Nomura fined £1.75m for system and control failures

The Financial Services Authority has fined Nomura £1.75 million for “widespread" systems and controls failures.

The Japanese bank, which bought the European investment banking and equities operations of the collapsed Lehman Brothers bank in 2008,was fined for the failings in its International Equity Derivatives business headquartered in London.

The fine follows two other significant recent rulings by the FSA. Three weeks ago, UBS was fined £8 million after system and control failures at the bank enabled employees to make unauthorised trades using customer money. Two months earlier, Barclays was fined £2.45 million for inaccurately reporting nearly 60 million investment banking transactions.

The FSA said in today's ruling that Nomura’s systems and controls around marking its IED books fell “far short” of regulatory expectations, considering it is a business that trades “complex and high risk” financial products. The bank’s growth and the rate at which it took on new business had far outpaced some of its processes to record pricing and test that data, the FSA said.

The mismarking of products meant they eventually had to be revalued at a total of £16.3 million less than recorded rates.

Nomura was judged to have breached two FSA Principles, by failing to conduct business with “due skill, care and diligence” and failing to take “reasonable care” to organise and control its business “responsibly”.

Both counts were “particularly serious”, the FSA said, because they were “fundamental and systemic”, persisting over a “prolonged period of time”. Nomura took until June last year to identify the problems, after they existed for over six months.

Margaret Cole, FSA director of enforcement and financial crime, said businesses “must ensure their systems and controls develop at the same rate their business operations grow”.

Nomura cooperated fully with investigations, the FSA said, and paid early to avoid the fine being £2.5 million. It has also taken “extensive” remedial action.

Copyright © 2009 IDG Communications, Inc.

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