Toronto-Dominion Bank, which painstakingly avoided the subprime mortgage trouble that forced its peers to take massive subprime writedowns, said it was taking a $96-million hit on Friday after discovering that a London trader had deceived the bank about the value of securities he traded.

The bank will now join the ranks of its competitors pushed to review their risk controls in recent months.

Chief executive officer Ed Clark said TD has a strong culture of risk control and “we deeply regret this incident.” He has staked the bank's reputation on its ability to avoid exposure structured credit products that are too risky.

The writedown that TD revealed on Friday stems from a circumvention of controls, a spokesperson for the bank said. This is not an instance of complicated securities plunging in value, but of an individual mispricing the value of credit derivatives in which the bank trades openly.

“We will work aggressively to strengthen our controls,” the spokesperson said. “We are very disappointed, because we have a reputation for a very strong risk culture.”

The bank's examination indicates that the person was acting alone, she added.

Mike Peterson, managing editor of London-based Creditflux, an industry publication on structured credit, believes TD revealed the writedown Friday as a result of questions the publication put to the bank.

“We got a cryptic anonymous tipoff a few days ago, and a more specific anonymous tipoff at the beginning of our day today,” he said Friday.

Creditflux reported Friday that the book at the centre of the apparent mispricing is the structured credit element of TD's proprietary credit trading business.

TD would not identify the individual involved, citing individual privacy. In a brief statement Friday, the bank said it had “regrettably identified incorrectly priced financial instruments in its London office.” The office houses roughly 225 employees.

“This situation is associated with the activities of an individual who is no longer with the company,” the bank said.

TD spokeswoman Simone Philogène said the individual stopped working at TD as of June 23. When the bank was transferring the individual's responsibilities, it identified financial instruments that were priced incorrectly, she said.

The company has apprised the Financial Services Authority, which regulates financial services in Britain, and the Office of the Superintendent of Financial Institutions, which regulates Canadian banks.

“The bank is investigating the matter,” said Rod Giles, a spokesman for OSFI.

The financial instruments that were apparently mispriced are credit derivatives – a contract between two parties who agree to sell or buy credit risk. Specifically, the securities were investment grade indexes and index tranches, and prices should have been relatively easy to establish.

“We take this very seriously and will make every effort to ensure that this doesn't happen again,” Mr. Clark said.

Other banks have faced such a situation recently. Morgan Stanley suspended a London trader in June for overstating the value of credit securities on the books, forcing a $120-million (U.S.) writedown.

Last year, Bank of Montreal parted ways with a natural gas trader and his boss after discovering mispricing in its natural gas book, which cost the bank more than $800-million.