The Financial Services Authority (FSA), the City watchdog, has fined Nomura £1.75 million for “extremely serious” systems and controls failings in the Japanese bank’s equity derivatives business.

The failings concerned the way the details of equity derivatives trades were entered into Nomura's accounting systems.

The weakness was discovered after a Hong Kong-based trader mismarked the price of a derivative, leading Nomura to make a "negative valuation adjustment of £10.8 million". Nomura said the trader had been dismissed.

The FSA found that the weaknesses allowing trades to be mismarked lasted for five months in 2008 because of “fundamental and systemic control failings”. Although trades were executed globally, the equity derivatives desk was managed from London, where the accounting systems were based.

Nomura received a 30 per cent discount in return for settling the investigation early and agreeing not to appeal the penalty. The original fine was £2.5 million.

Margaret Cole, FSA director of enforcement, said: “Firms must ensure their systems and controls develop at the same rate their business operations grow; if this doesn’t happen – as in Nomura’s case – they run the risk of having systems that are inadequate for their business.

“Financial instruments must be valued correctly by traders and a firm’s systems and controls must be able to minimise the risk of traders mis-marking their positions. When a firm’s systems and controls fall short of required standards, we will not hesitate to take action.”

It said: “Nomura identified the mis-marking in June 2008 and took immediate action. We conducted a full review and kept the regulator fully informed. Our response was prompt and transparent, as recognised by the FSA, and we now consider the matter behind us”.

The FSA said Nomura had taken “disciplinary action” against other individuals involved.

The FSA has fined several financial institutions for having ineffective systems and controls in recent months.

This month UBS was fined £8 million for weak controls that allowed staff in its private bank to make thousands of unauthorised trades with clients’ money and then hide the losses. A former UBS banker was fined £35,000 for his role in helping cover up the trades.

In September, Barclays was fined £2.45 million for failing to report 57.5 million transactions correctly.

The watchdog has also banned a number of mortgage brokers for operating without appropriate systems and controls including Arthur Kirk, the head of Grosvenor Mortgage Advice Centre, based in Manchester.

The FSA's largest fines:

£17 million: Shell — for market abuse regarding reserves

£13.9 million: Citigroup — for weak controls

£7 million: Alliance & Leicester — for PPI sales failings

£6.4 million: Deutsche Bank — for inaccurate statements

£5.6 million: Credit Suisse — for weak controls

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