate to three specific areas: failing to properly assess the creditworthiness of Greensill’s clients, failing to provide adequate information to investors, and inappropriately using short-term funding to finance long-term investments.
3. Credit Suisse has apologised for the breaches and announced a series of measures to improve its risk management processes.
4. It is not yet clear what penalties, if any, Credit Suisse will face as a result of the breaches. This will likely be determined by regulators in Switzerland and the UK, where most of the affected funds were based.
5. The scandal has raised questions about the role of credit rating agencies in assessing the riskiness of investments, with some calling for greater regulation in this area.
Conclusion
Credit Suisse has been found to have breached supervisory law in relation to its handling of $10bn worth of Greensill funds. This is just the latest example of a major financial institution failing to uphold regulations and puts further emphasis on the need for greater oversight when it comes to managing large sums of money. It remains to be seen what actions Credit Suisse will take in order to rectify this situation, but this incident should serve as an important reminder that banks must ensure they are following all laws and regulations when dealing with client funds.
