How Credit Suisse Breached Supervisory Law Over $10bn Greensill Funds

Credit Suisse is facing a string of legal and regulatory issues following the collapse of Greensill Capital. The Swiss Bank has been accused of breaching supervisory law by improperly investing over $10 billion in funds from the now-defunct finance firm. This blog post will look at how Credit Suisse breached supervisory law, why it happened, and what the consequences may be for the bank. We will also examine how other banks have responded to similar incidents and what lessons can be drawn from this incident.

What is Credit Suisse?

Credit Suisse is a multinational financial services holding company headquartered in Zurich, Switzerland. Its principal activities are investment banking, private banking, and asset management. The Credit Suisse Group employs approximately 48,200 people. It operates in over 50 countries and has around 2,000 branches.

In March 2020, the Greensill scandal came to light when it was revealed that Credit Suisse had invested billions of dollars of its clients’ money in Greensill Capital, a now-insolvent UK-based finance company. The investments were made through two Credit Suisse products: the last-resort Discretionary Collateralized Loan Obligation (DCLO) fund and the more speculative CS Greensill Supply Chain Finance Fund Ltd (CGSFF).

The DCLO fund was marketed as a low-risk product that would invest in short-term corporate loans collateralized by corporate receivables and other assets. However, it turns out that a significant portion of the DCLO fund’s assets were actually long-term investments in unsecured bonds issued by Greensill. In other words, the DCLO fund was taking on far more risk than investors were led to believe.

Similarly, the CGSFF was marketed as a low-risk fund that would invest in short-term supply chain financing loans extended to large companies with strong credit ratings. However, it turns out that a significant portion of the CGSFF’s assets were

What is Greensill?

Greensill is a financial services company that offers working capital solutions to businesses. It was founded in 2011 by Lex Greensill, who previously worked as an advisor to then-British Prime Minister David Cameron.

Greensill provides financing to companies so they can free up cash and improve their working capital position. The company uses a supply chain finance model, which means it pays suppliers on behalf of its clients and then collects payment from the clients later. This allows businesses to get the cash they need upfront without waiting for customer payments.

Greensill also offers other financial products such as credit insurance and receivables financing. In March 2020, the company launched a digital platform called Greensill Pay that allows businesses to make real-time payments to suppliers anywhere in the world.

The launch of Greensill Pay was part of a $1 billion investment round led by Japanese conglomerate SoftBank. Other investors in the round included German insurer Allianz and American private equity firm General Atlantic.

What happened?

In early 2020, Credit Suisse came under scrutiny for their involvement with Greensill Capital, a now-insolvent UK-based supply chain finance company. Credit Suisse had been extending billions of dollars in loans to Greensill, backed by insurance from Tokyo Marine.

However, it later emerged that many of the invoices used as collateral for these loans were from companies controlled by Sanjeev Gupta, the owner of Greensill. This created a conflict of interest, as Credit Suisse was both lending money to and investing in companies controlled by the same person.

In March 2020, the Financial Conduct Authority (FCA) launched an investigation into Credit Suisse’s involvement with Greensill. The FCA found that Credit Suisse had breached supervisory rules and put customers at risk by failing to properly assess the risks associated with the loans extended to Greensill. As a result of the investigation, Credit Suisse was fined £27 million ($37 million).

Who is to blame?

Credit Suisse is to blame for breaching supervisory law over $bn Greensill funds. The financial institution did not disclose to authorities that it was using Greensill as a creditor, nor did it provide information about the true extent of its exposure to the company. This led to a hole in regulation, which was exploited by Greensill.

What are the consequences?

It is clear that Credit Suisse breached supervisory law when it failed to properly monitor the $bn Greensill funds. As a result, the bank has been fined and its reputation has been damaged. This case highlights the importance of compliance with regulatory requirements.

Conclusion

Credit Suisse’s breach of supervisory law over $10bn Greensill funds highlights just how important it is to understand and follow the laws and regulations that govern financial institutions. It also shows why compliance officers must take their roles seriously, as even one mistake can lead to serious repercussions for a company. While this incident may have caused some damage, it should serve as a lesson in compliance for other companies so they can avoid similar issues in the future.