THE FINANCIAL Regulator has issued the second largest fine in its six-year history as it reprimanded a Dublin subsidiary of US bank Merrill Lynch over two incidents in which a trader lost the bank $461 million (€307 million).
Merrill Lynch International Bank, which has registered offices at Treasury Buildings on Lower Grand Canal Street, was fined €2.75 million after traders in the bank’s London branch “failed to appropriately value their positions”, according to the regulator.
The first incident occurred between December 2008 and February 2009 leading to losses of $456 million at Merrill Lynch’s Dublin bank. The bank made further losses of $5.3 million in the second incident which occurred between May and August 2009.
The bank was reprimanded for failing to have “a well-defined and transparent line of supervisory responsibility” and for failing to supervise the trader’s activity.
The regulator said the bank also had “an inadequate month-end independent price verification process”.
The bank was also found during the first incident to have failed “to manage effectively market risk limits in respect of the trader’s activities”.
The investigation into the losses was led by the regulator in Dublin, given that the London branch came under the control of an Irish subsidiary of Merrill Lynch.
The UK regulator, the Financial Services Authority, and the US authorities, were also involved in the investigation. The trader was suspended earlier this year after incurring the losses on foreign exchange trading.
At the time the trader’s losses emerged publicly last March, the bank said that it had discovered an irregularity when evaluating certain trading positions.
The trader’s losses, when they came to light, were said to have so alarmed management at Bank of America that they examined the books of other traders who were on holiday, according to reports.
The losses were brought to the attention of the Irish regulator on February 18th last. Under international regulatory rules, the Dublin-based regulator had responsibility for the investigation as the trader worked for an Irish-registered company.
The regulator said yesterday that Merrill Lynch notified the Irish regulator on each of the incidents, commissioned full investigations and subsequently submitted detailed reports to the regulator.
“Merrill Lynch International Bank Limited has fully co-operated with the Financial Regulator and has been open and transparent throughout the examination,” said the regulator.
The bank has “taken complete remedial action to fully rectify the breaches”, the regulator said.
Merrill Lynch International Bank is owned by Bank of America, which bought the Wall Street investment bank at the height of the global financial crisis with the assistance of the US government.
The fine is the 20th settlement reached by the regulator and brings the total value of fines issued to more than €7 million.
The biggest penalty was handed out to Quinn Insurance which was fined €3.25 million last year over the company’s failure to notify the regulator of a €288 million loan to fund an investment by the Quinn family in Anglo Irish Bank.
Seán Quinn, the chairman of the insurance company, was personally fined €200,000 by the regulator over the incident and he subsequently resigned from the board of the company.
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