Switzerland’s financial regulator, FINMA, is closely examining how UBS screens risky wealthy clients being transferred from Credit Suisse, sources revealed. This comes as the regulator adopts a proactive stance in overseeing the bank’s integration of its fallen competitor.

Earlier this year, FINMA reviewed the filters UBS, valued at $105 billion, uses to vet Credit Suisse wealth management customers, ensuring that problematic clients do not end up on the books of Switzerland’s banking giant. This information was provided by two sources familiar with the matter who spoke to Reuters on the condition of anonymity.

Banks employ filtering technology as part of compliance rules to identify potential issues, such as money laundering. FINMA has engaged in discussions with UBS regarding these filters and “know your client” (KYC) procedures, which are used to verify customers’ identities and related information. The regulator also assessed how UBS rates prospective clients from high to low risk.

While it is unclear if FINMA requested any specific measures following its reviews, the regulator may conduct further assessments as UBS continues integrating Credit Suisse clients into its platforms.

Responding to Reuters’ inquiries about FINMA’s involvement, a UBS spokesperson stated, “As it prepares for the transition of Credit Suisse clients onto its platforms, UBS upholds the stringent client due diligence procedures it already had in place prior to the acquisition.” The spokesperson added that the client review is based on UBS’s longstanding procedures, which comply with regulatory requirements.

FINMA’s review of UBS’s client vetting processes highlights the regulator’s close involvement as UBS integrates its former competitor in the largest banking merger since the 2008 financial crisis. Following criticism over its handling of Credit Suisse’s collapse in March 2023, FINMA, under new CEO Stefan Walter, has called for greater regulatory power to oversee banks.

The scrutiny also underscores the operational challenges for UBS, led by CEO Sergio Ermotti. With about 2,000 employees dedicated to the integration, UBS aims to achieve $13 billion in cost savings by the end of 2026.

FINMA considers the merger a top supervisory concern and closely monitors related financial and non-financial risks. The regulator has expanded its team supervising UBS and employs various tools, including on-site inspections.

This meticulous oversight aims to safeguard Switzerland’s financial stability following the takeover, which created a financial entity with assets nearly twice the size of the Swiss economy.

Global wealth management, UBS’s flagship business, constituted over half of the bank’s total group revenue of $40.8 billion in 2023. The bank targets over $5 trillion in invested assets by 2028. Ermotti emphasized in a speech that risk management is crucial to the bank’s operations and culture.

Since the emergency takeover announcement in March 2023, UBS shares have risen approximately 57%, outpacing the 44% increase in the STOXX Europe 600 Banks index. However, investor attention has shifted to the complex task of onboarding clients and responding to Swiss government requests for additional capital.

Financial analyst Andreas Venditti from Vontobel described the integration as a “Herculean task,” noting the challenge of addressing the banks’ duplicate structures. UBS plans to first absorb wealthy customers in Singapore and Hong Kong by the end of the year and then move to Swiss clients in 2025.

Chief Financial Officer Todd Tuckner indicated that significant cost savings would be realized in early 2025 when clients transition to UBS platforms and Credit Suisse infrastructures are decommissioned. By the end of March 2024, UBS had achieved gross cost savings of $5 billion.

FINMA’s CEO Walter has reinforced the regulator’s team, with about 60 staff members providing services related to UBS supervision and a core team of 22 exclusively monitoring the bank. “Our task is to identify risks and be proactive to remediate problems,” Walter stated in a May speech, emphasizing a more deliberate approach in the future.

(Adapted from MarketScreener.com)

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