The Swiss Financial Market Supervisory Authority Finma said on Tuesday that it had concluded its consolidated enforcement proceedings against Julius Baer. Its findings are severe: the private bank committed serious breaches of supervisory law, particularly in risk management and anti-money laundering.

The proceedings focused on the bank’s now-discontinued private debt business and relationships with clients linked to two Russian politically exposed persons, or PEPs. It is the fifth enforcement case against Julius Baer concluded by Finma in less than ten years.

Loans Exceeded One Billion Swiss Francs

Finma findings regarding private debt are particularly serious. Julius Baer began developing the business in 2018 and, from September 2019, granted a total of eight loans to a European corporate group and its founder. The total volume of the loans exceeded one billion Swiss francs in 2022 and 2023.

Finma does not identify the group or its founder. The case concerns former real estate investor René Benko and his corporate empire.

According to Finma, Julius Baer was inadequately equipped for the business, both organisationally and in terms of staffing. For a long period, it lacked sufficient internal rules, effective controls and adequately trained employees.

The regulator also found that numerous warning signals had been ignored, the bank repeatedly breached its own limits for individual borrowers and regulatory requirements governing the reporting of large exposures were violated.

Millions in Pay and Commissions

Finma also identified conflicts of interest and financial incentives. Julius Baer employees and external intermediaries received salaries or commissions worth millions as a result of the relationship with the client group. At the end of 2023, Julius Baer still had an exposure of 586 million Swiss francs, which ultimately had to be written down in full.

Finma also criticised a pass-through transaction worth 60 million euros, which resulted in the bank reporting a total loan exposure at the end of 2022 that did not reflect the underlying economic reality.

Serious Breaches Involving Russian PEP Clients

The second part of the investigation concerned clients linked to two Russian PEPs. Here, too, Finma found serious breaches of anti-money laundering obligations and deficiencies in risk management.

For years, the bank failed to sufficiently establish and scrutinise the origin of assets, according to the regulator. It also failed to adequately assess negative media reports and suspicious client behaviour and breached reporting obligations under Swiss anti-money laundering law.

One finding stands out. In 2019, Julius Baer granted an exception to its own know-your-customer rules. According to Finma, this was considered justified partly because a bank employee had recommended the PEP client.

However, that employee had close personal ties to the PEP client's family. The bank failed to challenge the arrangement during subsequent reviews.

Finma Says Previous Measures Were Not Enough

Finma puts the latest findings into a broader context. Since 2017, it has identified serious breaches of supervisory law in five enforcement proceedings against Julius Baer.

Despite similar shortcomings in previous cases and measures intended to remedy them, Finma concluded that the bank had failed to achieve the necessary change in its risk and compliance culture.

The regulator does, however, acknowledge progress made more recently. Julius Baer has shut down its private debt business, reduced lending, strengthened control functions, revised its compensation system and redefined its risk appetite.

There has also been substantial change at board and executive management level. Finma explicitly notes that the current executive management team was appointed only after the events underlying the breaches.

Additional 250 Million Swiss Francs in Capital

The case is not entirely over for Julius Baer. The bank must submit reports to Finma on its risk, error and compliance culture and related measures until 2032. Until Julius Baer has completed the process of exiting clients and assets that no longer fit its risk appetite, it must maintain an additional 250 million Swiss francs in capital. Shareholder distributions, including dividends, will meanwhile require prior Finma approval.

Finma is also confiscating around 10 million Swiss francs in profits that Julius Baer generated through regulatory breaches involving the two Russian PEP client groups.

The decision is not yet legally binding. Finma has also opened proceedings against three former Julius Baer employees who may have been responsible for breaches of supervisory rules or internal directives.

Julius Baer Points to «Legacy Issues»

In a separate statement, Julius Baer acknowledged Finma's conclusions but stressed that all the matters investigated occurred before the appointment of its current leadership team. The bank describes them as «legacy issues».

CEO Stefan Bollinger called the conclusion of the proceedings an important milestone following extensive changes over the past 20 months.

These include a revised risk and compliance framework, the separation of the risk, legal and compliance functions, changes to governance and compensation, and the appointment of a new leadership team.

Share Buyback Back on the Agenda

For shareholders, the conclusion of the proceedings also brings some relief. Julius Baer’s additional CET1 capital requirement has been reduced from 500 million to 250 million Swiss francs.

According to the bank, this results in an effective minimum CET1 capital ratio requirement of 9.4 percent. Julius Baer reported a CET1 ratio of 18.5 percent at the end of June 2026.

The bank is already looking to make use of its greater capital flexibility. Julius Baer has submitted an application to Finma for a new share buyback program, which remains subject to final regulatory approval.