Stretched back offices win reprieve as FSA warns banks on staff cuts

Stretched back offices win reprieve as FSA warns banks on staff cuts

The Financial Services Authority has warned UK investment banks to improve their risk pricing procedures and stop firing middle and back office staff involved in crucial valuation control functions.

The stiff warning to investment bank CEOs was sent on the day the FSA fined Credit Suisse £5.6 million for failing to prevent front office staff from deliberately mis-pricing trading positions.

The letter from FSA chief Hector Sants was published on the watchdog's Website late last week. It follows a 12-month review of bank risk management practices which concluded that "firms' valuation processes and controls have become increasingly stretched and in some cases have proven to be materially flawed or inadequate."

"In addition, in the current period of increased cost control, we have observed a tendency for firms to look to cut costs not just in front ofdice functions, but in middle and back office functions too," the letter continues. ""We recommend that you consider carefully any headcount reduction exercises that will affect valuation control functions at this sensitive time."

Sants says the FSA will carry out a series of visits to bank offices over the next twelve months to evaluate progress and review in more detail the controls that have been put in place.

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