The Archegos fiasco at CSFB

  • There was failure to act on known risks within 1st and 2nd lines of defense.
  • Prime Brokerage (PB) unit allowed Archegos to take large positions outside their set thresholds. On top of they exacerbated the problem by providing lower margin rates to gain business.
  • Risk failed to push back on the business or to impose deadlines for the business to eliminate limit breaches and to right-size the risk. As an example, Risk team ignored conclusions from their suite of scenario exposures.
  • Risk never took a holistic view either of Archegos losses or how to mitigate it by taking a step back to assess the overall situation and just worked on ad-hoc solutions to reduce limit breaches.
  • Risk did not have access to position level data and had to ask 1st LoD for running scenarios
  • Business failed to fund for dynamic margining and the senior most Risk Committee set up to escalate exposures like Archegos had access to data more than a month old
  • Prime Brokerage unit had two co-heads and neither actively managed the business and its risks due to lack of defined responsibilities.
  • The report notes that both co-Heads had numerous other responsibilities and were basically inundated with other management tasks leading to lack of clear line of sight over Archegos.
  • The Credit Committee formed to monitor credit exposures like Archegos did not include the above two Co-Heads and there was no other forum for Risk unit in 1st Line or 2nd line of defense to escalate concerns to these co-heads
  • Staff covering risk in Prime Brokerage as well as Credit Risk Management had mostly junior employees who were inundated with multiple clients
  • Invest additional resources in risk management;
  • Clearly define roles and responsibilities;
  • Reassess reputational risk review triggers and processes;
  • Improve risk discipline and treat limits as limits;
  • Re-examine risk appetite and controls;
  • Develop a more holistic view of counterparty risk management
  • Improve access to data and technology;
  • Improve management information for effective monitoring of
    exposures;
  • Instill a culture of accountability, compliance, and respect for
    controls.

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