Denis O’Connor: Questions lurk over Credit Suisse fine
30 Nov 2017

By Denis O’Connor

The New York State Department of Financial Services (DFS) recently issued a consent order to Credit Suisse AG and its New York branch for many breaches of local and federal banking laws.

These included improperly sharing information with other multi-national banks, which may have led to manipulation of exchange rates and increased bid/ask spreads offered to customers of Credit Suisse’s foreign exchange business.

The objective of these actions was to maximise the bank’s profits and as a result there was detriment suffered by customers and the market in general.

In addition to the consent order, which was signed by senior managers of the bank, the regulator imposed a fine of $135 million.

It is important to note that Credit Suisse in agreeing to the consent order did not admit liability nor did the bank admit it had done anything wrong.

However, on reviewing the consent order, it is quite clear that the regulator believes the conduct which it deemed to be in breach of New York State banking law and regulation was present from 2008 and continued up until 2015.

One may be surprised that such conduct was continuing up to comparatively recently, given the emphasis of regulators across the world on having the right culture within the banking industry and the regulatory sanctions imposed on banks since 2012 for manipulation of benchmark indices such as LIBOR.

In this particular case, the regulator notes numerous breaches of the bank’s own stated policies including:-

1.The bank’s policy from at least 2010 advised staff that they should assume all information about customer orders and transactions were confidential or proprietary. The advice was based on 2008 guidance from the New York Federal Reserve Bank;
2.Again, the bank’s policy expressly prohibited staff from front running customer orders, and
3.Staff were also prohibited from trading on “inside information” by the same 2010 policy document.

Nevertheless, some staff in the foreign exchange team in Credit Suisse’s New York branch were found to have breached, on many occasions, these internal policies, which themselves were based, inter alia, on New York and federal banking law and regulations.

In order to correct these deficiencies, Credit Suisse has agreed to, within 60 days :-

1.Submit plans to improve senior management’s oversight of compliance with New York and federal banking laws and the bank’s internal policies for its foreign exchange business;
2.Submit enhanced policies and procedures design to ensure compliance with relevant banking laws to the extent they affected customers of the New York foreign exchange business;
3.Submit an enhanced compliance programme to monitor compliance with relevant laws and internal policies on their foreign exchange business;

The regulator also appointed an independent monitor to report back to the regulator, on a regular basis, on the bank’s progress on implementing the plans outlined above.

Although this regulatory action has addressed conduct issues that caused detriment to customers of the New York branch’s foreign exchange business, there may also be a money laundering issue to consider.

The DFS in the consent order believes there has been multiple breaches of New York and federal banking laws.

They have also stated the reason for these breaches was the maximisation of profits and the avoidance of losses in the New York foreign exchange business.

Given that funds have been obtained from customers as a result of these breaches, the question must be asked as to whether or not Credit Suisse is holding the proceeds of its own criminal acts.

If it believes it has, it would be prudent to consider whether it should be submitting a suspicious activity report to FINCEN .

In conclusion, it is somewhat disappointing that such poor conduct, in the eyes of the regulator, continued up until 2015 long after the general public, the media and politicians both in Europe and North America expressed anger and dismay at the conduct of some bank staff which has resulted in, collectively, multi-billions of fines against the world’s major banks.

One hopes that Credit Suisse makes sure nothing like this happens again.

Not only to prevent future fines, but to help their customers and to take a small step in restoring trust in the banking industry which has been sore lacking since the Financial Crisis of 2007/08.

Denis O’Connor is both a Fellow of the Institute of Chartered Accountants in England & Wales and the Chartered Institute of Securities and Investment. He was a member of the British Bankers’ Association Money Laundering Committee from 2003 -10; and a member of the JMLSG’s Board and Editorial Panel between 2010 and 2016.

He has been a frequent speaker at industry conferences on financial crime issues, both in the UK and abroad.

Related topics:

US: Credit Suisse fined $135m over unsafe foreign exchange operations

EU Fifth Anti-money laundering directive: can banks handle it?

US: Credit Suisse unit fined over deficiencies in its anti-money-laundering programme

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