FSA has fined Morgan Stanley £1.4 million for systems and controls failures in relation to trader mis-marking. It found the procedures to deal with illiquid instruments, monitor a proprietary trader’s books and react to changing market conditions led it to make a negative adjustment of €120 million. The trader in question, Matthew Sebastian Piper, deliberately mis-marked positions and then tried to hide the losses over a six-month period. FSA banned him and fined him £105,000. FSA found Morgan Stanley had breached Principles 2 and 3. It was particularly critical because it had warned of the risks of illiquid products and told firms to commit proper resources to rogue trader risk. It found, though, that no one other than Mr Piper had experience of the products and those supposed to supervise him relied too much on flawed procedures. There was also confusion over who was supervising him. FSA also found flaws in other processes and evidence of Morgan Stanley ignoring complaints about Mr Piper’s reports. The fine was so high because FSA saw a high risk of damage to market confidence and a lengthy period of poor controls. However, Morgan Stanley identified the problems, made prompt reports and commissioned, and took costly action following, an independent report. Morgan Stanley discovered the mis-marking when it started an enhanced monitoring process and Mr Piper immediately admitted what he had done. Morgan Stanley suspended, then dismissed, him. Mr Piper claimed to have been under pressure to mis-mark but FSA found no evidence of this and, anyway, thought this would not be relevant.
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FSA fines Morgan Stanley and bans trader over mis-marking
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