The UK's Financial Services Authority has fined the UK operations of Credit Suisse GBP5.6 million for breaching FSA Principles two and three by failing to conduct their business with due skill, care and diligence and failing to organize and control their business effectively.
Credit Suisse has reported its financial results for 2007 on February 12, 2008. On February 19, 2008, it identified mismarking and pricing errors by a small number of traders and that it was repricing certain asset-backed securities. The re-pricing involved a write-down of revenues by $2.65 billion.
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. The SCG specializes in complex, high risk structured products.
In breach of principle two, the subsidiaries failed to adequately 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.
In breach of principle three, adequate systems and controls were not put in place by the subsidiaries which meant that they failed to recognize, for approximately five months, that certain of the SCG’s asset-backed positions were wrongly valued.
The subsidiaries of Credit Suisse co-operated fully with the Financial Services Authority (FSA) and agreed to settle at an early stage of the FSA’s investigation. They qualified for a stage one discount under the FSA’s settlement discount scheme. The fine of GBP5.6 million reflects this discount.
Credit Suisse commissioned a detailed review of the causes of the write-down. This identified failures in the subsidiaries’ controls over the SCG and the operation and management of those controls and concluded that they were not effective. Senior management accepted the findings of the review and a comprehensive remedial program is being undertaken.
Margaret Cole, director of enforcement at FSA, said: The penalty reflects our tougher stance on enforcement and our policy of imposing higher penalties to achieve credible deterrence. The sudden and unexpected announcement of the write down had the potential to undermine market confidence.