Credit Suisse fined £6m for structured product failings

Credit Suisse has been fined £5.95 million by the Financial Services Authority (FSA) for mis-selling complex structured products to its UK customers.

Between January 2007 and December 2009 Credit Suisse customers invested over £1 billion in SCARPS – structured capital at risk products. The total value of capital losses suffered as a result of these investments is estimated to be £198.2 million.

The FSA said that Credit Suisse’s private bank failed to make sure that the investment product was suitable for customers and failed to monitor staff to ensure they took reasonable care when giving advice.

SCARPs are complex financial products that are designed to provide an enhanced level of income to customers, but if the index or other asset to which the product is linked falls below a set threshold the investor can lose part or all of their initial income.

It is for this reason that when recommending a SCARP it so important banks ensure customers fully understand the risks involved with this type of investment. Consumer groups have long campaigned that this is not always the case and earlier this year an FSA review identified ‘significant and widespread failings’ among wealth management firms.

According to the FSA, Credit Suisse UK had poor systems and controls in place and failed to maintain adequate records regarding its advice on these products. 'As a result, customers were exposed to an unacceptable risk of being sold a SCARP that was unsuitable for them’.

‘The total value of capital losses suffered by Credit Suisse UK’s customers as a result of investments in SCARPs was estimated at £198.2 million,’ the FSA said. Though, the FSA stressed that these losses occurred at a time of ‘unprecedented turmoil’ in the financial markets.

Tracey McDermott, the FSA's 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’. 

‘This penalty should leave firms in no doubt about our determination to make that happen,’ she added.

The £5.95 million penalty the third largest fine dealt out by the FSA this year, and the largest ever for this type of failing. 

Credit Suisse UK has since made a number of improvements to its advisory processes and enhanced its systems and controls. By agreeing to settle at an early stage the investment bank benefited from a 30% discount on its fine.

Credit Suisse will pay redress to customers who were advised to purchase an unsuitable product to ensure that they do not suffer financially as a result, the FSA added