The FSA has hit the UK operations of Credit Suisse with a £5.6m fine for controls and systems failings.
It found Credit Suisse in breach of FSA Principles 2 and 3 by failing to conduct its business with due skill, care and diligence and failing to organise and control business effectively.
Following the announcement of its financial results for 2007 in February 2008, Credit Suisse said it had identified mismarking and pricing errors by a small number of traders and it was repricing certain asset-backed securities. The re-pricing involved a write down of revenues by $2.65bn.
The breaches related to the pricing of certain asset-backed securities held by the Structured Credit Group (SCG) within Credit Suisse’s Investment Banking Division. This unit specialises in complex, high risk structured products.
In breach of Principle 2, the subsidiaries failed adequately to supervise the business of the SCG and did not act in a timely way on the concerns they had identified about the pricing of certain asset-backed positions, the FSA found.
In breach of Principle 3, adequate systems and controls were not put in place by the subsidiaries which meant they failed to recognise, for approximately five months, that certain of the SCG’s asset-backed positions were wrongly valued.
Margaret Cole, director of enforcement, says: “The penalty reflects our tougher stance on enforcement and our policy of imposing higher penalties to achieve credible deterrence.
“It is imperative, particularly in more challenging financial conditions, that firms have in place appropriate systems and controls to manage their risks. The subsidiaries here failed to take appropriate steps to control the potentially high risk combination in the Structured Credit Group’s holdings of exotic products, opaque valuations and high leverage.
“The sudden and unexpected announcement of the write down had the potential to undermine market confidence.”
The subsidiaries co-operated fully with the FSA and agreed to settle at an early stage of the FSA’s investigation. They qualified for a Stage 1 discount under the FSA’s settlement discount scheme.
Credit Suisse commissioned a detailed review of the causes of the write down. This identified serious failures in the subsidiaries’ controls over the SCG. Senior management accepted the findings of the review and a comprehensive remedial programme is being undertaken.IFAonline
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