FINRA Gives Credit to Credit Suisse for Not Having A Relevant Disciplinary History

April 8, 2021

Yet again, I say. Yet again. Wall Street's lackluster regulatory scheme fails to proactively detect an oncoming tsunami, and the markets get flooded. There was not so much as a single warning from the industry's many regulators about the oncoming Archegos disaster. Yet again, a hedge fund blows up and sends shockwaves through the financial system. Yet again, a major financial services firm, this time Credit Suisse, is swamped. Yet again, I ask, what's the point of having self regulators, state regulators, federal regulators, and international regulators when those systems don't coordinate and ferret out oncoming disasters? Yet again, our 1930's regulatory approach shows its age. Yet again, at some point, don't we need to turn off the lights on self regulation and send FINRA's Board of Governors packing?

Case In Point

For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Credit Suisse Securities (USA) LLC submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Credit Suisse Securities (USA) LLC, Sr., Respondent (FINRA AWC 2018060780401) (the "2021 AWC""

https://www.finra.org/sites/default/files/fda_documents/2018060780401

%20Credit%20Suisse%20Securities%20USA%20LLC%20CRD%20816%20%20AWC%20va.pdf

No Relevant Disciplinary History?

The 2021 AWC alleges that Credit Suisse Securities (USA) has been a FINRA member firm since 1936 with 2,500 registered persons at 31 branches. The 2021 AWC alleges that Credit Suisse Securities "does not have any relevant disciplinary history."

2016 - 2019: Failed Supervisory System

The 2021 AWC alleges in its "Overview" that:

During the period from at least July 2016 to April 2019, Respondent failed to establish and maintain a supervisory system, including written supervisory procedures, reasonably designed to monitor its employees' outside brokerage accounts. The firm's supervisory deficiencies led to its failure to timely monitor thousands of employee outside brokerage accounts for compliance with the firm's trading restrictions designed to identify self-dealing and other potentially deceptive trading practices. . .

2021 FINRA Sanctions

In accordance with the terms of the 2021 AWC, FINRA found that Credit Suisse violated FINRA Rules 3110(a) and (b), and 2010; and the self regulator imposed upon the firm a Censure and $345,000 fine.

311 Total Disclosure

Just for the sake of picking someplace to begin, let's consider FINRA's straight-faced assertion in the 2021 AWC that Credit Suisse Securities "does not have any relevant disciplinary history." Visit FINRA's online BrokerCheck report for Credit Suisse Securities at:

https://brokercheck.finra.org/firm/summary/816

On the very first page under the heading "Disclosures" your are informed that there are "311 Total Disclosures" and right underneath that large number, you find that FINRA has broken those raw numbers into:

Regulatory Event: 292

Civil Event: 10

Arbitration: 9

All of which underscores and highlights my long-standing disagreement with FINRA's absurd and troubling practice of deciding that a major member "does not have any relevant disciplinary history." 311 total disclosures and not a single, goddamn one of those is "relevant" per the 2021 AWC featured above -- as in not a single matter pertaining to Credit Suisse's supervisory systems?

2019 Credit Suisse AWC: Supervision Violations

Wow --- how truly amazing and compliant a FINRA member firm is Credit Suisse Securities (USA) LLC that it has managed to lead such a charmed and pristine regulatory life! Of course, you know, I got some doubts -- frankly, lots of doubts. For starters, what am I supposed to make out of the headline for this press release that was written and posted by FINRA:

FINRA, Cboe, Nasdaq, NYSE and Affiliated Exchanges Fine Credit Suisse Securities $6.5 Million for Supervision and Market Access Rule Violations (FINRA News Release / December 23, 2019) (the "2019 AWC")
https://www.finra.org/media-center/newsreleases/2019/finra-exchanges-fine-credit-suisse-65-million-supervision-mkt-access

READ the 2019 AWC: https://www.finra.org/sites/default/files/2019-12/credit-suisse-awc-122319.pdf

Oddly, it doesn't take us long to see that in 2019 AWC, FINRA and other regulators imposed a multi-million dollar fine on Credit Suisse for SUPERVISION -- the very same regulatory issue cited in the 2021 AWC. Consistently, both the 2019 AWC and the 2021 AWC assert that Credit Suisse "does not have any relevant disciplinary history."

Who the hell at FINRA decides what's relevant?

Let me just cite a few of FINRA's lurid details from the 2019 FINRA News Release in the spirit of rubbin' it in FINRA's face:

FINRA and the Exchanges found that during most of the relevant time period, Credit Suisse did not establish a supervisory system, including written supervisory procedures, reasonably designed to monitor for potential spoofing, layering, wash sales and pre-arranged trading by its direct market access clients. As a result, orders for billions of shares entered the U.S. markets without being subjected to post-trade supervisory reviews for such potential manipulative activity. Moreover, Credit Suisse was put on notice of gaps in its surveillance system by correspondence with one of its direct market access clients and by an internal audit report.

Just to make the point, let's compare that above 2019 AWC language with this language from the 2021 AWC "Overview":

During the period from at least July 2016 to April 2019, Respondent failed to establish and maintain a supervisory system, including written supervisory procedures, reasonably designed to monitor its employees' outside brokerage accounts. The firm's supervisory deficiencies led to its failure to timely monitor thousands of employee outside brokerage accounts for compliance with the firm's trading restrictions designed to identify self-dealing and other potentially deceptive trading practices. . . .

2016 Credit Suisse AWC: Supervision Violations

If we look a little further back in time, we come across another self-serving bit of publicity from FINRA:

FINRA Fines Credit Suisse Securities (USA) LLC $16.5 Million for Significant Deficiencies in its Anti-Money Laundering Program (FINRA News Release / December 5, 2016)
https://www.finra.org/media-center/news-releases/2016/finra-fines-credit-suisse-165-million-significant-deficiencies-its-aml

READ the 2016 AWC: https://www.finra.org/sites/default/files/CreditSuisse_AWC_120516.pdf

Without taxing ourselves too much, lets just read the very first sentence of the 2016 FINRA News Release.

The Financial Industry Regulatory Authority (FINRA) announced today that it has fined Credit Suisse Securities (USA) LLC $16.5 million for anti-money laundering (AML), supervision and other violations.

I'm sure that you noted, right there in the first sentence of the first paragraph of the 2016 FINRA News Release that word: SUPERVISION. And, sure, just in case you were wonderin', the 2016 AWC asserts that Credit Suisse "has no relevant disciplinary history." Were you expecting something else?

Archegos Batters Credit Suisse

You may be asking yourself why any of this matters. Fair point. After all, I'm just pointing at three lousy FINRA AWCs from 2016, 2019, and 2021. Who cares, right? Apparently not FINRA so much because it seems like these AWC are a nice profit center -- particularly when it comes to large member firms with lots of cash and deep pockets. Unfortunately, this approach to checkbook regulation doesn't seem to work that well, but, hey, that's apparently not much of a reason to cause any regulator to hit the pause button and ask if we need to do something different -- something to get the big boys attention. Naaah, let's just have 'em write out checks and we will post press releases. Why screw around with something that's not workin' just because that idiot Bill Singer says we need to fix it? Let's just stay with it even though we know it's not working. And stay with it they do! So as to not belabor the point, let me simply cite some recent headlines to you: