Archegos Failings May Hit Banker Bonuses, U.K. Regulators Warn
Archegos Failings May Hit Banker Bonuses, U.K. Regulators Warn
(Bloomberg) -- Top bankers’ bonuses may be cut unless they can show they have fixed risk-management failings highlighted by the implosion of Archegos Capital Management, U.K. regulators said.
In a warning to bank chief executive officers on Friday, the Financial Conduct Authority and the Bank of England’s Prudential Risk Authority said they had found “a number of significant cross-firm deficiencies” in the way banks serve hedge fund clients.
In a scathing review, regulators uncovered shortcomings in risk management, ineffective and inconsistent margin requirements, as well as an absence of comprehensive limit frameworks. Firms were ordered to carry out a review of their risk management practices and submit their findings to the PRA and FCA by the end of March.
“To ensure that any necessary improvements identified are made in a timely fashion, we expect you to consider reflecting progress when setting the variable remuneration of relevant senior executives,” the letter said, noting the reviews must cover all major prime brokerage activity.
Archegos, Bill Hwang’s family office, imploded in March after amassing a concentrated portfolio of stocks exceeding $100 billion by using borrowed money. It collapsed after some of the shares tumbled, triggering margin calls from banks, which then dumped Hwang’s holdings.
Banks lost more than $10 billion, prompting the departures of several senior executives and probes into the way firms monitor the risks run by their businesses serving hedge funds.
Credit Suisse Group AG, which lost about $5.5 billion, found it had failed to properly monitor tens of billions of dollars of exposure when handling trades for the hedge fund, Bloomberg reported in July. Nomura Holdings Inc. took a $2.9 billion hit and is now pulling the plug on its U.S. and Europe prime brokerage business.
The Federal Reserve separately told lenders on Friday they must maintain sufficient margin when dealing with investment funds and are responsible for understanding their positions. The regulator is still reviewing specific firms’ weaknesses and may take further action, the Fed said.
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