Credit Suisse fined over 'unacceptable risk'
Tuesday 25 October 2011
The UK arm of banking giant Credit Suisse has been fined £5.95 million by the City regulator for failing to sufficiently assess the risk a complex investment product posed to customers.
Credit Suisse UK customers were exposed to an "unacceptable risk" of being sold a structured capital at risk product (Scarp) that was unsuitable for them, the Financial Services Authority (FSA) said.
The Swiss bank had "poor systems" in place and failed to maintain adequate records regarding its advice on Scarps between January 2007 and December 2009, during which time customers invested more than £1 billion in the product, the FSA said.
Scarps are complicated financial products which provide income to customers but also expose them to the risk that they lose all or part of their initial capital.
The fine came after fellow Swiss bank UBS admitted financial controls designed to monitor transactions were "not effective" at the time an alleged rogue trader lost 1.8 billion Swiss francs (£1.3 billion).
Credit Suisse had inadequate systems to assess customers' attitudes to risk, failed to take reasonable care to assess the suitability of Scarps for customers and failed to monitor staff to ensure that they took care when giving advice, the FSA said.
Tracey McDermott, FSA acting director of enforcement and financial crime, said: "We have seen all too frequently the consequences of financial services firms failing to implement proper systems and controls to ensure their customers invest in suitable products.
"A proper assessment of customers' individual needs and circumstances is even more critical where firms are selling complex products like Scarps.
"Credit Suisse UK's systems were not up to the level we, and their customers, are entitled to expect."
The FSA raised identified concerns during a supervisory visit to the firm, which subsequently led to the FSA commencing its enforcement investigation.
Credit Suisse UK has made a "significant" number of changes to its advisory processes since the discovery of these failings, the FSA said.
The bank, which is headquartered in Zurich, has also agreed to carry out a past business review, overseen by an independent third party, in relation to Scarp purchases during the period identified.
A customer who is found to have been advised to purchase an unsuitable product will be compensated to ensure they have not suffered financially as a result, the FSA said.
A spokesman for Credit Suisse said: "We deeply regret the failings of systems and controls in the period 2007 to 2009 around the provision of advice to UK private banking clients on structured capital at-risk products.
"We have made significant improvements to our processes and controls since 2009 and we are confident that we currently comply with our regulatory obligations. We fully cooperated with the FSA and are pleased to put this matter behind us."
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