In this Sidley Update, we review actions taken by the UK Financial Conduct Authority (FCA) with respect to market abuse and financial crime in 2022 (up to 20 December 2022). The FCA imposed 25 fines in total this year, with 11 of them for market abuse and financial crime failures, demonstrating the FCA’s focus on the space. The breaches pre-date 2018 and in one case go back as far as 2008, reflecting that the FCA is equally focussed on historic breaches as well as current issues. We summarise those 11 fines below, based on the Final Notices or Decision Notices published by the FCA.
Reason: Having become aware in December 2012 of significant issues with its anti-money-laundering (AML) framework, Santander UK Plc (Santander) made various changes to its AML operating model and processes with respect to its business customers with an anticipated turnover of less than £250,000 (Business Banking customers). While these changes resulted in some improvements, there were continued weaknesses in its AML framework. Santander’s failure to address these weaknesses in a sufficiently comprehensive and timely manner led to significant shortcomings in the operational AML controls applied to Business Banking customers. This, in turn, led to an unacceptable risk of money laundering by its Business Banking customers going undetected and unaddressed.
The FCA’s Final Notice refers to breaches of Principle 3 of the FCA’s Principles for Businesses, that a firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems (PRIN 3). In this case, Santander failed to adequately manage and control the risk of financial crime in the Retail Banking sector.
Reason: BGC Brokers LP, GFI Securities Limited, and GFI Brokers Limited (together, BGC/GFI) are inter-dealer brokers specialising in broking exchange listed and over-the-counter financial products and related derivative products. Between July 2016 and January 2018, BGC/GFI failed to properly implement the trade surveillance requirements under the EU Market Abuse Regulation (Regulation (EU) No 596/2014) (MAR). This meant there was an increased risk that potentially suspicious trading would go undetected.
Specifically, BGC/GFI had manual, automatic, and communications surveillance processes that were deficient, and therefore inadequate, in properly addressing the risk of market abuse. Additionally, BGC/GFI’s systems for monitoring market abuse did not have proper coverage of all asset classes that are subject to MAR.
The FCA’s Final Notice notes that firms that arrange or execute transactions in financial instruments are required by Article 16(2) of MAR to establish and maintain effective arrangements, systems, and procedures to detect and report potential market abuse. These failings meant that BGC/GFI breached Article 16(2) of MAR and PRIN 3.
Reason: Between 2008 and late 2014, the core business of Sigma Broking Limited (Sigma) was offering its customers futures and options trading. In December 2014, Sigma expanded its business to include, amongst other products, contracts for difference (CFDs) and spread-bets referenced to the share price of listed companies by recruiting several brokers and establishing a desk that provided these products to its customers.
Despite being aware of the significant change to the risk profile of its business, Sigma did not perform an adequate risk assessment or engage in any other meaningful preparations to ensure its compliance with the requisite regulatory standards prior to expanding its business into these new areas. Sigma’s board also failed to establish, oversee, and resource an effective compliance function, and failed to identify and address serious and systemic failures in relation to Sigma’s market abuse systems and controls and transaction reporting obligations, in respect of its CFD desk.
The FCA’s Final Notice refers to breaches of the FCA’s Supervision Manual (SUP) 17, SUP 15, PRIN 3, and Article 16 of MAR related to market abuse and transaction reporting failures in the trading firm sector.
See also items 4–6 below on the FCA fines and bans applied on Sigma’s directors.
4. Matthew Kent
Reason: Between 1 December 2014 and 12 August 2016, Kent performed the CF1 (Director) significant influence function at Sigma. Many of Sigma’s PRIN 3 failings had their origins in the wholly inadequate governance and oversight provided by Sigma’s governing body, namely its board, of which Kent was an important part.
The FCA’s Final Notice refers to breaches of the FCA’s Statement of Principle and Code of Conduct (APER) 7 related to the failure to ensure compliance with PRIN 3 in the Trading Firm sector, which led to further breaches of SUP 17, SUP 15, and Article 16 of MAR.
Reason: Between 1 December 2014 and 12 August 2016, Tomlin performed the CF1 (Director) and CF10 (Compliance oversight) significant influence functions at Sigma. Many of Sigma’s PRIN 3 failings had their origins in the wholly inadequate governance and oversight provided by Sigma’s governing body, namely its board, of which Tomlin was an important part.
The FCA’s Final Notice refers to breaches of APER 7 and APER 6 related to the failure to ensure compliance oversight and compliance with PRIN 3 in the trading firm sector, which led to further breaches of SUP 17, SUP 15, and Article 16 of MAR.
6. Simon Tyson
Reason: Between 1 December 2014 and 12 August 2016, Tyson performed the CF1 (Director), CF3 (Chief executive), and CF11 (money laundering reporting) significant influence functions at Sigma. Many of Sigma’s PRIN 3 failings had their origins in the wholly inadequate governance and oversight provided by Sigma’s governing body, namely its board, which was led by Tyson as its Chief Executive.
The FCA’s Final Notice refers to breaches of APER 7 related to the failure to ensure compliance with PRIN 3 in the trading firm sector, which led to further breaches of SUP 17, SUP 15, and Article 16 of MAR.
Reason: As Citigroup’s international broker-dealer, Citigroup Global Markets Limited (CGML) professionally arranges and executes transactions and is therefore subject to the requirements of Article 16(2) of MAR, which requires such firms to establish and maintain effective arrangements, systems, and procedures to detect and report suspicious orders and transactions (known as STORs).
During the period between 2 November 2015 and 18 January 2018, CGML failed to conduct its business with due skill, care, and diligence in relation to its implementation of the STORs requirements. Namely, until January 2018, CGML failed to identify significant gaps in its arrangements, systems, and procedures for trade surveillance for the purposes of compliance with Article 16(2) of MAR.
The FCA’s Final Notice refers to breaches of Principle 2 of the FCA’s Principles for Businesses, that a firm must conduct its business with due skill, care, and diligence (PRIN 2) and Article 16(2) of MAR relating to market protection and wholesale conduct in the investment banking and trading firm sector.
Reason: Sir Christopher Gent was appointed as the non-executive Chairman of ConvaTec Group Plc, a company admitted to the premium listing segment of the Official List and trading on the London Stock Exchange’s main market, in October 2016.
On 10 October 2018, Sir Christopher, in his capacity as Chairman, disclosed inside information concerning an expected regulatory news service announcement relating to the revision of ConvaTec’s financial guidance and the retirement of ConvaTec’s CEO, other than in the normal exercise of his employment, profession, or duties. The disclosures were made to a senior individual at one of ConvaTec’s major shareholders, then shortly afterwards to a senior individual at another of ConvaTec’s major shareholders.
The FCA considered that Sir Christopher’s actions amounted to (i) unlawful disclosure of inside information under Article 10 of MAR and (ii) a breach of Article 14(c) of MAR and that Sir Christopher therefore committed market abuse.
Reason: Between 29 January 2014 and 25 November 2015, the TJM Partnership Limited (TJM):
- breached PRIN 3 as it had inadequate systems and controls to identify and mitigate the risk of being used to facilitate fraudulent trading and money laundering in relation to business introduced by four FCA-authorised entities (the Solo Group) and
- breached PRIN 2 as it did not exercise due skill, care, and diligence in applying its AML policies and procedures and in failing to properly assess, monitor, and mitigate the risk of its being used to facilitate financial crime.
Specifically, the FCA found that TJM did not have adequate policies and procedures in place to properly assess the risks of the Solo Group business and failed to appreciate the risks involved in the Solo Group’s trading activities. This resulted in TJM’s conducting inadequate customer due diligence, failing to adequately monitor transactions, and failing to identify unusual transactions. This heightened the risk that TJM could be used for the purposes of facilitating financial crime in relation to the Solo Group’s trades.
Additionally, TJM failed to notice a series of red flags in relation to two sets of trades in German equities it executed on behalf of the Solo Group, on 30 June 2014 and 23 October 2014, which had no apparent economic purpose except to transfer funds from a private entity owned by the owner of the Solo Group to his business associates.
On 4 November 2015, TJM also agreed to a debt factoring offer from a UAE-based entity connected to the Solo Group called Elysium Global (Dubai) Limited (Elysium) to purchase outstanding debts owed to TJM by the Solo Group. TJM accepted a payment of USD117,960 from Elysium without having heard of that entity and despite having no written agreement in place.
The FCA’s Final Notice refers to breaches of PRIN 2 and PRIN 3 related to the risk of financial crime in the trading firm sector.
Reason: Ghana International Bank Plc (GIB) breached Regulations 14(1), 14(3), and 20(1) of the Money Laundering Regulations 2007 (MLRs) by failing to:
- establish and maintain appropriate and risk-sensitive policies and procedures;
- conduct adequate enhanced due diligence when establishing new business relationships; and
- conduct adequate enhanced ongoing monitoring.
Specifically, GIB did not recognise its correspondent banking business as a separate business line or product area from 1 January 2012 to 31 December 2016. Instead, GIB included revenue from this business within its other business lines; GIB did not appropriately include correspondent banking business in any of its departmental-specific policies or procedures. Consequently, staff seeking practical instruction on how to onboard and monitor respondents needed to review several fragmented, confusing, and overlapping policies, manuals, frameworks, and forms where correspondent banking was either insufficiently considered or not at all.
The FCA’s Decision Notice refers to breaches of the MLRs related to financial crime in the corporate banks sector.
Reason: JLT Specialty Limited (JLTSL) provided insurance broking, risk management, and insurance claims and services across a wide range of business sectors to national and international corporate clients. The FCA decided to take action against JLTSL for breaches of PRIN 3 that occurred between 21 November 2013 and 6 June 2017 in relation to failures to take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems to counter the risk that it might be used to further financial crime.
The FCA had fined JLTSL in December 2013 for breaches of PRIN 3. That initial fine was imposed after the FCA found that between 19 February 2009 and 9 May 2012, JLTSL failed to take reasonable care to organise and control its affairs responsibly and effectively with adequate risk management systems for countering the risks of bribery and corruption associated with making payments to overseas third parties (Overseas Introducers) that helped JLTSL win and retain business from overseas clients.
In 2022, the FCA found that JLTSL had again breached PRIN 3. On this occasion, JLTSL’s failure allowed another JLTSL entity to engage in bribery. Namely, JLTSL failed to consider whether additional safeguards or approval should be introduced into JLTSL’s third-party processes with respect to Overseas Introducers engaged by another JLTSL entity where JLTSL subsequently placed the introduced business into the London market. Despite the heightened bribery and corruption risk posed by Overseas Introducers to JLTSL, the processes did not incorporate the appropriate approvals.
The FCA’s Final Notice refers to breaches of PRIN 3 related to anti-bribery and corruption and financial crime in the general insurance and protection sector.
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