U.K.'s Financial Services Authority (FSA) fined the Credit Suisse's U.K. operations £5.6 million ($8.35 million) for breaching FSA Principles 2 and 3.
The breaches are related to the pricing of certain ABS held by the structured credit group (SCG) within Credit Suisses investment banking division. The SCG focuses on complex, high risk structured products.
Credit Suisse failed to conduct their business with due skill, care and diligence and failing to organize and control their business effectively, according to the FSA.
The FSA said that Credit Suisse announced its financial results for 2007 on Feb. 12. On Feb.19, the firm announced that it had 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.
In breach of Principle 2, Credit Suisse failed to adequately supervise the business of the SCG and did not act in a timely way on the concerns they had identified regarding the pricing of certain ABS positions.
In breach of Principle 3, the FSA said that Credit Suisse also failed to put in place adequate systems and controls, not recognizing that certain SCG ABS positions were wrongly valued for approximately five months.
The penalty reflects our tougher stance on enforcement and our policy of imposing higher penalties to achieve credible deterrence," Margaret Cole, director of enforcement, said. 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 Groups 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.
Credit Suisse co-operated fully with the FSA and agreed to settle at an early stage of the FSAs investigation. They qualified for a Stage 1 discount under the FSAs settlement discount scheme. The fine of £5.6m reflects this discount.
According to FSA's release, Credit Suisse commissioned a detailed review of the causes of the write-down. This identified serious 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, the FSA said.
