On 17 December 2009, the FSA published the Final Notice it has issued to Toronto Dominion Bank (London Branch) (TD), fining it £7 million for breach of Principles 2 and 3 of the Principles for Businesses.
The FSA found that, between July 2006 and June 2008, TD suffered repeated, serious systems and controls failings relating to trading book pricing and marking within its credit products group (CPG). The failings were identified after an individual within the CPG was made redundant. His trading books, which contained credit default swap index and tranche positions, were passed to another trader who identified certain pricing issues. These issues gave rise to an announcement by TD on 4 July 2008 that a negative valuation adjustment of CAD$96 million had subsequently been made to the trader’s books.

The FSA found that TD failed to price certain positions held by the trader accurately, and failed to prevent or detect the pricing issues in a timely manner, as a result of its failure to:

1. Ensure a clear segregation of roles and responsibilities.

2. Use its existing systems and controls over the CPD, including its procedures to ensure trader’s books were independently verified.

3. Ensure back office staff had adequate product knowledge and experience.

4. Have adequate controls in place which could have detected the pricing issue earlier.

If TD had not agreed to settle at an early stage of the FSA’s investigation, it would have been fined £10 million.

This is the fourth largest fine that the FSA has levied. A key factor in the level of this fine is the FSA’s previous fine imposed on TD, in November 2007, for systems and controls failings relating to the pricing of financial products

Commenting on the fine, Margaret Cole, FSA 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. [TD] 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.”