The FSA has fined Toronto Dominion Bank (London Branch) £7m for systems and controls breaches in relation to the pricing of certain sophisticated and often illiquid derivative products by a proprietary trader. Amongst other things, the FSA highlighted a lack of clear segregation of duties and a failure to escalate issues which may have led to earlier detection of the pricing issues. Following their discovery, the bank made a negative adjustment of CAD$96 million to the trader's books. The FSA based their findings on a review prepared by external lawyers. Their findings included that the back office function responsible for the monthly IPV process had accepted dealer quotes provided by the trader at face value, which subsequently transpired to have been manipulated, and there had been insufficient challenge of the trader’s explanation that certain of the quotes could only be obtained by the trader himself. The problem was identified after the trader had left the bank due to redundancy and his books were passed to another trader. The FSA attributed the level of the fine to the fact this was the second systems and controls fine levied against the bank, following enforcement action against the bank and Simon Brignall in 2007.
In mitigation, the FSA noted that since becoming aware of the problem, the bank had treated the matter extremely seriously, directly involving both the Chairman and the Risk Committee of the Board of Directors of the group in addition to TD Securities’ executive management in Toronto. Further, it was noted that: the bank had informed the FSA and promptly ensured public disclosure when it became aware of the pricing issues; had been open and co-operative throughout the investigation; commissioned a thorough review by external lawyers which was shared with the FSA; taken disciplinary action in respect of certain individuals; is pursuing a legal case against the former trader; commissioned an extensive review by external consultants in respect of its systems and controls framework in London and, following a complete review of business strategies, decided to exit the credit trading business in London (Toronto Dominion Bank (London Branch)), press release dated 17 December 2009).