CREDIT Suisse Group is dialling back some stringent anti-money laundering controls in Asia after they drew protests from clients and bankers and contributed to staff departures.

Sources familiar with the matter said that a requirement for private bankers to verify most of their clients’ sources of wealth was eased near the end of last year. They added that third-party transactions were no longer subject to executive approvals at the bank.

The backtracking highlights the delicate balance facing Credit Suisse, 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. The subsequent revamp was internally known as “Project Starlight”.

The bank had drawn scrutiny after it was among firms fined in 2017 by the Monetary Authority of Singapore (MAS) for lapses linked to the bribery scandal at Malaysia’s 1MDB fund. 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 in China.

Credit Suisse said it initiated the independent review by EY to “provide additional assurance of the quality of (its) internal process and controls”.

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The EY report, published in October 2021, found several problems that needed to be addressed. People who have seen the report said it noted a high attrition rate among compliance officers, sparked by deteriorating relationships with private bankers. Other issues identified included lapses in the anti-money laundering framework, culture and conduct, risk management and organisational capability.

A Credit Suisse spokesperson said that based on the findings, the bank “established a robust ‘belt and braces’ approach” to anti-money laundering, and “(improved) its end-to-end operating model”. The spokesperson also noted that the findings were “in line” with Credit Suisse’s internal assessment.

Closer scrutiny

Sources familiar with the matter said that, to counter lapses highlighted by EY, senior managers in Asia demanded closer scrutiny on the sources of wealth for new clients. They also tightened rules for fund transfers to third parties, which sometimes included clients’ children.

Shortly after the report’s publication, Credit Suisse demanded that bankers corroborate the sources for up to 90 per cent of high-risk clients’ wealth, up from 70 per cent previously. For low-risk customers, the degree of corroboration was raised to 70 per cent from 50 per cent.

In addition, private bankers were asked to sit with compliance colleagues to improve cooperation, while senior managers on the wealth and compliance teams were appointed “culture champions” to demonstrate model behaviour.

The tighter controls did not sit well with many clients, or with bankers who were already struggling with the reputational hit from the scandals. The bank warned in November 2022 that client outflows would contribute to a fourth-quarter loss of up to 1.5 billion Swiss francs (S$2.16 billion) at its next results call 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 was not practical and was counterproductive. One source said the measures even prompted some customers to demand that new accounts be opened in Switzerland, where rules are less stringent.

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 said they did not leave solely because of the beefed-up measures.

Culture champions

Even a few of Credit Suisse’s “culture champions” – appointed to lead by example – departed. Young Jin Yee, the deputy chief executive of Asia-Pacific wealth management, resigned to join Deutsche Bank. Katryna Murtagh, managing director on the compliance side, decided to leave near the end of last year. Asia-Pacific compliance head Pete Monaci quit in June 2022 to join Citadel Securities in Hong Kong.

In response to the steady backlash, Credit Suisse has relaxed some of the controls. Sources said that one measure requiring senior managers to approve client fund transfers to third parties was eased at the end of last year. Private bankers can now lift the restrictions on accounts that have been blocked by compliance, they added. One source also said that, as of early December 2022, bankers were only required to match clients’ information as much as possible, rather than hitting firm percentage levels.

The bank is also addressing attrition. It hired Rashmi Dubier, MUFG Bank’s former Asia-Pacific head of anti-money laundering, for an anti-financial crime compliance role.

The sources said that 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.

Benjamin Cavalli, Asia-Pacific head of wealth management, now includes updates on Project Starlight as part of his regular conversations with the MAS. In Switzerland, global wealth head Francesco de Ferrari keeps the Swiss Financial Market Supervisory Authority (Finma) abreast of remedies.

Finma and EY spokespeople declined to comment. A spokesperson for the MAS said that the agency could not share the details of dealings with individual firms as they are confidential.

Singapore is one of Credit Suisse’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, with about 78 per cent of that sum originating overseas.

“These reviews and ensuing initiatives are part of our regular course of business to operate more efficiently, and improve client experience while managing risks for the firm,” the Swiss bank said. “Regular progress updates are provided to our regional regulators to monitor progress and achievements delivered by key initiatives.” BLOOMBERG