Compliance Updater - March 2023

A summary of key compliance stories from around the globe in March.

1. US regulator forces Silicon Valley Bank to close.
2. SVB fallout sees bigger banks deposit funds into First Republic in US.
3. Rescue deal for Credit Suisse pushed through in Switzerland.
4. FINMA concludes investigation into Credit Suisse and Greensill.
5. Revolut’s auditor qualifies over possible revenue misstatement.
6. FCA investigating LME over nickel trading mayhem.
7. Four senior bankers in Switzerland found guilty of helping to hide Putin’s cash.
8. US hands 10-year sentence to ex-banker over 1MDB fraud.
9. JPMorgan sues Staley over facilitating Epstein’s sex trafficking.
10. FCA sends letters to CEOs of 291 payments companies.
11. US CFTC files civil complaint against Binance.
12. US prosecutors add bribery charges to Bankman-Fried indictment.

US regulator forces Silicon Valley Bank to close.

US regulator, the Federal Deposit Insurance Corporation (FDIC) closed Silicon Valley Bank (SVB) as its depositors began to rapidly withdraw their funds and the bank’s efforts to raise new funding was abandoned. The difficulties at the bank stemmed from its $91bn investment in long-dated bonds that have fallen in value by around $15bn due to interest rate increases. Despite SVB specialising in the technology sector, the threat of financial contagion to other banks saw officials in the US pledge that all of its depositors would be protected from losses, even if they exceeded the normal $250,000 limit. Subsequently, First Citizens Bank won the auction brokered by the FDIC to buy SVB, assuming its loan portfolio at a 20% discount and with the help of $35bn in cash from the FDIC. UK government officials and regulators manged to broker the sale of SVB’s UK arm to HSBC for a nominal £1.

SVB fallout sees bigger banks deposit funds into First Republic in US.

Turmoil resulting from the collapse of Silicon Valley Bank saw the larger Wall Street lenders join forces and deposit funds to support Californian bank First Republic. A total of $30bn was deposited, $5bn each from JPMorgan Chase, Bank of America, Citigroup and Wells Fargo, $2.5bn each from Goldman Sachs and Morgan Stanley, and $1bn each from BNY Mellon, PNC Bank, State Street, Truist and US Bank.

Rescue deal for Credit Suisse pushed through in Switzerland.

Problems at Credit Suisse, added to by the collapse of Silicon Valley Bank, drove it into a rescue deal that saw it taken over by UBS. Despite an earlier $54bn liquidity lifeline from the Swiss National Bank, frantic talks took place involving Credit Suisse, Swiss regulators and competitor UBS that ended with UBS agreeing to buy Credit Suisse for $3.25bn. UBS will pay SFr0.76 per share in its own stock, far less than Credit Suisse’s closing price of SFr1.86 in previous trading. The Swiss central bank agreed to offer SFr100bn in a liquidity lifeline to the combination and the Swiss government will provide a loss guarantee of up to SFr9bn to UBS, but only after the first SFR5bn of losses. The deal also sees Credit Suisse’s Additional Tier 1 bondholders that were worth around $17bn, suffering a write-off to zero. In an additional twist, the Swiss government banned Credit Suisse from paying any deferred bonuses awarded to staff before 2022. The finance ministry said it was imposing “remuneration-related measures” due to the use of taxpayer funds to facilitate the $3.25bn takeover.

FINMA concludes investigation into Credit Suisse and Greensill.

Shortly before the UBS deal, the Swiss regulator concluded its two-year investigation into Credit Suisse’s failings related to collapsed Greensill Capital. Credit Suisse had raised $10bn of funds from its wealthy clients to lend via Greensill and has so far managed to recoup around $7.4bn. FINMA found that Credit Suisse had failed to “adequately identify, limit and monitor risks in the context of the business relationship with Greensill over a period of years” and that “there has been a serious breach of Swiss supervisory law”. Credit Suisse failed to take an overall view as to the counterparty risks associated with Greensill, so FINMA ordered a prospective assessment of the bank’s most important 500 or so business relationships for counterparty risk. Furthermore, in an echo of the UK FCA’s senior manager’s regime, FINMA required Credit Suisse to record the responsibilities for this in documents for the 600 or so senior managers.

Revolut’s auditor qualifies over possible revenue misstatement.

UK fintech Revolut received a qualified audit opinion from BDO because of an inability to fully verify £477m of revenues that included its crypto-trading business. No warning was issued regarding Revolut’s ability to continue as a going concern.

FCA investigating LME over nickel trading mayhem.

The UK Financial Conduct Authority is investigating the conduct, systems and controls in place at the London Metal Exchange (LME) in the first quarter of 2022. The exchange suspended and cancelled huge volumes of nickel trades when the price more than trebled in a single day. The exchange is also facing claims from hedge funds that amount to more than $500m over the cancellations.

Four senior bankers in Switzerland found guilty of helping to hide Putin’s cash.

Four individuals who were employees of Gazprombank’s Swiss subsidiary were found guilty in a Swiss court of helping to launder millions linked to Russian president Vladimir Putin. The charges related to accounts opened on behalf of Sergei Roldugin, cellist and godfather to Putin’s daughter, without adequately questioning how the musician had amassed the vast wealth. Roldugin deposited SFr50m and promised to funnel at least SFr10m annually into the accounts from a web of shell companies and offshore trusts.

US hands 10-year sentence to ex-banker over 1MDB fraud.

Roger Ng, the former head of Goldman Sachs investment banking activities in Malaysia, was handed a 10-year prison sentence in a US court for his involvement in the multi-billion dollar embezzlement of funds from Malaysia’s state investment fund 1MDB. Ng pleaded not guilty, but was sentenced to 10 years for violating US anti-bribery laws, conspiring to launder money and conspiring to skirt Goldman’s internal controls.

JPMorgan sues Staley over facilitating Epstein’s sex trafficking.

The US bank JPMorgan is suing former executive Jes Staley to make him liable for any penalties that might arise over facilitating sex trafficking by former client Jeffrey Epstein. Staley is alleged to have “personally observed” Epstein abusing women and failed to meet his fiduciary duty to disclose to his then employer.

FCA sends letters to CEOs of 291 payments companies.

The UK’s Financial Conduct Authority sent “dear CEO” letters to the heads of 291 payment companies that offer bank-like services telling them to urgently fix problems including the tightening of anti-money laundering checks. The letters talked about “material issues with financial crime systems and controls” and warned of “more assertive action” unless firms meet FCA standards.

US CFTC files civil complaint against Binance.

The US Commodity Futures Trading Commission (CFTC) filed a civil complaint against crypto exchange Binance alleging it has solicited and accessed US customers. Binance maintains that its offshore trading platform does not serve US clients. The CFTC believes Binance facilitated violations of US law by directing US customers to use virtual private networks to shield their location.

US prosecutors add bribery charges to Bankman-Fried indictment.

Former FTX chief executive Sam Bankman-Fried had a bribery charge added to another 12 counts faced from US prosecutors over the collapse of the FTX crypto exchange and associated trading company. The additional charge accuses Bankman-Fried of paying a $40m bribe in cryptocurrency to Chinese government officials to regain access to frozen trading accounts.