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Regulation

FINRA Fines Credit Suisse $9 Million for Violating Customer Protection Rule

The regulator accused the firm of failing to maintain control of billions of dollars of margin securities.
By Michael Katz



The Financial Industry Regulatory Authority (FINRA) has fined Credit Suisse Securities $9 million for violating provisions of the Securities and Exchange Commission (SEC)’s so-called “Customer Protection Rule,” which requires firms to safeguard their customers’ investment assets.

The regulator said the US broker/dealer (B/D) subsidiary of Credit Suisse Group failed to maintain possession or control of billions of dollars of fully paid and excess margin securities it carried for customers, as required by law. It also said the firm failed to accurately calculate the amount of cash or securities it was required to maintain in a special reserve bank account.

As part of the settlement, Credit Suisse is required to certify that it has implemented supervisory systems and procedures reasonably designed to comply with the Customer Protection Rule and other requirements.

“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, executive vice president and head of FINRA’s department 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.”

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FINRA blamed Credit Suisse’s failures in part on the firm not maintaining accurate books and records, which FINRA said also caused it to file inaccurate Financial and Operational Combined Uniform Single (FOCUS) reports. The regulator said that from June 2011 through August 2017, Credit Suisse filed at least 25 FOCUS reports that overstated its reserve formula debits by between $689 million and $4.7 billion.

FINRA also alleges that from 1997 through 2020, Credit Suisse failed to maintain approximately 18.6 billion electronic brokerage records in non-erasable and non-rewritable format, also known as WORM format. The regulator said the obligation to maintain records in WORM format is intended to prevent the alteration or destruction of records stored electronically, and to allow FINRA and other regulators to conduct periodic examinations.

Additionally, from 2006 through 2017, Credit Suisse allegedly issued more than 20,000 research reports to the public that contained inaccurate disclosures regarding potential conflicts of interest. Although Credit Suisse accepted and consented to the entry of FINRA’s findings, the firm neither admitted nor denied them.

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Home > News > Risk > Will the Federal Reserve Go Too Far?
Risk

Will the Federal Reserve Go Too Far?

What if its tightening program squelches a now-imperiled economic recovery? Natixis’ Lavorgna wonders.
By Larry Light



When Federal Reserve Chairman Jerome Powell gives his news briefing this afternoon, he may lay the groundwork for a ruinously harsh escalation of interest rates, at a time when the U.S. economy is looking shaky. That’s the fear of Joseph Lavorgna, Natixis’ chief economist, Americas.

“We are concerned that Chair Powell will err on the side of hawkishness” at the close of the Fed policymaking panel’s January meeting, the economist wrote in a research note.

Wall Street widely expects the central bank to begin hiking its benchmark federal funds rate at its March session, with four quarter-point boosts coming this year, up from a level near zero now. (No February meeting is slated.) The Fed also may accelerate the phase-out of its bond-buying campaign, which has been another tool to bolster the economy.

Lavorgna views with alarm some signals that the nation’s economy might be weakening: a slowing in payroll growth and a dip in the The Atlanta Fed’s GDPNow™ survey for last year’s fourth quarter was down to a 5.1% increase in gross domestic product (GDP), from 10% previously, he pointed out.

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“The economy is slowing rapidly,” Lavorgna wrote, “but we fear that the Fed will attribute it mainly to the Omicron variant,” which appears to be receding. Such a perception would be misguided and dangerous, he indicated.

If the degree of January’s reduced economic activity is sustained, he warned, then “it points to real GDP growth around zero.”

To be sure, there are any number of lowered economic estimates, with Goldman Sachs a prominent pessimist—its outlook is for just 3.4% growth. The explosion in inflation lately, along with the latest coronavirus strain, has put many people in a sour mood, which may weigh on their spending and other decisions.

The stock market’s January downdraft is evidence of that negative mindset: The S&P 500 is off 8.6% thus far this year.

Various Wall Street strategists have opined that the stock market’s decline stems in part from fear that the Fed will overreact to inflation and deprive the economy of the fuel it needs to power ahead.

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