FINAL NOTICE


To:
Credit Suisse (UK) Limited (Credit Suisse UK)

FSA
Reference
Number:
124269

Address:
5 Cabot Square
London
E14 4QJ


25 October 2011

1.
PROPOSED ACTION

1.1.
For the reasons given in this Notice, the FSA hereby imposes on Credit Suisse UK a
financial penalty of £5.95 million.

1.2.
Credit Suisse UK agreed to settle at an early stage of the FSA’s investigation. It
therefore qualified for a 30% (Stage 1) discount under the FSA’s executive settlement
procedures. Were it not for this discount, the FSA would have imposed a financial
penalty of £8.5 million on Credit Suisse UK.

2.
SUMMARY OF REASONS

2.1.
During the period from 1 January 2007 to 31 December 2009 (the Relevant Period),
Credit Suisse UK breached Principle 3 by failing to take reasonable care to establish
and maintain effective systems and controls in respect of the suitability of its advice
regarding structured capital at risk products (SCARPS) to its private banking retail
advisory customers (Customers).

2.2.
One of the FSA’s regulatory objectives is the protection of consumers. Consumers,
some of whom may be reliant on their financial assets as a source of income, may
seek professional advice from firms to help achieve their investment objectives.
Firms must therefore take reasonable care to ensure that they provide advice which is
suitable for a customer’s individual needs and circumstances. In order to do this,
firms must have adequate systems and controls in place. This is particularly
important when a firm is selling complex investment products, including SCARPs, to
customers.

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2.3.
However, during the Relevant Period, Credit Suisse UK:

(1)
failed to have in place adequate systems and controls in respect of the
determination of Customers’ attitudes to risk. The methods used by Credit
Suisse UK to assist in determining and articulating Customers’ attitudes to risk
were inadequate. As a result, there was an unacceptable risk that Credit Suisse
UK may not have accurately understood the level of risk that Customers were
willing to accept from their investments;

(2)
failed to take reasonable care to adequately evidence that the SCARPs it
recommended to its Customers were suitable, given the assets and investments
held by those Customers at the time. A review carried out by a skilled person
found that for 17 of the 24 SCARP transactions they tested, there was
insufficient evidence of consideration of the Customer’s overall portfolio by
Credit Suisse UK when determining whether the transactions were suitable for
the Customer;

(3)
failed to have in place adequate systems and controls surrounding the
recommendation of leverage to Customers. Where leverage was used to fund
transactions, there was often no documentation available to evidence the
rationale for recommending leverage, the appropriateness of the amount of
leverage in the context of the Customer’s overall wealth, or whether the risks
associated with the use of leverage had been considered by the relevant
Relationship Managers. In addition, there was no formal mechanism to
monitor the amount of leverage within Customers’ portfolios;

(4)
failed to have in place adequate systems and controls surrounding the levels of
issuer and investment concentration within Customers’ portfolios. There was
often no documentation available to evidence that issuer or investment
concentration had been considered by the relevant Relationship Managers.
Further, there was no formal mechanism to monitor the levels of issuer or
investment concentration in Customers’ portfolios; and

(5)
did not effectively monitor its staff to ensure that they took reasonable care to
ensure the suitability of their advice. The conduct of the Relationship
Managers was not effectively monitored, as in a significant number of cases
the number of Relationship Managers within the scope of oversight of a given
Team Leader or Sector Head was too high, or the relevant management had
too many competing responsibilities. In addition, Credit Suisse UK
management failed to use its internal evidencing tool adequately. This tool
was intended to demonstrate that management had reviewed, among other
things, the suitability of transactions. An internal report identified that these
reviews were sub-standard in 44% of cases.

2.4.
As a result of the above failings, Credit Suisse UK’s Customers were exposed to an
unacceptable risk of being sold a SCARP which was unsuitable for them. The FSA
has not proceeded to examine whether any individual advised sales were in fact
unsuitable.

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2.5.
Credit Suisse UK has agreed to carry out a review, overseen by and involving an
independent third party, in relation to its sale of SCARPs to Customers who
purchased these products during the Relevant Period to ensure that Customers do not
lose out as a result of the failings identified in this Notice. As part of this process,
Customers may be contacted if this is necessary to allow a decision on suitability to
be made. If a Customer has been advised to purchase an unsuitable product, redress
will be paid to the Customer to ensure that they have not suffered financially as a
result. Credit Suisse UK’s agreement to undertake this review has been taken into
account when deciding upon the level of financial penalty imposed.

2.6.
The FSA considers these failings to be particularly serious because:

(1)
A significant amount of Customers’ money was placed at risk by Credit Suisse
UK’s failings. During the Relevant Period, approximately 623 of Credit
Suisse UK’s Customers invested in excess of £1.099 billion in 1,701 SCARPs.

(2)
Credit Suisse UK is one of the leading private banks in the UK. As a result of
its competitive position in the market, the firm’s practices set an example
which is seen by other market practitioners and customers. It is vital therefore
that Credit Suisse UK takes reasonable care to ensure the suitability of its
advice to Customers.

(3)
Credit Suisse UK’s failings spanned a period of three years.

2.7.
Credit Suisse UK’s failings therefore merit the imposition of a significant financial
penalty.

2.8.
Since the discovery of its failings in 2010, Credit Suisse UK and its current senior
management have worked with the FSA in an open and co-operative manner. Credit
Suisse UK has also made a significant number of changes to its advisory processes,
which have been driven by senior management. It has enhanced the systems and
controls in place to ensure the suitability of its advice to Customers. It has also
undertaken an extensive exercise to ensure that the information it holds in relation to
all of its Customers is accurate and up to date.

3.
DEFINITIONS

3.1.
The definitions below are used in this Warning Notice.

“CAB” means Client Acceptance Booklet;
“Credit Suisse UK” means Credit Suisse (UK) Limited;
“DEPP” means the Decisions Procedure and Penalties manual;
“ENF” means the Enforcement Manual;
“MICOS” means Managing the Internal Control System;
“PCRM” means the Private Client Relationship Management system;
“the Act” means the Financial Services and Markets Act 2000;
“the FSA” means the Financial Services Authority;
“the Tribunal” means the Upper Tribunal (Tax and Chancery Chamber); and
“TSF” means the Transaction Suitability Form.

4.
FACTS AND MATTERS

Background

4.1.
Credit Suisse UK is a private bank operating within the UK, providing investment
advisory services to high net worth individuals, trusts, corporate entities and
intermediary firms, based both in the UK and overseas. As at 31 March 2011, Credit
Suisse UK managed £9.84 billion worth of assets on behalf of its 5,474 customers.

The framework at Credit Suisse UK

4.2.
During the Relevant Period, Credit Suisse UK operated a framework for providing
advisory services to its Customers. This framework was intended, among other things,
to gather information about Customers’ attitudes to risk and investment objectives to
enable Credit Suisse UK to provide suitable advice to these customers.

4.3.
As part of this framework, Credit Suisse UK had in place an electronic information
capturing system, PCRM, to record customers’ attitudes to risk and investment
objectives. It also made and retained notes of relevant customer interactions with
respect to the sale of products. Additionally, in respect of various complex products
(which included all SCARPs), Credit Suisse UK’s Relationship Managers were
required to complete an additional form, the TSF, to evidence the suitability of such
transactions prior to their execution.

Relationship Managers

4.4.
In an advisory relationship, Relationship Managers had the primary responsibility for
providing advice to Credit Suisse UK’s Customers. They were the main points of
contact for these Customers and were also responsible for completing the required
documentation evidencing Customer interactions and suitability. In conjunction with
the Customers, and where appropriate, with the support of other Credit Suisse UK
specialist groups, they also devised investment approaches to meet individual
Customers' attitudes to risk and investment objectives.

SCARPs

4.5.
During the Relevant Period, Credit Suisse UK recommended and sold a large number
of SCARPs to its Customers. SCARPs are complex financial products that provide an
agreed enhanced level of income to customers over a specified period but also expose
them to a range of outcomes in relation to the return of the initial capital. The amount
of capital returned to the customers on the maturity of the SCARP is generally
dependent on the performance of a basket of indices (e.g. FTSE 100) or equities (e.g.
shares in particular companies) or other assets. If during the life of the SCARP, one
of the indices breaches a set barrier (e.g. 60% of that index’s starting level), the
investor’s capital becomes at risk, and the amount of capital returned to the customer
can be significantly reduced. During the Relevant Period, whilst Customers were
receiving income, 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

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(although it should be noted that these losses occurred at a time of unprecedented
turmoil in the financial markets).

4.6.
Each individual SCARP may have a different risk profile, which depends on a number
of factors including the term of the SCARP, the underlying indices or equities or other
assets, and the relevant barriers and market conditions during the life of the product.
However, all SCARPs expose the customer to the potential loss of part or, under
certain conditions, all of the initial capital invested. It was therefore important when
recommending a SCARP that Credit Suisse UK took reasonable care to ensure that
each individual SCARP was suitable for each particular Customer, and that the
relevant Customer fully understood the nature of and risks involved in investing in
that SCARP.

4.7.
The FSA’s concerns regarding Credit Suisse UK arose as a result of a routine visit to
the firm in December 2009. As a result of those concerns, in March 2010, the FSA
instructed Credit Suisse UK to appoint a skilled person under section 166 of the Act
to review the systems and controls it had in place to support the suitability of
recommendations provided to its Customers. The scope of this review included
assessing the adequacy and effectiveness of systems, controls and management
oversight with respect to the suitability of these recommendations. The review also
included a review of a sample of Credit Suisse UK’s Customer files to examine how
Credit Suisse UK was implementing those systems and controls in practice. The
skilled person reported its findings to Credit Suisse UK in February 2011.

Attitude to risk and investment objectives

Client Acceptance Booklet

4.8.
Credit Suisse UK’s procedures required a new Customer to complete a CAB as part of
the customer acceptance process. The responsibility for completing this booklet lay
with the relevant Customer, but they were assisted in its completion by their
Relationship Manager.

4.9.
The CAB required each Customer to provide information on their background,
knowledge and experience, level of wealth, attitude to risk, investment purpose and
timeframe for investments. The Customer was also required to provide the portfolio
mandate, which included the Customers’ investment objectives. The CAB was the
primary method by which Credit Suisse UK gathered and recorded a Customer’s
initial attitude to risk and investment objectives.

A Customer’s attitude to risk

4.10. The method for determining a Customer’s overall attitude to risk involved the
Customer scoring themselves between one and five in relation to five questions
contained in the section on risk profiling in the CAB. After the Customer had
completed these questions, they were asked to add up the value attributed to each
question and calculate an average. This was then rounded to the nearest full number
and provided the risk indicator for the Customer.


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4.11. Each risk indicator corresponded to a risk profile. The available risk profiles were
‘low’, ‘moderate’, ‘medium’, ‘enhanced’ and ‘high’. Each profile was accompanied
by a brief explanatory statement in the CAB. However, although the CAB would
have been discussed and, typically, completed in conjunction with the Relationship
Manager, the wording of some of these statements may have been unclear to
inexperienced investors, as it gave little practical indication to the Customer of the
level of risk which the Relationship Managers would consider acceptable when
recommending products to them. For example, an investor with a ‘medium’ risk
profile was stated to have ‘a more pronounced appetite for risk for all or a portion of
the investor’s portfolio’.

4.12. Further areas contained in the CAB were also unclear. One question contained in the
risk profiling section of the CAB dealt with a Customer’s attitude to volatility. To
assess this, the Customer was asked to select the statement that best fitted their
attitude to volatility. However, none of the statements made any specific references to
the periods of time over which the Customer may be expected to bear losses, or what
indicative losses may be incurred.

Changes in a Customer’s risk profile

4.13. Once Credit Suisse UK had established the risk profile of a Customer, it should have
taken reasonable care to ensure that that risk profile continued to represent the level of
risk that the Customer was willing to accept from their overall investment portfolio.
If the Customer wished to amend their risk profile, Credit Suisse UK had to ensure
that the amendment, and the reasons for that amendment, were properly considered
and recorded on the Customer’s file.

4.14. A number of Customer files contained instances where the Customer’s risk profile
had been increased during the course of their relationship with Credit Suisse UK.
However, in some of these instances, there was insufficient documentary evidence to
explain why the Customer’s risk profile had been amended. One Customer was
recorded on Credit Suisse UK’s systems as having a risk indicator of three. That
Customer was recommended, and carried out, five SCARP transactions. At the time
of executing the fourth and fifth SCARP transactions, the Relationship Manager asked
the Customer to increase their risk indicator from three to four to reflect the products
that the Customer was holding at that time. Although the Customer agreed to this, the
Customer’s file did not demonstrate why the Customer’s risk profile was increased.

A Customer’s investment objectives

4.15. Once a Customer had determined their risk profile, they were required to select their
investment objective on the CAB. The available options for the investment objective
were: (a) Capital Preservation; (b) Income; (c) Balanced (Capital Growth and
Income); (d) High Income; (e) Capital Growth; and (f) Short Term Trading and
Speculation. This was separate to the assessment of the Customer’s risk profile.

4.16. The selection of one investment objective could link to one of a number of different
risk profiles. For instance, in the CAB in use after 1 November 2007, a Customer

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with a ‘balanced’ investment objective could be compatible with each of the
‘moderate’, ‘medium’ and ‘enhanced’ risk profiles.

4.17. If the risk profile selected by the Customer fell outside the range of risk profiles
which were compatible with the Customer’s stated investment objective, the CAB
required the Customer to explain the reason why this was the case. However, such
explanations were not always provided in the CAB. In these circumstances, Credit
Suisse UK was not able to demonstrate an understanding of, and the interaction
between, a Customer’s attitude to risk and/or investment objective.

4.18. Further, the independent review carried out by the skilled person identified that in
instances where there were inconsistencies between the Customer’s risk profile and
investment objectives, there was no documentation on the PCRM system clarifying
why this was the case.

4.19. SCARPs, by their nature, carry a risk that the initial capital invested by the customer
may not be recouped. A SCARP is therefore not likely to be suitable for a customer
with an investment objective of capital preservation. In 2001, one of the Customers
stated on its account opening documentation that its investment objective was
‘conservative/capital preservation and income’. This was reflected in some
comments on the Customer file in February 2003 which stated that the Customer was
“not interested in any [product] issued without capital protection 100%”. While the
majority of the products recommended to the client were capital protected the
Customer in question was recommended a SCARP in 2008 in which the Customer
invested. At the time its risk indicator was recorded on PCRM as three and the
investment objective was recorded as “high income”. However, there is no evidence
on file to show when and why the Customer’s investment objective and risk profile
changed.

Other relevant considerations

A Customer’s portfolio

4.20. A customer’s portfolio refers to the collection of assets and investments which that
customer holds with a firm. It is important for firms to take reasonable care to ensure
that each recommendation made to a customer is suitable given not only that
customer’s risk profile and investment objectives, but also the range of assets and
investments already held by that customer in their portfolio.

4.21. Although the Relationship Managers would take into account the fact that each risk
profile and investment objective allowed a range of investments when building a
portfolio, Credit Suisse UK did not have a formal procedure to support the portfolio
building process. Further, there was little or no evidence which explained how the
Customer’s attitude to risk and investment objectives were met when transactions
were effected within the Customer’s portfolio. As a result, Credit Suisse UK failed to
ensure that there was adequate evidence to demonstrate that the SCARPs it
recommended to its Customers were suitable, given the assets and investments held
by the Customers at the time. The review by the skilled person found that for 17 of
the 24 transactions tested, there was insufficient evidence of consideration of the

Customer’s overall portfolio when determining whether or not the transaction was
suitable for the Customer.

Leverage

4.22. Leverage refers to the amount of debt utilised by a customer to finance their
investments. If a customer uses leverage to make an investment and the investment
rises in value, then the customer’s gains are increased reflecting the amount of
leverage used. Conversely, if the investment falls in value, the customer’s losses are
much greater than they would have been if the investment had not been leveraged.
Consequently, leverage magnifies both a customer’s gains and losses.

4.23. During the Relevant Period, Credit Suisse UK did not have in place policies and
procedures relating to, or mechanisms to monitor, the use of leverage when
recommending products to their Customers. Credit Suisse UK did consider the risks
associated with leverage from the firm’s perspective, for example by conducting
credit checks on its Customers. However, there was often no documentation available
to evidence that Credit Suisse UK had considered whether the use of leverage was
appropriate in light of their Customers’ attitudes to risk.

4.24. Relationship Managers were required to record all material customer interactions.
However, documentation setting out the rationale for recommending leverage and the
appropriateness of the amount of leverage in the context of the Customer’s overall
wealth was often not present in the Customer files. Similarly, there was often no
documentation showing that the downside risks of leverage had been considered by
Relationship Managers when advising their Customers to use debt to finance their
transactions. As part of their review, the skilled person considered four transactions
where leverage was used. In two instances, the files did not contain sufficient
evidence to demonstrate that the risks associated with the use of leverage had been
explained to the Customer.

4.25. One Customer to whom Credit Suisse UK recommended using leverage was noted in
the CAB to have “very limited investment experience”. Therefore, it was particularly
important to explain to this Customer how the concept of leverage operated and the
risks associated with leverage. However, there was no information contained in the
Customer’s file which explained the basis for recommending the use of leverage in
the transaction. In addition, the TSF completed for this transaction merely stated that
“This transaction has been fully explained to the client. It has been approved by the
client who is fully aware of all the facets of this trade”. There was no documentation
on the Customer’s file to demonstrate what the Customer had been told regarding the
risks of using leverage. This documentation would have acted as an additional
control, allowing Credit Suisse UK to ensure that the relevant Relationship Manager
had explained all of the material risks involved in using leverage to the Customer.

Issuer and investment concentration

4.26. Issuer concentration refers to the extent to which a customer’s portfolio comprises
financial instruments issued by one particular issuer of securities. If the portfolio is
heavily concentrated with one issuer, the customer faces the risk of significant losses

if that particular issuer fails. Investment concentration, on the other hand, refers to
the extent to which a customer’s portfolio comprises a large proportion of one
particular security, exposing the customer to the risk of large losses if that security
fails.

4.27. During the Relevant Period, Credit Suisse UK did not have in place policies and
procedures relating to, or mechanisms to monitor, issuer and investment concentration
in their Customers’ portfolios. In addition, there were often no records of discussions
concerning issuer and investment concentration on the Customer files. Although
interviews carried out by the skilled person during their review identified that
Relationship Managers had a good understanding of these issues and discussed them
with their clients during periodic meetings and annual review, the review by the
skilled person found that 23 out of 30 Customer files contained no evidence of an
assessment of issuer concentration, and that 15 out of 30 Customer files contained no
evidence of an assessment of investment concentration.

Oversight

Oversight of Relationship Managers

4.28. During the Relevant Period, it was the responsibility of the Team Leaders and Sector
Heads to supervise the work of the Relationship Managers. However, Team Leaders
also had responsibility for advising Customers of their own. In addition, Team
Leaders and Sector Heads were responsible for overseeing all business activity within
their respective business units.

4.29. In a significant number of cases the number of Relationship Managers within the
scope of oversight of a given Team Leader or Sector Head was sufficiently large, such
that, especially when combined with the Customer advisory commitments of Team
Leaders, the extent to which the supervisor could effectively monitor the work carried
out by those Relationship Managers was restricted. For instance, as at 31 March
2010, the Sector Head for the UK region had 11 Relationship Managers directly
reporting to him and the Team Leader for the Middle East region had 16 Relationship
Managers reporting to him.

Oversight in relation to suitability

4.30. Credit Suisse UK operated a system called MICOS which enabled it to monitor on a
quarterly, half yearly and yearly basis and based on a sampling approach, the
performance of certain internal processes, including matters relating to suitability.
MICOS updated the previous internal control system in the first quarter of 2009.
MICOS required, amongst other things, management to carry out a review of areas
relevant to suitability (including the adequacy of the evidence provided to demonstrate
the suitability of products given a Customer’s risk profile and whether the TSF
approval process was effectively executed) and to record the results of that review.

4.31. The reviews carried out were focused on the quality of documentary evidence
available and, although they were not intended to repeat the review of the underlying
activity, the review did assess whether there was sufficient information documented to
enable a conclusion to be reached on the effectiveness of the process. Where relevant,

this included assessing whether enough information was recorded to allow a
determination on suitability to be made.

4.32. However, Credit Suisse UK did not use MICOS effectively. An internal review
carried out by Credit Suisse UK in the last quarter of 2009 (covering the period 1 July
2009 to 30 September 2009) identified that in 44% of the cases, the reviews
performed by management (some of which were relevant to suitability) were sub-
standard. The issues identified included a poor sampling approach, limited use of
documentary evidence to support the review and limited analysis of the process
reviewed.

Compliance monitoring

4.33. The Compliance function within Credit Suisse UK was responsible for the oversight
of compliance with FSA consumer regulation and provided support to Credit Suisse
UK’s private banking operation through the provision of advice, training and
monitoring activity.

4.34. As outlined in paragraph 4.20, it was important for Credit Suisse UK to take
reasonable care to ensure that each recommendation made to a customer was suitable
given not only that customer’s risk profile and investment objectives, but also the
range of assets and investments already held by that customer. Prior to January 2009,
compliance monitoring, including consideration of suitability and appropriateness,
was contained in a review which considered both the suitability of individual trades
against the Customer’s risk profile and investment objectives, and the transaction in
relation to the Customer’s overall portfolio held within Credit Suisse UK. This
changed to a quarterly review of 20 transactions by Compliance at the start of 2009.
However, this review only considered the suitability of individual trades against the
Customer’s risk profile and investment objectives, and not against the Customer’s
existing portfolio of investments. From the last quarter of 2009, these quarterly trade
reviews reverted to include both a review of the individual transaction, and also
consideration of that transaction in relation to the Customer’s overall portfolio held
within Credit Suisse UK.

4.35. The failure to monitor transactions in the context of the Customer’s overall portfolio
in relation to suitability between the first and last quarter of 2009 means that Credit
Suisse UK did not effectively monitor these transactions during that period.

5.
FAILINGS

5.1.
The regulatory provisions relevant to this Final Notice are referred to in Annex A.

5.2.
By reason of the facts and matters set out above, Credit Suisse UK breached Principle
3 by failing to take reasonable care to establish and maintain effective systems and
controls in respect of the suitability of its advice regarding SCARPs to Customers.
During the Relevant Period, Credit Suisse UK:

(1)
failed to put in place adequate systems and controls in respect of the
determination of Customers’ attitudes to risk. A number of terms contained

within the CAB which assisted Credit Suisse UK in determining a Customer’s
risk profile may not have been clear to inexperienced investors. As a result,
there was an unacceptable risk that Credit Suisse UK may not have accurately
understood the level of risk that Customer was willing to accept from their
investments. Further, there was no direct correlation between the Customer’s
stated risk profile and their investment objective; one investment objective
could link to a number of possible risk profiles. If the risk profile selected by
the Customer fell outside the range of risk profiles which were compatible
with the Customer’s stated investment objective, the CAB required the
Customer to explain the reason why this was the case. These explanations
were not, however, always provided in the CAB. In these circumstances,
Credit Suisse UK could not demonstrate an understanding of, and the
interaction between, a Customer’s attitude to risk and/or investment objective.
Furthermore, there was little clarification provided in the Customer file notes
on how the proposed investment objective linked to the Customer’s risk
profile;

(2)
failed to take reasonable care to evidence adequately that the SCARPs it
recommended to its Customers were suitable, given the assets and investments
held by those Customers at the time. Credit Suisse UK had no formal process
in place to assist when building Customers’ portfolios. Additionally, the
Customer file notes did not demonstrate how the Customer’s overall portfolio
had been constructed with reference to their investment objectives and risk
profile. As a result, testing carried out by a skilled person found that for 17 of
the 24 SCARP transactions they tested, there was insufficient evidence of
consideration of the Customer’s overall portfolio by Credit Suisse UK when
determining whether transactions were suitable for the Customers;

(3)
failed to put in place adequate systems and controls surrounding the
recommendation of leverage to Customers. During the Relevant Period, Credit
Suisse UK did not have in place policies or controls which governed the use of
leverage. Where leverage was used to fund transactions, there was often no
documentation available to evidence the rationale for recommending leverage
and the appropriateness of the amount of leverage in the context of the
Customer’s overall wealth. There was also often no documentation showing
that the downside risks of leverage had been considered by relevant
Relationship Managers when advising the Customer to use leverage to finance
their transactions. In addition, there was no formal mechanism to monitor the
amount of leverage within Customers’ portfolios;

(4)
failed to put in place adequate systems and controls surrounding the levels of
issuer and investment concentration within Customers’ portfolios. During the
Relevant Period, Credit Suisse UK did not have in place policies or controls
dealing with issuer or investment concentration, or a formal mechanism to
monitor the levels of issuer or investment concentration in Customers’
portfolios. There was also often no documentation available to evidence that
issuer or investment concentration had been considered by the relevant
Relationship Managers when recommending transactions;


(5)
did not effectively monitor transactions in the context of the Customer’s
overall portfolio. Between January and September of 2009, the suitability of
transactions was only considered by Compliance against the Customer’s risk
profile and investment objectives, and not against the Customer’s existing
portfolio of investments; and

(6)
did not effectively monitor its staff to ensure that they took reasonable care to
ensure the suitability of their advice. The conduct of the Relationship
Managers was not effectively overseen, as the relevant management had too
many competing responsibilities. In addition, in the first quarter of 2009,
Credit Suisse UK updated its internal evidencing tool which was intended to
demonstrate that management had reviewed, amongst other things, the
suitability of transactions. However, Credit Suisse UK management at the
time did not use this system properly. An internal report identified that
reviews performed by Credit Suisse UK’s management, some of which were
relevant to suitability, were sub-standard in 44% of cases.

5.3.
As a result of the above failings, Credit Suisse UK’s Customers were exposed to an
unacceptable risk of being sold a SCARP which was unsuitable for them.

6.
SANCTION

Relevant guidance on sanction

6.1.
The FSA has considered the disciplinary and other options available to it and has
concluded that a financial penalty is the appropriate sanction in the circumstances of
this particular case.

6.2.
In determining the financial penalty proposed, the FSA has had regard to guidance
contained in DEPP and ENF, which formed part of the FSA Handbook during the
Relevant Period. Both DEPP 6.5 and Chapter 13 of ENF contained some of the
factors that may be of particular relevance in determining the appropriate level of a
financial penalty. However, DEPP 6.5.1 G and ENF 13.3.4 G both stated that the
criteria listed in DEPP 6.5 and ENF 13.3 respectively were not exhaustive and that all
relevant circumstances of the case should be taken into consideration. In determining
whether a financial penalty is appropriate and the amount, the FSA is therefore
required to consider all the relevant circumstances of the case.

Deterrence

6.3.
The FSA considers that in this case, the financial penalty imposed will promote high
standards of regulatory conduct by deterring firms who have breached regulatory
requirements from committing further contraventions, helping to deter other firms
from committing contraventions and demonstrating generally to firms the benefit of
compliant behaviour. It will strengthen the message to the industry that it is vital for
firms to take reasonable care to ensure the suitability of their advice, by putting in
place adequate systems and controls in this regard.


The nature, seriousness and impact of the breach in question

6.4.
The FSA has had regard to the seriousness of the breaches, including the nature of the
requirements breached, the number and duration of the breaches, the number of
Customers who were exposed to risk of loss and whether the breaches revealed
serious or systemic weakness of the management systems or internal controls. For the
reasons set out in paragraph 2.6 above, the FSA considers that Credit Suisse UK’s
breaches are of an especially serious nature. The failings identified within Credit
Suisse UK existed for a period of approximately three years.

The extent to which the breach was deliberate or reckless

6.5.
The FSA does not consider that these failings on the part of Credit Suisse UK were
deliberate or reckless. However, the FSA considers it particularly serious that Credit
Suisse UK failed effectively to monitor its staff to ensure that they took reasonable
care to ensure the suitability of their advice throughout the Relevant Period.

The size, financial resources and other circumstances of the person on whom the
penalty is to be imposed

6.6.
The FSA has taken into account Credit Suisse UK size and financial resources. Credit
Suisse UK is one of the largest private banks in the UK. In the year ending 31 March
2011, Credit Suisse UK’s gross income was approximately £73 million. During the
Relevant Period, Credit Suisse UK advised on the sale of 1,701 SCARPs to 623
Customers. The total value of SCARPs sold by Credit Suisse UK during this period
exceeded £1.099 billion.

Conduct following the breach

6.7.
In consultation with the FSA, Credit Suisse UK has agreed to undertake a review in
relation to its sale of SCARPs to Customers who purchased these products during the
Relevant Period to ensure that Customers do not lose out as a result of the failings
identified in this Notice. If a Customer has been advised to purchase an unsuitable
product, redress will be paid to the Customer to ensure that they have not suffered
financially as a result.

6.8.
Credit Suisse UK has also made a significant number of changes to its advisory
processes, which have been driven by senior management. It has enhanced the
systems and controls in place to ensure the suitability of its advice to Customers. It
has also undertaken an extensive exercise to ensure that the information it holds in
relation to all of its Customers is accurate and up to date.

6.9.
Since the commencement of the FSA’s investigation, Credit Suisse UK and its senior
management have worked in an open and cooperative manner with the FSA.

7.
PROCEDURAL MATTERS

Decision maker

7.1.
The decision which gave rise to the obligation to give this Notice was made by the
Settlement Decision Makers.

7.2.
This Final Notice is given under section 206 and in accordance with section 390 of the
Act.


Manner of and time for Payment

7.3.
The financial penalty must be paid in full by Credit Suisse UK to the FSA by no later
than 8 November 2011, 14 days from the date of the Final Notice.

If the financial penalty is not paid

7.4.
If all or any of the financial penalty is outstanding on 9 November 2011, the FSA may
recover the outstanding amount as a debt owed by Credit Suisse UK and due to the
FSA.

Publicity

7.5.
Sections 391(4), 391(6) and 391(7) of the Act apply to the publication of information
about the matter to which this notice relates. Under those provisions, the FSA must
publish such information about the matter to which this notice relates as the FSA
considers appropriate. The information may be published in such manner as the FSA
considers appropriate. However, the FSA may not publish information if such
publication would, in the opinion of the FSA, be unfair to you or prejudicial to the
interests of consumers.

7.6.
The FSA intends to publish such information about the matter to which this Final
Notice relates as it considers appropriate.

FSA contacts

7.7.
For more information concerning this matter generally, contact Tepo Din of the
Enforcement and Financial Crime Division of the FSA (direct line: 020 7066 6834 /
fax: 020 7066 6835).




…………………………………………….
William Amos
FSA Enforcement and Financial Crime Division


ANNEX A

1.
RELEVANT REGULATORY PROVISIONS

1.1.
Protecting consumers and market confidence are statutory objectives for the FSA
under section 2(2) of the Act.

1.2.
Section 206(1) of the Act provides that:

‘If the FSA considers that an authorised person has contravened a requirement
imposed on him by or under this Act … it may impose on him a penalty, in respect of
the contravention, of such amount as it considers appropriate.’

FSA Principles and Rules

1.3.
The FSA’s Principles for Businesses are general statements of the fundamental
obligations of firms under the regulatory system. They derive their authority from the
FSA’s rule making powers as set out in the Act and reflect the FSA’s regulatory
objectives.

1.4.
Principle 3 of the FSA’s Principles for Businesses states that:

‘A firm must take reasonable care to organise and control its affairs responsibly and
effectively, with adequate risk management systems.’