LONDON, Aug 13 (Reuters) - Britain's financial services regulator has fined the UK arm of Credit Suisse 5.6 million pounds ($10.7 million) over the pricing of asset-backed securities held within its investment banking division.

Credit Suisse announced on Feb. 19, just days after posting full-year results, that it had identified mismarking and pricing errors and was repricing some asset-backed securities, resulting in a $2.65 billion writedown.

"The subsidiaries here failed to take appropriate steps to control the potentially high-risk combination in the structured credit group's holdings of exotic products, opaque valuations and high leverage," said Margaret Cole, director of enforcement at the Financial Services Authority (FSA).

"The sudden and unexpected announcement of the writedown had the potential to undermine market confidence."

The fine is the fourth-largest ever levied by the FSA, after penalties for Shell, Citigroup and Deutsche Bank.

"This incident was unacceptable to me and the executive board," Credit Suisse CEO Brady Dougan said in a statement.

"Our overall control framework remains sound and we have taken actions to implement a remediation programme to address the findings of our internal review."

The FSA said the subsidiaries, or the banks's UK operations, did not have "adequate systems and controls" in place and failed to recognise for about five months that some of the asset-backed positions in the structured credit group were wrongly valued.

They also failed to act in a timely way on the concerns they had identified, the watchdog added.

Credit Suisse cooperated fully with the FSA and agreed to settle at an early stage of the watchdog's investigation, qualifying for a discount on the fine, the FSA said.

Credit Suisse, then Credit Suisse First Boston, was hit with a 4 million pound fine in 2002 for attempting to mislead the Japanese regulatory and tax authorities. At the time, this was the highest fine ever imposed by a UK financial regulator.

When the bank disclosed the pricing errors in February, it suspended the traders involved and said it appeared the traders had been slow to adjust the value of their trading portfolios to fast-moving developments in markets.