18/12/2009
By Neil Ainger
The Financial Services Authority (FSA) is fining Toronto Dominion Bank (London Branch) £7 million for the incorrect pricing of sophisticated financial products and repeated systems and control failings, which allowed the incidents to occur.
The bank had to adjust the pricing of financial products when the credit crunch hit last year, forcing Toronto Dominion (London) to make a negative adjustment of CAD$96m in July 2008, and ultimately leading to the FSA fine.
The breaches relate to pricing issues that were uncovered on a proprietary trader's books within Toronto Dominion's Credit Products Group. Amongst other failings the FSA found that Toronto Dominion failed to follow their established procedures in ensuring the trader's books were independently verified, and did not have adequate controls in place which could have detected the pricing issues.
This is the bank's second fine for systems and controls failings and the fourth largest levied by the FSA. In November 2007 Toronto Dominion was fined £490,000 when a fixed income trader, Simon Brignall, attributed false values to his trading positions and created fictitious trades to hide significant losses on his book.
Commenting on the fine, Margaret Cole, the FSA's director of enforcement and financial crime, said: "This is one of our largest fines and it underlines the seriousness with which the FSA views repeat offences. When we uncover failings in a firm we expect them to put it right immediately and to take special care to ensure it does not happen again. Toronto Dominion clearly failed to apply proper controls in this area despite its previous sanction and repeat offenders need to know that they will face severe consequences.
"It is important that firms trading in sophisticated and often illiquid financial products have robust controls in place, particularly in times of increased market volatility. Where a firm doesn't do this the FSA will take action."
Toronto Dominion cooperated fully with the FSA and agreed to settle at an early stage of the FSA's investigation. Without the discount the fine would have been £10m. Toronto Dominion's senior management commissioned a thorough review of the matter, as well as a wider review of its systems and controls framework and business strategies, in the wake of the case and the bank says it is committed to improving.
