← Broker database 2022-01-01
Credit Suisse Securities Fined $9 Million for Multiple Operational Failures
According to FINRA, Credit Suisse Securities was fined $9 million for failing to comply with securities laws and rules designed to protect investors, including the SEC's Customer Protection Rule and FINRA research disclosure requirements.
FINRA found that Credit Suisse violated the Customer Protection Rule in two ways. First, the firm failed to maintain possession or control of billions of dollars of fully paid and excess margin securities it carried for customers. Second, on numerous occasions, the firm failed to accurately calculate its required customer reserve - the amount of cash or securities the firm was required to maintain in a special reserve bank account.
The Customer Protection Rule is intended to protect customers' securities by prohibiting firms from using those securities for their own purposes and to ensure prompt return of customer securities in the event of broker-dealer insolvency. When firms fail to maintain possession or control of customer securities as required, it creates risks that customers cannot recover their assets if the firm fails.
From 2006 through 2017, Credit Suisse issued more than 20,000 research reports containing inaccurate disclosures about potential conflicts of interest. The firm also issued more than 6,000 research reports that omitted required disclosures. These disclosures were supposed to inform investors whether the company that was the subject of the research report had been a client of the firm during the prior 12 months, or whether the firm expected to receive investment banking compensation from the subject company within the next three months.
Research reports play an important role in securities markets by providing analysis to help investors make informed decisions. The value of research depends on investors understanding potential conflicts of interest that might bias the analysis. When research reports omit or inaccurately disclose investment banking relationships, investors cannot properly evaluate potential bias.
Additionally, FINRA found that Credit Suisse failed to preserve more than 18.6 billion records in a non-erasable and non-writable format as required. Proper recordkeeping is fundamental to regulatory oversight and investor protection.
As part of the settlement, FINRA required Credit Suisse to certify that it has implemented supervisory systems and procedures reasonably designed to comply with the Customer Protection Rule and other requirements.
This case demonstrates the importance of operational compliance at large financial institutions. Even sophisticated firms must maintain proper controls to protect customer assets, provide accurate disclosures, and preserve required records. When firms fail in these basic obligations, they put investors at risk.