Finra fines Credit Suisse $9 million for losing control of client securities

The broker-dealer self-regulator also punished the firm for inaccurate and omitted conflict disclosures in research reports.

Finra fined Credit Suisse Securities $9 million for the brokerage’s lack of control of clients’ securities and conflicts of interest in its research reports.

In a settlement released Thursday, the Financial Industry Regulatory Authority Inc. cited the firm, a subsidiary of Credit Suisse Group, for a number of violations of the customer protection rule over the last 10 years. The Securities and Exchange Commission’s rule prohibits financial firms from using customers’ securities improperly to fund business operations.

“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,” Jessica Hopper, Finra executive vice president and head of enforcement, said in a statement.

“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,” Hopper said.

Credit Suisse accepted Finra’s findings without admitting or denying them, according to the settlement. As part of the agreement, the firm also improved its supervisory systems and procedures to comply with the customer protection rule.

“Credit Suisse is pleased to have settled this matter,” Candice Sun, a Credit Suisse spokesperson, said in a statement. “The bank has fully cooperated with Finra and has remediated the underlying issues, which primarily concern coding errors in Credit Suisse systems.”

From 2011 through November 2019, Finra alleges that Credit Suisse didn’t maintain possession or control of billions of dollars of customers’ fully paid and excess margin securities. Coding and manual errors caused the problem, according to the settlement.

Coding errors from June 2011 through August 2018 also resulted in inaccurate calculations of Credit Suisse’s customer reserve fund.

In addition, Finra alleged that from 1997 through 2020, Credit Suisse failed to maintain 18.6 billion customer brokerage records in non-erasable and non-rewritable format.

Credit Suisse’s research reports also drew Finra’s enforcement attention. Finra alleged that from 2006 through 2017, the firm released more than 20,000 research reports that contained inaccurate disclosures about potential conflicts of interest. Another 6,000 reports omitted required disclosures, such as not revealing that the company that was the subject of the report was a former client of the firm.

Throughout the time period of the allegations, Credit Suisse had an inadequate supervisory system to prevent the problems, Finra said.