Swiss financial regulator FINMA has found serious risk-management and anti-money-laundering failures at Julius Baer.
It has concluded an investigation into loans linked to Austrian property investor René Benko’s collapsed Signa group and the bank’s relationships with clients connected to two Russian politically exposed persons.
“Serious shortcomings in credit risk management,” the FINMA report said. “From 2018 onwards, Julius Bär developed a new business segment: the private debt business. This was characterised by the fact that loans were not secured by traditional collateral, but were generally secured by the borrowers’ unlisted shares.”
The bank’s loans to the property group and its founder exceeded CHF 1 billion in 2022 and 2023, FINMA said on Tuesday. That figure was the bank’s peak credit exposure, not the amount it ultimately lost: its remaining exposure of CHF 586 million at the end of 2023 had to be written down in full.
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FINMA Is Confiscating About CHF 10 Million In Julius Baer Profits
FINMA said Julius Baer ignored warning signs, repeatedly exceeded its own limits on exposure to individual borrowers and breached regulatory rules on reporting concentrated risks. The regulator found that staff and external intermediaries earned salaries or commissions worth millions of francs from the client relationship. It also said a EUR 60 million transaction caused the bank’s reported total credit exposure at the end of 2022 to differ from the economic reality.
In a separate part of the case, FINMA found that Julius Baer had inadequately investigated the origin of assets held by high-risk clients linked to two Russian politically exposed persons. The regulator said the bank failed to give sufficient weight to negative media reports and suspicious client behaviour, and breached its reporting duties under anti-money-laundering law.
Serious breaches of anti-money laundering obligations: The clients in question with links to two Russian PEPs posed a high risk, the bank failed to adequately verify and scrutinise the origin of the assets over a period of several years.
FINMA is confiscating about CHF 10 million in profits earned from those two client groups. Julius Baer must also hold an additional CHF 250 million in capital until it completes the exit of clients whose assets no longer fit its risk appetite. The requirement has been reduced from CHF 500 million, according to the bank. FINMA will require reports on the bank’s risk and compliance culture through 2032, and shareholder distributions, including dividends, will need its prior approval.
The regulator said this was its fifth enforcement case against Julius Baer in less than 10 years. It has opened separate proceedings against three former employees who may bear responsibility for breaches of supervisory rules or internal policies. FINMA’s decision is not yet legally binding.
Julius Baer acknowledged FINMA’s conclusions and said the events predated its current management team. The bank said it had shut down its private debt business, strengthened risk controls and submitted a request to FINMA concerning its share buyback programme, which remains subject to approval.
