Credit Suisse fined $9 million by FINRA for several operational failures

The firm has been fined for failing to protect customers’ securities as well as for inaccurately disclosing conflicts of interest.

Credit Suisse Securities has been fined $9 million by US’ Financial Industry Regulatory Authority (FINRA) for failing to comply with securities laws and rules designed to protect investors.

This included the Securities and Exchange Commission (SEC)’s Customer Protection Rule as well as FINRA rules which require firms to disclose potential conflicts of interest when issuing research reports.

To fulfil the settlement, Credit Suisse has been asked by FINRA to confirm that it has implemented supervisory system and procedures which will allow it to comply with the Customer Protection Rule and other requirements.

“The Customer Protection Rule is intended to protect customers’ securities by prohibiting firms from using those securities for their own purposes and to ensure the prompt return of customer securities in the event of broker-dealer insolvency,” said Jessica Hopper, executive vice president and head of FINRA’s department of enforcement.

“This case should serve as a reminder to member firms of their obligation to protect customer funds from improper use, and to ensure accurate disclosures of potential conflicts between research subjects and firms in research reports, both of which are critically important for investor protection.”

According to FINRA, the Customer Protection Rule was found to have been violated by Credit Suisse in two ways. Firstly, the firm was not able to maintain possession or control of billions of dollars of fully paid and excess margin securities it handled for customers, as required.

Secondly, in multiple instances, Credit Suisse was unable to calculate its required customer reserve accurately – essentially, the firm failed to meet the required amount of cash or securities needed to be maintained in a special reserve bank account. 

FINRA also found that from 2006 until 2017, Credit Suisse issued over 20,000 research reports containing inaccurate disclosures about potential conflicts of interest.

In addition, 6,000 research reports which omitted required disclosures, were found to have been issued by the firm.

FINRA stated that Credit Suisse’s disclosures omitted that the company which was the subject of the research report had been a client of the firm during the prior 12 months; or that the firm expected to receive investment banking compensation from the subject company within the next three months.

FINRA also found that Credit Suisse was unable to preserve over 18.6 billion records in a non-erasable and non-writable format, as required.

Credit Suisse, as a means of settling the matter, has accepted and consented to the entry of FINRA’s findings without admitting or denying them.