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Last Wednesday, Credit Suisse, the second-largest Swiss bank after UBS, agreed to pay a fine of £5.6 million (US $10.5 million) for failing to sufficiently supervise its trading activities. This is the third largest fine levied by the UK regulator, the Financial Services Authority, and seen as a sign that the UK is getting tough on operational risk failures and the absence of adequate controls.
The FSA found Credit Suisse guilty of failing to have adequate controls with resulting pricing errors in asset-backed securities in their London-based structured-credit group, and that they had failed to have adequate supervision, having failed to detect these pricing errors for some time. The impact of these errors was compounded by the fact they were announced one week after the bank reported its full year results and caused a $2.65 billion write-down. Credit Suisse has fired the traders in question and said it had taken actions to implement a remediation program to address the findings of its internal review.
Margaret Cole, the FSA’s Director of Enforcement, said "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."
This fine is the third biggest given by the FSA and is reported to be a negotiated settlement on an original fine of £8 million. Two years ago the FSA fined Deutsche Bank £6.4 million, and four years ago Royal Dutch Shell was fined £17 million for mis-stating its oil reserves. Separately, the New York Stock Exchange recently fined Credit Suisse $350,000 for trading violations in inappropriately canceling orders at the close of trading.
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