Credit Suisse Fined for Poor Anti-Money Laundering Control

The regulator of securities firms in the U.S., the Financial Industry Regulatory Authority (FINRA), has imposed a fine of $16.5 million on Credit Suisse Securities (USA) LLC, the securities business unit of the Swiss bank - Credit Suisse Group AGCS - for inadequate supervision of anti-money laundering (AML) compliance policies and systems. FINRA's AML Investigative Unit identified the violations during an examination of the firm.

Per the regulator, Credit Suisse unit's suspicious activity detection program lagged in two areas. Firstly, the company failed to effectively review AML trading for reporting purposes. During Jan 2011-Sep 2013, the company chiefly relied on its registered representatives for identification and escalation of potentially suspicious trading to its AML compliance department, including transactions related to microcap stocks.

Conversely, these representatives, the primary source of contact with the customers, did not always report high-risk activity for investigation, as required under the company's AML policies. Additionally, such reliance failed to track orders that came electronically from the company's foreign affiliates. Consequently, such orders were not accounted for by the firm's sales traders.

FINRA found that during 2011-2013, the bank facilitated the illegal distribution of at least $55 million unregistered shares of microcap securities. However, the firm later implemented additional procedures, limiting the trading of such securities.

Secondly, the company's automated surveillance system was ineffective to detect potentially suspicious money movements, as a considerable amount of data feeds into the system lacked adequate information. The regulator alleged that during Jan 2011-Dec 2015, the company failed to effectively implement the automated system to identify red flags and also use applicable risk scenarios in its assessments.

Further, the bank initially failed to assign sufficient resources to resolve the issues on time. Also, the company lagged adequate staff to review the tens of thousands of alerts its automated system generated in any given year.

The regulator noted that some of the AML deficiencies remain unresolved even today, though Credit Suisse itself identified few of them and even hired a consulting firm to assist with the evaluations. The company neither admitted nor denied the charges, but agreed to the entry of FINRA's findings.

Over the last few months, regulators have been targeting financial players over unfair business practices. In Sep 2016, Wells Fargo & Company WFC faced a combined fine of $190 million from California and federal regulators over the opening of nearly 1.5 million of unauthorized deposit accounts. In Oct 2016, Morgan Stanley MS was charged with conducting an unethical, high-pressure sales practice against their clients' brokerage accounts. Further, last month, FINRA fined $7 million to a unit of Bank of America Corporation BAC for inadequate supervision of securities-backed leverage in their clients' brokerage account.

Currently, Credit Suisse carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 (Strong Buy) Rank stocks here .

The company's stock declined more than 36% so far this year on the NYSE, underperforming the 2.7% growth for the Zacks categorized Foreign Banks industry. The Zacks Consensus estimate plummeted nearly 46% to 22 cents over the last 30 days, for the current year.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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