Julius Baer’s Regulatory Relief Comes With a Long Compliance Tail

Julius Baer has cleared a major regulatory obstacle, but the terms of its release show that Switzerland’s private bank still has years of supervised repair ahead. The Swiss Financial Market Supervisory Authority, FINMA, concluded a combined enforcement proceeding on Tuesday covering the bank’s former private-debt business and anti-money-laundering failures involving clients linked to two Russian politically exposed persons.

Investors focused on what ended. Julius Baer shares rose as much as 8.8% to a record high and closed 7.2% higher at 76.76 Swiss francs, according to Reuters market data. The decision partly or fully lifts immediate capital and liquidity measures, relaxes restrictions on lending and begins phasing out a ban on new relationships with politically exposed clients from high-risk countries. The bank has also asked FINMA for approval to resume a share-buyback program.

That relief is meaningful because it restores some freedom over capital allocation. Julius Baer reported a common equity tier 1 ratio of 18.5% at the end of June, compared with a new effective minimum requirement of 9.4%. FINMA cut the additional capital requirement to 250 million francs from 500 million francs, the bank said. With 546.7 billion francs of assets under management at midyear, Julius Baer remains a large wealth manager with ample capital above its regulatory floor.

Yet the enforcement findings explain why the discount cannot disappear on the strength of one announcement. FINMA said the bank granted eight loans to a European group and its founder from September 2019. The total value exceeded 1 billion francs in 2022 and 2023, despite inadequate staffing, weak controls, repeated breaches of internal single-debtor limits and ignored warning signs. The 586 million francs still outstanding at the end of 2023 was ultimately written off in full.

The anti-money-laundering findings were similarly serious. FINMA said Julius Baer did not adequately establish the origin of assets linked to two Russian politically exposed persons, failed to examine adverse media and suspicious behavior with sufficient rigor, and breached reporting obligations. In 2019, the bank made an exception to its know-your-customer rules based on an employee endorsement even though that employee had close personal ties to the client’s family.

This was FINMA’s fifth enforcement proceeding against Julius Baer in less than a decade. That history shifts the investment question from whether management can fix particular controls to whether it can change incentives and behavior across the institution. The regulator acknowledged substantial action: Julius Baer has stopped private-debt activity, reduced lending, strengthened control functions, revised remuneration, replaced senior leaders and overhauled governance. The present management team was appointed after the conduct under review.

The remaining conditions are designed to test whether those changes endure. Julius Baer must report to FINMA on its risk, error and compliance culture through 2032. The bank must keep the additional 250 million francs of capital until it finishes shedding clients and assets outside its revised risk appetite, while dividends and other shareholder payments require prior regulatory approval. FINMA is also confiscating about 10 million francs of improperly generated profit and has opened proceedings against three former employees. Its ruling is not yet legally binding.

For shareholders, the tension is straightforward. A buyback would signal that regulators are becoming more comfortable with the bank’s capital position, and the reduced add-on gives management more room. But permission is still pending, and the continuing approval requirement means capital returns are not solely management’s decision.

Tuesday’s rally therefore reflects the removal of a major uncertainty, not the erasure of the underlying failure. Julius Baer has regained strategic flexibility and put a stronger buffer between itself and its minimum capital requirement. Its valuation will now depend less on the closure of the old case and more on evidence that new business, client screening and compensation decisions no longer recreate the culture FINMA condemned.