Formerly called Credit Suisse Financial Products (CSFP) CSFBi is authorised in the UK. Between 1995 and 1998 CSFP attempted to mislead the Japanese authorities by concealing and removing evidence about the extent and type of its business in Japan. In addition, CSFP prepared false explanations about its Japanese business activities. CSFP feared that the Japanese financial regulator might conclude it was doing business without the necessary Japanese licence. CSFP also thought that the tax authority might decide that this business should be taxed in Japan.
CSFBi has admitted the facts detailed below. In determining the proposed action, the FSA has taken account of subsequent changes in CSFBi’s senior management, including the departure of relevant personnel. Since these events CSFBi has made extensive changes to improve standards of ethics and professionalism. These changes have resulted in significant improvements in CSFBi’s compliance culture generally.
Carol Sergeant, Managing Director responsible for Enforcement, says“The unprecedented size of the fine makes it clear that we consider any attempt to mislead regulators and other authorities whether in the UK or in other countries to be an extremely serious issue. Ensuring that firms have organisational cultures that prevent this type of behaviour is essential to maintaining the confidence we all expect to have in our financial markets.?lt;p> 1995-6 Until April 1997 CSFP marketed derivative products in Japan via another company within the Credit Suisse group called CS First Boston Japan Limited (CSFB JL). CSFB JL’s licence only allowed it to undertake securities, not banking, business on behalf of CSFP. Over time, CSFP became concerned that the Japanese regulator might consider some of the transactions undertaken by CSFB JL on behalf of CSFP to be banking business.
As a result, in preparation for a regulatory inspection, CSFP arranged to stop sending reports that it normally sent to CSFB JL. These reports included monthly management accounts and estimates of trading revenue. CSFP also knew of suggestions made by CSFB JL staff to:
- conceal documents; and
- tell the regulator that CSFB JL staff only monitored CSFP’s trading positions when in fact they had an active role in arranging CSFP’s transactions.
- removed documents offsite so that they would not be seen; and
- bought a shredder to destroy documents that should not be seen by the tax authority. In the event, there is no evidence that it was used.
- CSFB JL staff only had an administrative and liaison function when they in fact they were actively involved in making deals for CSFP;
- there were no records of deals done for CSFP.
- remove information about trades from lists to be given to the tax authority; and
- deny that some CSFB JL staff reported to CSFP.
- sending faxes in CSFB JL’s name although CSFB JL staff were not involved; and
- filing the documents related to this business in a separate room where it was believed inspectors would not find them.
For the avoidance of doubt, it is not part of the FSA’s findings in this case that CSFP was conducting business in Japan for which it did not have the necessary licence.
Notes
- SFBi is a UK regulated firm with headquarters in London.
- In January 1999, CSFP’s Tokyo branch concealed documents from the Japanese regulator and misled it. This triggered the investigation by the Securities and Futures Authority, CSFP’s UK regulator at the time. CSFP subsequently had its licence to do business in Japan revoked. The UK investigation has been continued by the FSA following the transfer of the SFA’s regulatory responsibilities to the FSA on 1 December 2001. The January 1999 events are not part of the FSA’s case.
- CSFP was part of Credit Suisse group and specialised in derivatives products within the group. It did not have its own presence in Japan between 1990 and 14 April 1997. During that period the Structured Products Group of CS First Boston Japan Limited which had a securities licence acted on behalf of CSFP. From 15 April 1997 CSFP had a banking licence.
- The FSA has taken action against CSFBi because it considers CSFBi to have breached former regulatory principles 9 and 10. These specified:
- Former Principle 9 “Internal Organisation - A firm should organise and control its internal affairs in a responsible manner, keeping proper records, and where the firm employs staff or is responsible for the conduct of investment business by others, should have adequate arrangements to ensure that they are suitable, adequately trained and properly supervised and that it has well-defined compliance procedures.?
- Former Principle 10 “Relations with Regulators ?A firm should deal with its regulator in an open and co-operative manner and keep the regulator promptly informed of anything concerning the firm which might reasonably be expected to be disclosed to it.?
- The former principles apply as the events took place before 1 December 2001.
- The Japanese regulator in 1995-6 was the Securities and Exchange Surveillance Commission. The Japanese Financial Services Agency has now taken over its responsibilities. The Japanese tax authority is called the Japanese National Tax Administration Agency.
- The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; the appropriate degree of protection of consumers; and fighting financial crime.
- The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.
