FSA calls on banks to show 'proper control environment'

The Financial Services Authority (FSA) has announced that it will fine a US investment bank - and said that other financial firms must show proper controls of traders.

Morgan Stanley faces a sanction of £1.4 million for ’failings’ in its systems, which resulted in the bank making a £70 million negative adjustment last June.

The City watchdog said that the firm did not properly supervise the books of a trader who inaccurately priced certain illiquid assets - a practice known as ’mis-marking’.

Failures in both prevention and detection were therefore found in the FSA’s investigation.

Moreover, the mis-marking was found to be part of a deliberate strategy on the part of the trader, Matthew Piper, to cover up losses.

Margaret Cole, FSA director of enforcement, said: ’Market confidence is likely to be damaged by sudden and unexpected write downs and revaluations of securities.

’Firms must take care to ensure their traders operate within a proper control environment. Financial instruments must be priced correctly by traders, particularly in more challenging conditions and when it comes to illiquid products.’

Mr Piper faces a trading ban and a £105,000 fine for his actions.ADNFCR-2318-ID-19178803-ADNFCR