By Stefania Spezzati and Oliver Hirt
LONDON/ZURICH (Reuters) - Switzerland's financial supervisor has been scrutinising how UBS vets risky wealthy clients that it wants to transfer from Credit Suisse, sources said, as the regulator takes a hands-on approach to the bank's integration of its fallen rival.
Earlier this year, watchdog FINMA reviewed the filters UBS, currently worth $105 billion on the market, applies to screen Credit Suisse wealth management customers to ensure Switzerland's banking giant doesn't end up with problematic clients on its books, two sources with knowledge of the matter told Reuters, speaking on condition of anonymity because they were not authorized to speak to the media.
Banks use filtering technology to identify potential issues associated with clients as part of their compliance rules to mitigate risks including money laundering.
The Swiss financial regulator entered into a back and forth with UBS over filters and "know your client" rules, a set of procedures that banks use to verify the customers' identity and information linked to them. It also reviewed how UBS applies ratings ranging from high to low risk to prospective clients, the people said.
Reuters couldn't establish whether FINMA requested UBS to take any specific measure as result of its reviews.
FINMA could undertake further reviews as UBS progresses with its integration of Credit Suisse clients onto its own platforms, the sources said.
In response to Reuters' questions on FINMA's involvement in UBS's processes, a UBS spokesperson said that "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 client review is based on UBS's longstanding procedures, which are in line with regulatory requirements."
FINMA's review of UBS' clients vetting shows how closely involved the regulator wants to be as UBS integrates its former competitor in the largest banking merger since the global financial crisis of 2008.
The financial watchdog was heavily criticised in Switzerland for its handling of Credit Suisse's collapse in March 2023. Its new CEO Stefan Walter, who took charge in April, has called for more regulatory power to supervise banks.
The scrutiny also points to the operational challenges for the bank run by CEO Sergio Ermotti as it enters a trickier phase, with about 2,000 dedicated bank employees working on the integration of at least hundreds of thousands of clients to deliver a promised $13 billion in cost savings by the end of 2026.
Addressing questions from Reuters about the regulator's review of UBS' integration of Credit Suisse, FINMA said the merger is a top supervisory concern and that it's closely monitoring developments related to both financial and non-financial risks.
It said it had expanded the team supervising UBS and is using all instruments at its disposal, including on-site inspections.
PROTECTING SWITZERLAND
FINMA has sought to be involved closely in the integration since the start, the two sources said.
It is trying to safeguard Switzerland's financial stability following the takeover, which created a financial behemoth with assets nearly twice the size of the Swiss economy.
Global wealth management is UBS's flagship business, making up more than half of total group revenue of $40.8 billion in 2023. The bank said it aims to have more than $5 trillion of invested assets by 2028.
Ermotti said in May in a speech in Lucerne that risk management was "one of the most important parts of our work and culture."
UBS shares have risen about 57% since the last trading day before the announcement of an emergency takeover of Credit Suisse in March 2023 , against a 44% increase in the STOXX Europe 600 Banks index. But investor focus has shifted to the knottier task of onboarding clients and to Swiss government requests for further capital.
Andreas Venditti, a financial analyst at asset manager Vontobel said the integration was just beginning to address the banks' duplicate structures in detail.
"It's a Herculean task, a massive job," he said.
UBS has said it will first absorb wealthy customers in Singapore and Hong Kong, aiming to complete the transfer by the end of the year before moving to clients in Switzerland in 2025.
Chief Financial Officer Todd Tuckner said in May that a significant portion of expected cost savings would be realised in early 2025 when clients move on to UBS platforms and Credit Suisse infrastructures are closed.
UBS' gross cost savings reached $5 billion by the end of March 2024.
FINMA's head Walter has increased its team, the regulator told Reuters, with about 60 staff providing services related to the UBS supervision and a core team of 22 people exclusively responsible for monitoring the bank.
"Our task is to identify risks and be proactive to remediate problems," Walter said in a speech in May. "We will do this even more deliberately in future".