FSA censures Kaupthing Singer and Friedlander Limited – The FSA has issued a public censure against Kaupthing Singer and Friedlander Limited (KSFL), the UK-based subsidiary of the Icelandic banking group Kaupthing Bank Hf (KBHf), for a breach of Principle 2 of the FSA’s Principles for Businesses. KSFL was found to be in breach as it failed to consider whether liquidity stresses in KBHf would have a detrimental effect on its own liquidity position.

KSFL, which was regulated by the FSA, was placed into administration on 8 October 2008, following which the FSA started an investigation into the conduct of KSFL and its senior management. The FSA concentrated on considering KSFL’s liquidity management in the context of its relationship with KBHf. KSFL had a special financial arrangement with its parent company in Iceland, under which it could draw up to £1 billion at short notice. KSFL assumed it could rely on receiving this £1 billion, if needed, without testing that assumption.

In addition, when it started to have concerns about this liquidity arrangement, it failed to discuss this with the FSA in a timely manner. The FSA expects regulated firms to comply with the FSA’s liquidity guidelines and, if compliance is dependent on liquidity arrangements with a parent company, firms should rigorously test the ability to exercise these arrangements rather than just assuming that this is the case.

Following the conclusion of the investigation, the former CEO, non-executive Chairman and non-executive director of KSFL have provided undertakings to the FSA that they will not perform any significant influence functions requiring the approval of the FSA at any UK-authorised firms for a period of five years. The FSA has not made any findings of regulatory breach against these individuals and they have not made any admissions.
Copies of KSFL’s final notice and related press release are available.

http://www.fsa.gov.uk/static/pubs/final/kaupthing-singer-friedlander.pdf

http://www.fsa.gov.uk/library/communication/pr/2012/068.shtml