The UK’s Financial Services Authority fined the UK operations of Credit Suisse £5.6 million ($11.3 million) for control failures revealed by mis-pricing of asset-backed securities.

In February, Credit Suisse 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 led to a write down of US$2.65 billion.

The FSA found that the structured credit group within Credit Suisse’s investment banking division was not adequately supervised, and that inadequate systems and controls meant that they failed to detect the mis-pricings for approximately five months.

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 group’s 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.”

The regulator said that the firm co-operated fully and agreed to settle at an early stage of the investigation, and Credit Suisse commissioned a detailed review of the causes of the write down. The review 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 programme is being undertaken, the FSA said.

Brady Dougan, CEO of Credit Suisse Group, said, “This incident was unacceptable to me and the executive board. It does not represent the high ethical standards of Credit Suisse. Our overall control framework remains sound and we have taken actions to implement a remediation program to address the findings of our internal review. We are pleased to settle with the UK FSA, so we can now move forward.”

(1 pound sterling = $2.02)