(Feb 8): Credit Suisse Group AG, fighting to stem a wave of investor outflows, is dialing back some stringent anti money laundering controls in Asia, after they drew protests from clients and bankers and contributed to staff departures.
A requirement that private bankers verify most of their clients’ sources of wealth was eased near the end of last year, while third-party transactions are no longer subject to executive approvals, according to people familiar with the matter.
The backtracking highlights the delicate balance facing the bank as it tries to tighten operations following a series of scandals, while hanging on to clients in one of the fastest growing regions for money management. The measures, more stringent than at many peers, threatened to stall efforts to recover from massive outflows that contributed to another quarterly loss for the embattled bank.
Credit Suisse took steps in 2021 to tighten controls by commissioning Ernst & Young (EY) to assess its wealth units’ anti money laundering procedures in Singapore and Hong Kong, in a revamp it later internally dubbed “Project Starlight”.
The bank had drawn scrutiny after it was among firms fined in 2017 by the Monetary Authority of Singapore for lapses linked to the bribery scandal at the 1MDB (1Malaysia Development Bhd) fund in Malaysia. Elsewhere, the lender sought to spruce up its image following a series of missteps by some of its clients, including collapses at Archegos Capital Management and Greensill Capital, and an accounting scandal at Luckin Coffee Inc in China.
Credit Suisse said it initiated the independent review by EY to “provide additional assurance of the quality of our internal process and controls”.
The EY report, published in October 2021, found several problems that needed to be addressed. It noted a high attrition rate among compliance officers, sparked by deteriorating relationships with private bankers, according to people who have seen the report. Other issues identified included lapses in the anti money laundering framework, culture and conduct, risk management and organisational capability.
“Based on the findings, which were in line with our own initial assessment, the firm established a robust ‘belt and braces’ approach” to anti money laundering, and enhancements were made to “improve our end-to-end operating model,” a Credit Suisse spokesperson said in a statement to Bloomberg News.
To counter lapses highlighted by EY, senior managers in Asia demanded closer scrutiny on the sources of wealth for new clients and tightened rules for fund transfers to third parties, which sometimes included clients’ children, said people familiar with the matter.
Shortly after the report publication, the firm demanded that bankers corroborate the sources for up to 90% of high-risk clients’ wealth, up from 70% previously. For low-risk customers, the degree of corroboration was raised to 70% from 50%.
In addition, private bankers were asked to sit with compliance colleagues to improve co-operation, while senior managers on the wealth and compliance teams were appointed “Culture Champions” to demonstrate model behaviour.
The tighter controls didn’t sit well with many clients, or with bankers who were already struggling with the reputational hit from the scandals. The firm warned in November that client outflows will contribute to a fourth-quarter loss of up to 1.5 billion Swiss francs (US$1.6 billion) when the company reports results on Feb 9.
Many bankers who resigned in recent months said the changes made it harder for relationship managers to bring in new clients, and delayed account openings by as much as eight months. Attracting new clients and their money is a key performance metric for bankers and determines bonuses.
While wealth managers in Asia have been beefing up internal controls as part of the broad know-your-customer requirements, Credit Suisse’s measures in Singapore went further than at many peers.
Employees and clients told the bank that the heightened scrutiny wasn’t practical and was counter-productive. The measures even prompted some customers to demand new accounts be opened in Switzerland, where rules aren’t as stringent, one of the people said.
More than a dozen senior bankers exited, including some top performers in the so-called Chairman’s Club, who are awarded big bonuses and other privileges. To be sure, these bankers, who declined to be identified, were already frustrated by Credit Suisse’s tarred reputation, and had good offers from other firms. They didn’t leave solely because of the beefed up measures, they said.
Even a few “Culture Champions” — appointed to lead by example — departed. Young Jin Yee, deputy CEO of Asia-Pacific wealth management, resigned to join Deutsche Bank AG. Katryna Murtagh, managing director on the compliance side, decided to leave near the end of last year. APAC compliance head Pete Monaci quit in June to join Citadel Securities in Hong Kong.
In response to the steady backlash, Credit Suisse has relaxed some of the controls. As of early December, bankers are required to match clients’ information as much as possible, rather than hitting firm percentage levels, according to one of the people. Another measure requiring senior managers to approve client fund transfers to third parties was also eased at the end of last year, the people said. Private bankers can now lift the restrictions on accounts that have been blocked by compliance, they said.
The bank is also addressing attrition. It hired Rashmi Dubier, MUFG Bank’s former Asia-Pacific head of anti money laundering, for a financial crime compliance role. Other measures to strengthen the bank’s controls and monitor risks continue to be implemented and assessed, given that “Project Starlight” may last for three to five years, the people said.
Benjamin Cavalli, Asia-Pacific head of wealth management, now includes updates on “Project Starlight” as part of his regular conversations with the Monetary Authority of Singapore, the nation’s central bank. In Switzerland, global wealth head Francesco de Ferrari keeps the Swiss Financial Market Supervisory Authority abreast of remedies.
Finma and EY spokespeople declined to comment. The Monetary Authority of Singapore can’t share details of dealings with individual firms as they are confidential, a spokesperson said.
Singapore is one of the bank’s largest operations in the Asia-Pacific region, with about 3,300 staff, including the bulk of its 800 private bankers for the region. The city-state has been ramping up efforts to combat illicit flows as more money pours in. Financial assets managed in Singapore total about US$4 trillion, and about 78% of that originated overseas.
“These reviews and ensuing initiatives are part of our regular course of business to operate more efficiently, improve client experience, while managing risks for the firm,” the Swiss bank said in the reply to Bloomberg. “Regular progress updates are provided to our regional regulators to monitor progress and achievements delivered by key initiatives.”