The following posts provide a snapshot of the principal U.S., European and global financial regulatory developments of interest to banks, investment firms, broker-dealers, market infrastructures, asset managers and corporates.
UK Government Launches Independent Review Into the Prudential Supervision of the Co-operative Bank
HM Treasury has directed the Prudential Regulation Authority to conduct an independent investigation into the prudential regulation of the Co-operative Bank plc during the period 2008 to 2013. HM Treasury is empowered to require the Financial Conduct Authority or PRA to undertake investigations where it considers that such an investigation is in the public interest and the relevant regulator has not launched an investigation on its own initiative. The investigation will consider the actions, policies and approach of the Financial Services Authority and one of the successors to its functions, the PRA, during their respective periods in charge of prudential supervision, including the withdrawal by the Co-operative Bank from the bidding process to purchase bank branches from Lloyds Banking Group (known as Project Verde).
UK Financial Conduct Authority Fines and Bans Former Trader for LIBOR Manipulation
A former trader at a major financial institution has received a £180,000 fine and been banned by the U.K. FCA from performing functions relating to regulated financial activity. This follows on from the FCA’s £226.8 million fine against the institution in 2015 for its breach, in relation to LIBOR, of Principle 5 of the FCA Handbook, namely that “A firm must observe proper standards of market conduct.”
The employee, who worked as a short-term interest rate derivatives trader, acted as the primary JPY LIBOR submitter for the institution. Between 25 July 2008 and 11 March 2010, the FCA found that the employee acted improperly and was knowingly concerned in the institution’s breach of Principle 5 through:
1. Making requests to the institution’s CHF LIBOR submitters, in an attempt to influence their LIBOR submissions;
2. Taking into account trading positions when making his own submissions for JPY LIBOR; and
3. Improperly agreeing with an external trader at another financial institution to make certain JPY LIBOR submissions at the request of the external trader.
UK Jury Returns Guilty Verdict in First Contested Failure to Prevent Bribery case
The Crown Prosecution Service has confirmed that a refurbishment company, Skansen Interiors Limited, has been found guilty of failure to prevent bribery under section 7 of the Bribery Act 2010.
This is the first contested case under section 7 of the Bribery Act, which criminalizes commercial organizations for failure to prevent bribery by persons associated with them. A defence to this offence is available if a company can show that it has adequate procedures to prevent bribery and Skansen unsuccessfully argued that it had such controls in place.
The CPS alleged that Skansen's managing director at the time bribed a project manager at a real estate company to award refurbishment contracts worth £6m to Skansen.
In its defence, the company argued that it was a small business of around 30 people operating in a single location out of an open-plan office, and therefore did not need sophisticated controls for its procedures to constitute “adequate” ones under the Act. There were checks and balances in place relating to the payment of invoices. It also argued that the company ethos was for everyone to act honestly and ethically, with a number of policies referencing the need for employees to act in an open and honest manner.
US Department of Justice and Federal Financial Regulators Allege AML Failures at Large US Financial Institution and Its National Bank Subsidiary02/15/2018
The U.S. Department of Justice entered into a deferred prosecution agreement with a large U.S. financial institution, which includes a $528 million forfeiture, alleging that the institution’s national bank subsidiary willfully failed to maintain an adequate anti-money laundering program in violation of U.S. laws and regulations. In a related action, the U.S. Board of Governors of the Federal Reserve System issued a cease-and-desist order against the institution, alleging that the institution lacked adequate risk management and compliance policies and procedures to ensure compliance with certain anti-money laundering requirements. The order requires the institution to submit to its respective Federal Reserve Bank a written plan to strengthen the board of directors’ oversight of the institution’s firm-wide anti-money laundering risk management and compliance program within 60 days of the order, to submit revised policies and procedures within 30 days of the order and that a subsidiary of the institution submit a written enhanced customer due diligence program within 60 days of the order. All submissions must be acceptable to the institution’s Federal Reserve Bank. In addition, the order imposes a $15 million civil money penalty. The Federal Reserve Board press release accompanying the order further noted that the U.S. Office of the Comptroller of the Currency and U.S. Financial Crimes Enforcement Network had also announced monetary penalties against the institution’s national bank subsidiary.
US Commodity Futures Trading Commission Fines Investment Bank for Attempted Manipulation of Benchmark Swaps Rate
The US Commodity Futures Trading Commission has issued an order settling charges against the US investment arm of an international bank for attempted manipulation of the US dollar International Swaps and Derivatives Association Fix (USD ISDAFIX), a global benchmark that indicates the prevailing mid-market rate for the fixed leg of a standard fixed-for-floating interest rate swap.
The order alleges that from at least January 2007 through May 2012, the firm attempted to manipulate the USD ISDAFIX by bidding, offering and executing transactions in targeted interest rate products near the time of the benchmark's daily publication in order to influence the final published rate and improve the firm's positions. The order also alleges that certain employees of the firm who were responsible for making USD ISDAFIX submissions attempted to manipulate the published rate by submitting rates that were false and misleading in order to move the USD ISDAFIX to a more desirable level that would benefit the firm's positions.
The firm agreed to a $70 million fine to settle the charges. In the order, the CFTC recognized the firm’s cooperation with the investigation and remedial actions taken by the firm to strengthen internal controls and policies relating to all benchmarks, including the USD ISDAFIX.
View the CFTC's press release.
US DOJ, Commodity Futures Trading Commission Charge Three Banks and Multiple Individuals in Spoofing Schemes
The US Department of Justice and Commodity Futures Trading Commission announced enforcement actions against three banks and multiple individuals involved in alleged commodities fraud and spoofing schemes.
Each of the banks settled civil CFTC charges relating to manipulation of the price of precious metals futures contracts traded on the Commodity Exchange, Inc. through spoofing techniques (including placing an order with the intent to cancel before execution), and by trading in a manner designed to trigger customer stop-loss orders. The three banks were each ordered to pay a civil monetary penalty, which ranged from $1.6 million to $30 million. According to the orders, all three banks cooperated throughout their respective investigations. Additionally, the DOJ and CFTC announced criminal and civil charges against various individuals. These individuals allegedly engaged in various spoofing and manipulative and deceptive schemes in various precious metals and other futures markets. In its continuing litigation, the CFTC is seeking a range of civil monetary penalties, disgorgement, and permanent injunctions against further violations of the Commodity Exchange Act and CFTC regulations, along with trading and registration bans for several of the individuals.
View the DOJ's press release.
View the CFTC's press release.
Department of Justice Issues Letter Limiting Use of Agency Guidance in Civil Enforcement Actions
US Associate Attorney General Rachel Brand issued a letter regarding the use of agency guidance, defined in the memo as “any agency statement of general applicability and future effect. . .that is designed to advise parties outside of the federal Executive Branch about legal rights and obligations,” as a tool for civil enforcement actions. In the letter, Ms. Brand references a November 16, 2017 memo from US Attorney General Jeff Sessions entitled “Prohibition of Improper Guidance Documents.” The letter from Ms. Brand reiterates that guidance documents may not be used to circumvent the notice-and-comment rulemaking process. The letter also highlights that Department of Justice personnel are prohibited from using agency guidance documents as a means to require that regulated entities take or refrain from any action not otherwise mandated by law or regulation, and that non-compliance with agency guidance should not in and of itself result in an enforcement action. The letter notes that while agency guidance may be used for other purposes, such as showing that the financial institution had knowledge regarding its obligations under law or regulation, DOJ personnel should not use non-compliance with agency guidance as presumptive or conclusive evidence that a financial entity violated the underlying law or regulation.
View full text of DOJ letter.
US Commodity Futures Trading Commission Charges My Big Coin Pay, Inc. and Its Founders with Fraud and Misappropriation of Customer Funds in Virtual Currency Scheme
The Commodity Futures Trading Commission has announced the filing of an enforcement action charging Nevada-based firm My Big Coin Pay, Inc. and its founders with operating a scheme through which they fraudulently offered the sale of a virtual currency, known as “My Big Coin.” This enforcement action follows two CFTC enforcement actions against other fraudulent virtual currency schemes within the preceding week.
The My Big Coin Pay, Inc. complaint alleges that from January, 2014 to January, 2018, the defendants fraudulently solicited more than $6 million from customers throughout the United States by making false and misleading claims that My Big Coin was actively being traded, was backed by gold and could be used anywhere MasterCard credit cards were accepted. The defendants also allegedly misrepresented My Big Coin's daily trading price in reports on its website, when no daily trading price existed because My Big Coin was not actively being traded. Additionally, the complaint alleges that any payouts customers did receive were a result of a Ponzi scheme in which My Big Coin Pay, Inc. used funds from other customers to pay off previous investors.
Federal Reserve Board Adjusts Maximum Civil Money Penalties
01/10/2018The US Board of Governors of the Federal Reserve System announced a final rule adjusting the maximum amount of its civil money penalties. This adjustment is made to account for inflation, and is required by the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015. The announcement contains a table reflecting each adjusted civil money penalty, organized by statute. The adjusted civil money penalties took effect on January 10, 2018.
View text of the final rule.
UK Conduct Regulator Bans RBS Trader for Manipulation of Japanese Yen LIBOR
The Financial Conduct Authority published a Final Notice in relation to Neil Danziger, a former RBS interest rate derivatives trader, in connection with his involvement in the manipulation of Japanese Yen LIBOR. The FCA imposed a financial penalty of £250,000 on Mr Danziger and prohibited him from performing any function in relation to any regulated financial activity.
The FCA found that Mr Danziger was knowingly concerned in a breach of Principle 5, which requires firms to "observe proper standards of market conduct." In particular, when acting as a Substitute Submitter for JPY LIBOR from time to time, Mr Danziger improperly took into account the requests of other traders and trading positions for which he and other traders were responsible. At other times, he made requests to Primary Submitters in an attempt to influence RBS's LIBOR submissions. Mr Danziger had also recklessly engaged in wash trades with the purpose of paying brokerage to brokers for no legitimate commercial reason.
This is the latest in a series of FCA actions against individuals involved in the LIBOR scandal. In addition, five people have so far received criminal convictions for their parts in LIBOR manipulation in the UK. Investigations into alleged LIBOR manipulation continue.
View the FCA Final Notice.
Two Charged By UK SFO As Unaoil Bribery Investigation Deepens
The UK Serious Fraud Office has charged two individuals in relation to the SFO's ongoing bribery investigation into Unaoil.
Ziad Akle (Unaoil's former territory manager for Iraq) and Basil al-Jarah (Unaoil's former business partner in Iraq) have both been charged with conspiracy to make corrupt payments, contrary to the Criminal Law Act 1977 and the Prevention of Corruption Act 1906. It is alleged that the payments were made between June 2005 and August 2011 in order for Unaoil's client, SBM Offshore, to secure various contracts in Iraq.
A third individual, Saman Ahsani, is currently subject to an extradition request to Monaco on related charges.
The SFO launched its investigation into Unaoil in March 2016 following a series of reports (which were published in the Australian media) alleging corrupt behavior by a number of international corporations seeking to secure business in the Middle East. The SFO is investigating Unaoil, its officers, employees and agents in respect of various alleged offenses of bribery, corruption and money laundering.
Mr. Akle and Mr. al-Jarah will appear before Westminster Magistrate's Court on December 7, 2017.
View the SFO press release.
Bank of England Consults on Procedures for Decision Making in Contested Enforcement Cases
Following positive feedback to its consultation in 2016 on the establishment of an Enforcement Decision Making Committee, the Bank of England has published a consultation on the detailed statement of procedure and the necessary revisions to existing policies and procedures that will be required to implement the proposals. The EDMC is being established as a direct response to a recommendation from HM Treasury arising from its review of enforcement decision-making at the UK regulators. HM Treasury had recommended the establishment of a functionally-independent decision-making committee composed of independent members with expertise suited to the Prudential Regulation Authority's regulatory focus. Once established, the EDMC will be the BoE's decision-making body in contested enforcement cases that relate to prudential regulation, financial market infrastructure and resolution. It will ensure the necessary functional separation between the BoE's investigation teams and decision-makers. The consultation paper sets out detailed proposals on the EDMC's remit and operation and the selection, appointment, remuneration and governance of EDMC members.
Comments on the consultation are requested by February 2, 2018.
View the BoE Consultation Paper.
UK Financial Conduct Authority Decision to Ban Ex-Libor Trader Hayes Delayed Pending Criminal Review
The Financial Conduct Authority has announced that it has decided to prohibit former trader Tom Hayes from performing any function relating to any regulated activity in the financial services industry. The FCA stated that Mr. Hayes&' conviction showed a lack of honesty and integrity on Mr. Hayes' part such that he is not a fit and proper person to perform functions relating to regulated activities. Mr. Hayes was the first person in the world to be found guilty for Libor rigging. He is currently serving an 11-year sentence following his August 2015 conviction on eight counts of conspiracy to defraud in relation to his manipulation of Yen LIBOR.
The FCA's decision to ban Mr. Hayes will not take effect immediately. Mr. Hayes referred the matter to the Upper Tribunal and it has ruled that the FCA proceedings are stayed pending the decision of the Criminal Cases Review Commission on whether to refer Mr. Hayes' criminal conviction to the Court of Appeal. The Commission's decision is due in January 2018.
This is the first instance of a successful application for a stay of FCA prohibition proceedings where the individual in question has already been convicted. The Upper Tribunal's ruling permits the FCA to publish only specified sections of its Decision Notice, since Judge Timothy Herrington accepted Mr. Hayes' concerns about the risk of adverse publicity and prejudice if certain provisions of the Notice were published. The FCA has not yet published the permitted sections of the Decision Notice.
View the FCA's Announcement.
View the Upper Tribunal Decision.
UK Regulator Secures £350,000 Confiscation Order Against Convicted Insider Dealer
The Financial Conduct Authority has secured a £350,000 confiscation order against Damian Clarke, a former Schroders employee who was convicted of nine counts of insider dealing in June 2016. Over a nine year period between October 2003 and November 2012, Mr Clarke had received inside information relating to significant corporate events such as M&A announcements while employed as an assistant fund manager and later as an equities trader. Mr Clarke used this inside information to place trades using accounts in his own name and in the names of family members.
View FCA Press Release.
UK Financial Conduct Authority Takes Action Against Two Individuals for Market Abuse
The Financial Conduct Authority has banned and fined two individuals for market abuse. Mr. Niall O'Kelly and Mr. Lukhvir Thind were Chief Executive Officer and Financial Controller, respectively, at Worldspreads Limited during the relevant time. The FCA found that both individuals had deliberately and repeatedly disseminated false and misleading information relating to Worldspreads Limited, a publicly listed company, in contravention of the Financial Services and Markets Act 2000.
UK Regulator Fines Former Investment Banker for Communicating Confidential Information Via WhatsApp
The Financial Conduct Authority fined former investment banker Christopher Niehaus £37,198 for sharing client confidential information over WhatsApp. Mr. Niehaus was previously a managing director in the Investment Banking division at Jefferies International Limited. In this position, and on a number of occasions between January 24 and May 16, 2016, Mr. Niehaus shared confidential information with a personal acquaintance, who was also a client of the firm. The information related to a competitor. Mr. Niehaus shared the information via the instant messaging platform, WhatsApp. The information shared included the identity of the client, details relating to the client mandate and the fee Jefferies would charge for their involvement in the transaction. In exchanging such information the FCA found that Mr. Niehaus had failed to act with due skill, care and diligence and was therefore in breach of the Statements of Principles and Code of Practice for Approved Persons. The FCA reduced the financial penalty imposed by 15% following Mr. Niehaus' full admission in an early interview. Mr. Niehaus qualified for an additional 30% discount by agreeing to settle at an early stage of the investigation.
View the press release.
View the FCA's final notice.
UK Regulator Takes Enforcement Action Against Firms for Failing to be Open and Cooperative
The Prudential Regulation Authority fined The Bank of Tokyo Mitsubishi UFJ Ltd and MUFG Securities EMEA plc for failing to be open and cooperative with the PRA about an enforcement action into BTMU by the New York Department of Financial Services. The DFS had investigated BTMU regarding possible breaches of US sanctions laws about which a settlement was reached in 2014. BTMU was fined by the PRA for breaching Fundamental Rules 6 and 7 of the PRA Rulebook in that it failed to communicate relevant information about its settlement with the DFS which meant that the UK regulatory implications were not adequately considered and that its reporting responsibilities to the PRA could not be met. BTMU also failed to inform the PRA of relevant information relating to the DFS matter. MUS was fined for breaching Fundamental Rule 7 because it failed to inform the PRA of the potential implications of the DFS matter for a senior MUS individual, which meant that the PRA could not consider whether the circumstances did or might impact that individual's fitness and propriety. BTMU and MUS were was fined £17,850,000 and £8,925,000 respectively, both figures incorporating a 30% discount, pursuant to the PRA Settlement Policy, which the firms qualified for because they agreed to settle at an early stage of the PRA's investigation.
View the PRA's final notice.
View the DFS consent order.
UK Regulators Finalize Changes to Enhance Their Enforcement Decision-Making Processes
The Financial Conduct Authority and Prudential Regulation Authority published a joint Policy Statement on changes to their enforcement decision-making processes. The changes are in response to the recommendations set out in HM Treasury's Review of enforcement decision-making at the financial services regulators (known as the Enforcement Review), published in December 2014, and the report by Andrew Green QC in the enforcement actions following the failure of HBOS (known as the Green Report), published in November 2015. The Enforcement Review and the Green Report made three overlapping recommendations about the regulators' decision-making processes covering pre-referral decision-making, communication and cooperation between and within the regulators and informing the subject of an investigation about the matters under investigation.
UK Regulator Fines Major Bank for AML Control Failings Related to Mirror Trading
The Financial Conduct Authority published a final notice issued to a major bank and fined it £163 million for failing to maintain an adequate anti-money laundering control framework between January 1, 2012 and December 31, 2015.The bank notified the FCA in early 2015 of concerns about its AML control framework after the bank had begun an investigation into suspicious securities trading, known as "mirror trading". The orders for both sides of the mirror trades were received and executed by the bank's Moscow office. The Moscow office executed the trades on behalf of the bank via remote booking by directly booking trades to the bank's trading books in the UK. The FCA's investigation revealed that the mirror trading was able to be executed by the bank's Moscow office because of the widespread deficiencies in the bank's AML control framework, in particular, the bank performed inadequate customer due diligence, failed to ensure that its front office took responsibility for it's Know Your Customer obligations, used flawed customer and country risk rating methodologies, had deficient AML policies and procedures, had an inadequate AML IT infrastructure, lacked automated AML systems for detecting suspicious trades and failed to provide adequate oversight of trades booked in the UK by traders in non-UK jurisdictions.
European Securities and Markets Authority Requests a Review of its Sanctioning Powers Under the European Market Infrastructure Regulation
The European Securities and Markets Authority published an open letter to the European Commission asking it to consider several issues relating to its supervisory and sanctioning powers under the European Market Infrastructure Regulation and emphasizing similar aspects relating to Credit Rating Agencies. The letter follows the Commission's Report, published on November 23, 2016, assessing the issues arising from the implementation of the requirements of EMIR in which the Commission proposed a legislative review of EMIR in 2017. ESMA submitted four reports to the Commission in 2015 on the functioning of EMIR which included recommendations on how EMIR could be enhanced. The letter highlights the areas in those reports that ESMA considers the Commission should consider as part of the EMIR review this year.
HSBC to Provide Voluntary Redress for Historical Debt Collection Practices
The Financial Conduct Authority announced that HSBC Bank Plc has voluntarily agreed to set up a redress scheme of approximately £4m for customers who suffered detriment by paying unreasonable debt collection charges imposed by HFC Bank Ltd and John Lewis Financial Services Ltd. HSBC now owns both HFC and JLFS. Customers of HFC and JLFS who, between 2003 and 2009, fell into arrears were referred to the firms’ nominated solicitors. The solicitors added a “debt collection charge” of 16.4% of the customer’s balance to each customer’s account. The charge was identified by the Office of Fair Trading in 2010 as unreasonable as it did not reflect the actual costs of collecting the debt and the OFT in November 2010 formally ordered HFC to stop adding the collection charge until it varied or introduced new terms into its agreements with customers to reflect the charge. JLFS was not within the scope of the OFT’s review. In practice, JLFS and OFT had stopped adding a debt collection charge in November 2009, and in 2010 reversed the charge from all live accounts.
Two Convicted of Insider Dealing in the UK Sentenced
The Financial Conduct Authority announced that Mr. Manjeet Mohal and Mr. Reshim Birk were sentenced having pleaded guilty to charges of insider dealing. Mr. Mohal was sentenced to ten months imprisonment suspended for two years for two counts of insider dealing. Mr. Birk was sentenced to 16 months imprisonment suspended for two years for one count of insider dealing. During the relevant period, Mr. Mohal came into possession of inside information through his employment relating to the takeover of Logica Plc by CGI Holdings (Europe) Ltd, which he then disclosed to his neighbor, Mr. Birk, and another individual. Mr. Birk then traded on that information, generating profits in excess of £100,000. Mr. Mohal and Mr. Birk were both ordered to undertake community work and a confiscation order of £162,876.69 was made against Mr. Birk.
View the announcement.
Former Equity Portfolio Manager Jailed by UK Court for 12 Months for Insider Dealing
Mark Lyttleton, formerly an Equity Portfolio Manager at BlackRock Investment Management (UK) Limited, was sentenced to 12 months jail (reduced from 18 months) on two counts of insider dealing. Mr. Lyttleton was an Investment Portfolio Manager at Blackrock Investment Management (UK) Ltd. Mr. Lyttleton had acted on inside information he obtained by working on deals relating to the relevant stocks and by being a party to conversations conducted by colleagues. The criminal offence of insider dealing is punishable by a fine or up to seven years imprisonment. The Financial Conduct Authority charged Mr. Lyttleton with three counts of insider dealing pursuant to the Criminal Justice Act 1993 on September 29, 2016. On November 2, 2016, Mr. Lyttleton pleaded guilty to two counts of insider dealing at Southwark Crown Court. The third charge was subsequently dropped. In addition to the prison sentence, a confiscation order was made in the sum of £149,861.27 and costs were awarded to the FCA totaling £83,225.62.
View the FCA press release outlining a summary of the case facts.
Guilty Pleas to Insider Dealing Charges Brought by the UK Financial Conduct Authority
The Financial Conduct Authority announced that Manjeet Mohal and Reshim Birk had pleaded guilty to three counts of insider dealing at their trial at the Central Criminal Court. Mr. Mohal pleaded guilty to two counts of illegal disclosure of inside information and Mr. Birk pleaded guilty to one count of insider dealing. They will be sentenced on January 13, 2017. The FCA's investigation was brought in relation to the proposed takeover of Logica by CGI Holdings (Europe) Ltd. Two other individuals have been successfully prosecuted for insider dealing in relation to the same transaction.
View the FCA's announcement.
US Securities and Exchange Commission Chair Mary Jo White Discusses SEC Enforcement
Chair of the Securities and Exchange Commission Mary Jo White discussed the SEC’s enforcement program, focusing on white collar crime in particular. She detailed the SEC’s “Investigate to Litigate” philosophy, where SEC staff are instructed to conduct all investigations with litigation in mind. She also discussed a number of measures the SEC has to detect misconduct, from advanced data analysis to whistleblowers. In particular, she highlighted the SEC’s focus on individual wrongdoers and its policy of requiring admissions as a condition for certain settlements.
European Supervisory Authorities Publish Joint Guidelines on a Risk-Based Approach to Anti-Money Laundering and Terrorist Financing Supervision
The Joint Committee of the European Supervisory Authorities published joint Guidelines on the characteristics of a risk-based approach to anti-money laundering and terrorist financing supervision. The ESAs consist of the European Banking Authority, the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority. The Guidelines build on the ESA’s previous “Preliminary report on anti-money laundering and counter financing of terrorism Risk Based Supervision” that was published in October 2013. The Guidelines outline steps to be taken by regulators when conducting AML/CTF supervision on a risk-sensitive basis. The Fourth Anti-Money Laundering Directive, amongst other things, aims to bring European legislation in line with the Financial Action Task Force’s International Standards on Combating Money Laundering and the Financing of Terrorism. The ESAs emphasize that AML-and CFT-related risk-based supervision is ongoing and cyclical and the Guidelines outline four requisite steps that national regulators should apply. Step 1 involves the regulator identifying the money laundering or terrorist financing risk factors by obtaining information of both domestic, foreign and sector-wide threats. Step 2 requires the information to be used by the regulator to conduct a risk assessment and obtain a holistic view of the risks associated with each firm. Step 3 requires the allocation of supervisory resources factoring in issues such as the required focus, depth, duration and frequency of the on-site and off-site activities and supervisory staffing needs. Step 4 requires regulators to ensure that the risk assessment and level of allocated supervisory resources remains commensurate to AML/CFT risks through ongoing monitoring and reviewing processes. The Guidelines will apply one year after the Guidelines have been issued.
View the joint Guidelines.
Former Investment Portfolio Manager Admits Insider Dealing
The Financial Conduct Authority announced that Mark Alexander Lyttleton had pleaded guilty to two counts of insider dealing at Southwark Crown Court. The FCA charged Mr. Lyttleton with three counts of insider dealing pursuant to the Criminal Justice Act 1993 on September 29, 2016. The third charge was subsequently dropped. Mr. Lyttleton was an Investment Portfolio Manager at Blackrock Investment Management (UK) Ltd. Mr. Lyttleton had acted on inside information he obtained by working on deals relating to the relevant stocks and by being a party to conversations conducted by colleagues. The criminal offence of insider dealing is punishable by a fine or up to seven years imprisonment. The Judge, Anthony Leonard, told Mr. Lyttleton that his pleading guilty at an early stage of the prosecution process will be taken in account to and to his advantage. Mr. Lyttleton will be sentenced on December 21, 2016.
View the FCA's announcement.
UK Legislation Implements Financial Services and Markets Act 2000 Updates to Secondary Legislation
The Financial Services (Banking Reform) Act 2013 (Consequential Amendments) (No. 2) Order 2016 was made. The Order amends secondary legislation as a result of updates to the Financial Services and Markets Act 2000 relating to disciplinary powers for the Financial Conduct Authority and Prudential Regulation Authority applying to the misconduct of individuals and the senior manager’s regime. The Order also amends FSMA secondary legislation which specifies a "qualifying EU provision" applied for the purposes of determining whether a person has been knowingly concerned in a contravention of a relevant requirement by an authorized person under the new section of FSMA relating to FCA and PRA powers. The Order will enter into force on November 21, 2016.
View the Order.
Proposed Amendments to UK Proceeds of Crime and Terrorism Legislation
A Bill was introduced in the UK Parliament proposing amendments to the Proceeds of Crime Act 2002 and Terrorism Act 2000. The Bill forms part of the UK Government’s Action Plan to counter money laundering and the funding of terrorism. The Government launched a consultation in April this year on its proposals to overhaul the UK approach to AML and CTF. The Government’s Response to the initial consultation was published on the same day that the Bill was introduced.
UK Financial Conduct Authority Takes Action Against Sonali Bank for Money Laundering Failings
The Financial Conduct Authority published the final notices issued to Sonali Bank (UK) Limited and its former Money Laundering Reporting Officer, Mr. Steven Smith for anti-money laundering failings. SBUK was fined £3,250,600 and restricted from accepting deposits from new customers for a period of 168 days. Mr. Smith was fined £17,900 and banned from performing the senior management functions of an MLRO or compliance oversight or the money laundering reporting controlled function in any UK regulated firm.
The FCA found that SBUK had breached Principle 3, which requires that a firm take reasonable steps to ensure that it has organized its affairs responsibly and effectively, with adequate risk management systems. The bank had failed, amongst other things, adequately to put AML monitoring procedures into place, to take steps to ensure that the importance of AML compliance was entrenched throughout the business, to implement oversight of the MLRO department or to ensure that its MLRO department was sufficiently resourced. SBUK also breached Principle 11, which requires firms to deal with the FCA in an open and cooperative way and to disclose to the FCA anything relating to the firm of which the FCA would reasonably expect notice. The bank had failed to notify the FCA in a timely manner of a suspected significant fraud committed by one of its employees against one of its customers.
UK Financial Conduct Authority Fines Aviva for Client Asset and Money Failings
The Financial Conduct Authority published the final notice issued to Aviva Pension Trustees UK Limited and Aviva Wrap UK Limited, fining the firms £8,246,800 for failing to have adequate controls and oversight arrangements to effectively control the outsourcing of administration of client money and external reconciliations of custody assets to Third Party Administrators and for failing to arrange adequate protection for client money and safe custody assets for which they were responsible. The FCA's Client Assets Sourcebook (CASS) rules aim to protect client money and custody assets if a firm becomes insolvent. Where a firm outsources its client asset and money administration, it remains responsible for ensuring that the FCA's rules are complied with. Whilst in this instance there was no loss of client money, the FCA deemed the failings to be especially serious, given that Aviva's annual external CASS reports had identified the breaches for consecutive years.
View the FCA's final notice.
Former Investment Portfolio Manager Charged by UK Regulator with Insider Dealing
The Financial Conduct Authority announced that it had instituted criminal proceedings against Mark Alexander Lyttleton for alleged insider dealing. Mr. Lyttleton was an Investment Portfolio Manager at Blackrock Investment Management (UK) Ltd. The FCA has charged Mr. Lyttleton with three counts of insider dealing pursuant to the Criminal Justice Act 1993. The actions of Mr. Lyttleton in question relate to trading in equities and a call option between October 2, 2011 and December 16, 2011. The criminal offense of insider dealing is punishable by a fine or up to seven years imprisonment.
View the press release.
CEO and Chairman of Wells Fargo Testifies Before the US Senate Banking Committee
Wells Fargo CEO and Chairman John Stumpf, US Comptroller of the Currency Thomas J. Curry and CFPB Director Richard Cordray testified before the US Senate Banking Committee in a hearing entitled “An Examination of Wells Fargo’s Unauthorized Accounts and the Regulatory Response.” Comptroller Curry said he directed the US OCC examiners to review the sales practices of all large and mid-size banks supervised by the OCC to “assess the sufficiency of controls with respect to sales practices.” Comptroller Curry also noted that discoveries at Wells Fargo “demonstrate the importance of aligning incentives with appropriate behavior, highlighting the need to finalize interagency incentive compensation rule sooner rather than later.”
During the hearing Senators questioned Mr. Stumpf on issues of executive accountability, compensation clawbacks, validity of “cross-selling” products and business lines and bank regulator accountability. Mr. Stumpf also provided testimony before the US House of Representatives Financial Services Committee on September 29, 2016.
View Comptroller statement.
UK Regulator Bans former Barclays Wealth Management Chief Operating Officer
The Financial Conduct Authority published a Final Notice banning Mr. Andrew James Tinney from the UK financial services industry. Mr. Tinney was the Global Chief Operating Officer of Barclays Wealth and Investment Management, a division of Barclays Bank PLC, between May 20, 2010 and December 17, 2012. During that period, Mr. Tinney was responsible for overseeing global technology, operations and infrastructure activities as well as having joint responsibility for the entity’s legal function, including a compliance function. In his role as COO, Mr. Tinney was approved by the FCA to carry out certain functions and was required to comply with the FCA’s Statements of Principle; in particular, he was required to act with integrity. The acts in question stem from Mr. Tinney’s appointment as Chairman of a Steering Committee to oversee a remediation program that Barclays was undertaking to correct certain deficiencies identified by the Securities Exchange Commission during its examination of Barclays Wealth’s US operation, Barclays Wealth Americas (BWA).
US Consumer Financial Protection Bureau Fines Wells Fargo for Illegal Sales Practices
The US Consumer Financial Protection Bureau issued an enforcement action against Wells Fargo Bank, N.A. for widespread sales practices violations, including opening unauthorized deposit and credit card accounts on behalf of customers without their knowledge or consent in order to boost sales figures. The CFPB consent order finds that Wells Fargo’s violations included: (i) opening deposit accounts and transferring customer funds without the customer’s authorization, knowledge or consent; (ii) applying for credit card accounts without customer authorization, as a result of which many customers incurred fees; (iii) issuing and activating debit cards using consumers’ information without authorization; and (iv) creating false e-mail addresses to enroll consumers in on-line banking services without their knowledge or consent.
View full text of the CFPB consent order.
UK Regulator Bans Sole Trader Investment Business from the UK Financial Services Industry
The Financial Conduct Authority issued a final notice banning Ms. Elizabeth Anne Parry from the UK financial services industry. The actions of Ms. Parry which gave rise to this decision concern alleged breaches of FCA Handbook provisions implemented on December 31, 2012 following the Retail Distribution Review. The RDR was a wide-ranging review of the retail investment market and the resulting proposals were intended to ensure that financial advice is given only by appropriately qualified advisers. The Training and Competence section of the FCA Handbook was subsequently amended to raise the required benchmark qualification level for all retail investment advisers and introduced an overarching standard for continuing professional development. All individual investment advisers were required to reach the QFC Level 4 or equivalent and hold a Statement of Professional Standing. The FCA concluded that on separate occasions between January 29, 2013 and September 3, 2015, Ms. Parry made misleading statements and provided falsified documentation with the intention of misleading the FCA to believe that she had attained the appropriate qualifications from her professional body to provide investment advice to retailers.
US Securities and Exchange Commission Whistleblower Program Surpasses $100 Million in Awards
The US Securities and Exchange Commission announced that awards to whistleblowers have surpassed the $100 million mark with the SEC’s whistleblower program’s issuance of the second-largest award of more than $22 million that was announced the same day. The whistleblower program was established by Congress to incentivize whistleblowers with specific, timely and credible information about federal securities law violations to report such information to the SEC. To date, enforcement actions resulting from whistleblower tips have resulted in orders for more than $500 million in financial remedies.
Whistleblowers may be eligible for an award when they voluntarily provide the SEC with information that leads to a successful enforcement action. Whistleblower awards can range from 10 percent to 30 percent of the money collected when the monetary sanctions ordered exceed $1 million. The SEC paid its first award in 2012, just over a year after its Office of the Whistleblower opened for business. All payments are made out of an investor protection fund established by Congress that is financed through monetary sanctions paid to the SEC by securities law violators.
View SEC press release.
View information about the whistleblower program.
US Federal Reserve Board Invites Comment on Interim Final Rule Adjusting Maximum Civil Money Penalties
The US Federal Reserve Board invited comment on an interim final rule adjusting the Federal Reserve Board’s maximum civil money penalties, as required by law.
In November 2015, a law was passed that requires all federal agencies to adjust their maximum civil money penalty limits annually, rather than every four years, as previously required. Additionally, the law sets forth the adjustment formula for federal agencies. The Federal Register notice details the civil money penalty adjustments made by the Federal Reserve Board.
The interim final rule became effective on August 1, 2016, and will apply to those penalties assessed after this date. The Federal Reserve Board was accepting comments until August 30, 2016.
View interim final rule.
Bank of England Proposes to Extend its Enforcement Remit
The Bank of England published a consultation paper on a proposed unified Enforcement Decision Making Committee. The EDMC would take decisions on the matters regarding: (i) firms and individuals regulated by Prudential Regulation Authority; (ii) financial market infrastructure; and (iii) the resolution of contested enforcement cases. The consultation follows a recommendation by HM Treasury to extend the proposed EDMC model across all the areas where the Bank has enforcement powers. The EDMC would be established by the Court of Directors of the Bank of England and its 15 members would be independent from the Bank’s executive management structure and would be appointed for a renewable 3 year term. The EDMC would undertake administrative processes, not judicial, and would be similar to the FCA's Regulatory Decisions Committee, with a right of appeal to a judicial body after its decisions was reached. The EDMCs remit would include all contested statutory notice decisions. The Bank seeks feedback on the creation of the EDMC including on its proposed composition, independence, jurisdiction, decision making powers and processes.
Responses to the consultation are due by October 21, 2016. The Bank aims to publish guidance on the consultation as part of a comprehensive external policy statement on the Bank’s enforcement process during the course of 2017.
View the consultation paper.
European Securities and Markets Authority Fines Fitch for Breach of EU Regulations
The European Securities and Markets Authority issued Fitch Ratings Limited with fines totaling €1.38 million for numerous allegedly negligent breaches of the requirements relating to sovereign ratings set out in the EU Credit Rating Agencies Regulation.
On January 26, 2012, Fitch informed Slovenia of its intention to downgrade its sovereign rating, whilst providing no information establishing the grounds for its intention. Fitch subsequently sent such information on the following day, but, three hours after doing so, it made a public announcement of the sovereign rating downgrade. ESMA found Fitch to be in breach of the requirement under the CRA Regulation that a credit rating agency must inform the rated entity at least 12 hours before publication of the credit rating and of the principal grounds on which the order is based to give the entity an opportunity to highlight any factual errors to the CRA.
UK Regulator Decision Notice to Cancel Investment Business Permission
The Financial Conduct Authority published a Decision Notice, dated April 22, 2016, notifying KWS Wealth Management Limited of its decision to cancel their permission to carry out the regulated activity of an investment business. Mr Smith is the sole director, shareholder and approved person at KWS. On October 15, 2015, Mr. Smith was convicted by a UK Crown Court of dishonestly failing to disclose information which he was under a legal duty to disclose. Mr. Smith was sentenced to 12 months’ imprisonment, suspended for 24 months, and was ordered to pay a £100 victim surcharge. The FCA had asked KWS to apply for cancellation of its permission as the FCA considered it was failing to satisfy the suitability threshold condition due to the actions or Mr. Smith, but the firm failed to comply. KWS has since referred the case to the Upper Tribunal (Tax and Chancery Chamber) for determination.
View the decision notice.
UK Regulator Issues Final Notices Cancelling Permission to Carry Out Regulated Activities
The Financial Conduct Authority issued three final notices cancelling the permission to carry out regulated activities of Edge Performance 10 Limited, Mr. Mark Andrew Walker and Volpe Capital Management LLP.
In each case, the FCA was not satisfied that the firm was a fit and proper person. Both firms and Mr. Walker had failed to comply with the regulatory requirement to submit a required return to the FCA. They had also failed to respond to repeated requests for the form to be submitted, thereby failing to comply with Principle 11 of the FCA's Principles for Businesses which requires firms to be open and cooperative in their dealings with the FCA. As a consequence, the FCA concluded that each had failed to satisfy the suitability Threshold Condition.
View the final notice for Edge Performance 10 Limited.
View the final notice for Mr. Walker.
View the final notice for Volpe Capital Management LLP.
UK Court Finds Three Guilty of LIBOR Manipulation
The UK's Serious Fraud Office announced that Jonathan James Mathew, Jay Vijay Merchant and Alex Julian Pabon had been convicted by a jury at Southwark Crown Court of conspiracy to defraud for manipulation of the US Dollar LIBOR. The three individuals are all former employees of Barclays Bank Plc, which was fined £59.5m by the Financial Conduct Authority in 2012 for misconduct relating to benchmark submissions. No verdicts were reached for two co-defendants, Stylianos Contogoulas and Ryan Michael Reich, and the SFO is seeking a retrial, as announced on July 6, 2016. Sentences for the three convicted individuals were announced on July 7, 2016 - Jonathan James Mathew was sentenced to four years imprisonment, Jay Vijay Merchant was sentenced to six and a half years imprisonment and Alex Julian Pabon was sentenced to two years and nine months imprisonment.
View the SFO's first announcement.
View the SFO's second announcement.
View the SFO's sentencing announcement.
Five Charged by UK Regulator for Alleged Investment Fraud
Following investigation by the Financial Conduct Authority, five persons appeared in a UK court charged with conspiracy to defraud, together with offences under the Financial Services and Markets Act 2000 and the Fraud Act 2006. Two of the five accused have also been charged with perverting the course of justice and one has been charged with money laundering offenses contrary to the Proceeds of Crime Act 2002. The offenses relate to the promotion and sale of shares in Atlantic Equity LLC (formerly known as Berkley Brookes LLC), between July 2013 and March 2014. This was achieved through a succession of four alleged “boiler room” companies, all of which traded from the Docklands area of London. The FCA alleges that the defendants promoted investment schemes that offered investors interests in a supposed commercial development in Madeira in which a total of 175 investors may have potentially lost approximately £2.75 million.
Following the hearing, a trial has been set for September 4, 2017.
View the FCA press release.
Former Equities Trader Sentenced for Insider Dealing
Mr. Damian Clarke, a former equities trader at Schroders Investment Management, was sentenced to two years imprisonment having pleaded guilty to nine counts of insider dealing. Over a nine-year period between October 2003 and November 2012, Mr. Clarke received inside information about price sensitive events, mainly to anticipate public announcements of mergers and acquisitions, which he used to place trades using accounts in his own name and those of close family members. In total, Mr. Clarke's profits amounted to at least £155,161.98. The FCA confirmed that confiscation proceedings will also be pursued against Mr. Clarke.
View the FCA press release.
Two Banned from UK Financial Services Industry
The Financial Conduct Authority published two final notices banning Mr. Mark Kelly and Mr. Patrick Gray from working in the UK financial services industry, effective March 1, 2016. Mr. Kelly traded under the name PCD Wealth and Pensions Management and Mr. Gray acted as an adviser on behalf of PCD. PCD advised over 350 customers and invested nearly £24 million in potentially unsuitable investments between 2008 and 2010.
Mr. Kelly’s conduct during the relevant period included investing customers’ pension funds in Portfolio Bonds, Unregulated Collective Investment Schemes and other investments without customers’ knowledge or consent by a process designed to prevent customers from discovering that their funds had been so invested and investing customers' pension funds without regard to the suitability of the investments for the customers. Mr. Kelly also falsely certified copies of customers' passports as showing true likeness of the customers without having met them.
US Deputy Attorney General Sally Yates Discusses Individual Accountability and Yates Memo
US Deputy Attorney General Sally Yates discussed the history and implementation of the so-called “Yates Memo,” a September 2015 policy statement issued by the US Department of Justice entitled “Individual Accountability for Corporate Wrongdoing.” Yates stressed that the prosecution of individual employees and executives has always been a priority of the DOJ, and is essential to having a substantial impact on corporate culture. She highlighted the application of the policy to corporate actors in the financial services sector. However, determining which individuals are actually responsible for corporate misdeeds can be challenging in light of blurred authority lines and large amounts of documents that may be subject to privacy protection laws. Accordingly, Yates shared that the DOJ convened a group of Department lawyers to focus on ways the DOJ could overcome these challenges, and their discussions culminated in the issuance of the Yates Memo.
Two Convicted of Insider Dealing in High-Profile UK Prosecution
Mr. Martyn Dodgson and Mr. Andrew Hind were found guilty of conspiring to commit insider dealing between November 2006 and March 2010 following a three-month trial in a case brought by the Financial Conduct Authority. During the relevant period, Mr. Dodgson was employed by Morgan Stanley, Lehman Brothers and Deutsche Bank. Mr. Hind was a businessman, property developer and a qualified Chartered Accountant. Mr. Dodgson utilized his employment to secure information, both on transactions he personally worked on and through transaction in which his colleagues were involved. Mr. Hind acted as a "middle man" receiving information from Mr. Dodgson then dealing on behalf of Mr. Dodgson and himself. Mr. Dodgson and Mr. Hind used various strategies to conceal their activities, including using unregistered mobile phones, encrypted records and safety deposit boxes. Three other defendants, Andrew Harrison, Ben Anderson and Iraj Parvizi, who were accused of being party to the conspiracy, were acquitted. Sentencing will take place on a future date. The FCA confirmed that confiscation proceedings will also be pursued against the convicted individuals.
The convictions are a result of the FCA's largest insider dealing investigation, dubbed Operation Tabernula, which has also resulted in the conviction of Paul Milsom, Graeme Shelley and Julian Rifat.
View the FCA press release.
View the Shearman & Sterling client note on the case.
Ex-Financial Adviser Fined for Insider Dealing and Banned from Industry
The Financial Conduct Authority issued a final notice fining Mr. Mark Samuel Taylor for insider dealing and banning him from the UK financial services industry. On March 12, 2015, Mr. Taylor bought 5,582 shares in Ashcourt Rowan Plc for £15,012. Mr. Taylor’s purchase was based on inside information he received through an email circulated in error by his employer, Towry Limited, where Mr. Taylor was employed as an experienced financial adviser. Mr. Taylor bought the shares using funds from his self-invested pension whilst aware he had acted on insider information. On the same day as Mr. Taylor’s purchase, Towry Limited subsequently made a public announcement of its intention to acquire Ashcourt Rowan Plc with a revised offer. The announcement resulted in the share price of Ashcourt Rowan Plc rising by 26%, generating a profit of £3,498 for Mr. Taylor. The FCA considered that Mr. Taylor’s conduct demonstrated a lack of honesty and integrity, and on that basis, found him to be in breach of the fit and proper person requirement to engage in any regulated activity in the UK financial services industry. Mr. Taylor’s fine was initially £78,819. It was however reduced as a result of evidence that he was experiencing financial hardship and was further discounted given his cooperation in initially admitting to engaging in market abuse and voluntarily agreeing to settle in the early stages of the FCA’s investigation.
View the final notice.
UK Regulators Proposals to Enhance Their Enforcement Decision-Making Processes
The Financial Conduct Authority and Prudential Regulation Authority published a joint consultation paper on proposals to implement certain aspects of the recommendations set out in HM Treasury's Review of Enforcement Decision-making at the Financial Services Regulators (known as the Enforcement Review), published in December 2014, and the report by Andrew Green QC in the enforcement actions following the failure of HBOS (known as the Green Report), published in November 2015.
UK Regulator Bans Former LIBOR Trader from UK Financial Services Industry
The Financial Conduct Authority published a decision notice banning Mr Arif Hussein from the UK financial services industry. The FCA found Mr Hussein not to be a fit and proper person to carry out the functions of a trader or of any regulated financial activity. The finding was based on the actions of Mr Hussein during his employment as a derivatives trader at UBS in regard to submissions made to the London Interbank Offered Rate market. LIBOR is a benchmark rate and the FCA views LIBOR as fundamental to the operation of both the UK and international financial markets in interest rate derivatives contracts. Between January 28 and March 19, 2009, Mr Hussein requested GBP Trader-Submitters to make LIBOR submissions to benefit the Trading Position of UBS. The FCA considered these actions to be reckless. The FCA noted that Mr Hussein knew that he should not make LIBOR submissions for the benefit of trading-positions. The FCA found that Mr Hussein’s conduct threatened confidence in the integrity of the UK financial system and could have caused significant hardship to other market participants.
Former LIBOR Trader Banned and Censured by UK Conduct Regulator
The Financial Conduct Authority announced that it had banned former LIBOR trader Paul White from performing any financial regulated activity and publicly censured him. The FCA found that Mr. White was "knowingly concerned" in RBS's breach of the principle requiring firms to observe proper standards of market conduct and that he lacked the requisite fitness and propriety required of a person responsible for benchmark submissions. Mr. White was the Japanese Yen and Swiss Franc LIBOR submitter at the Royal Bank of Scotland between March 8, 2007 and November 24, 2010. During that time Mr. White received requests from RBS JPY and CHF derivatives traders and external JPY derivatives traders requesting submissions that would benefit their trading positions and took those requests into account when submitting the RBS JPY and CHF LIBOR rates to the British Bankers Association (the former administrator of LIBOR). The FCA issued a warning notice to Mr. White in 2014 but its proceedings were suspended pending the Serious Fraud Office's criminal investigation into individuals who had formerly been employed at RBS. The SFO announced in early March this year that it was closing its FX LIBOR investigation on the basis that there was insufficient evidence to bring a prosecution.
View the FCA's Final Notice.
UK Government Body on Financial Sanction Implementation Established
A new “Office of Financial Sanctions Implementation” (OFSI) was established within Her Majesty’s Treasury, with responsibility for ensuring that sanctions are “properly understood, implemented and enforced in the UK”. Despite an expansion in the number of sanctions programmes in the EU in recent years, as well as increasingly complex rules, there have not been any significant enforcement actions in the UK, a situation which contrasts with the enthusiastic enforcement practices of US sanctions enforcement agencies. OFSI is expected to work closely with other regulatory authorities, such as the FCA, to apply a more effective sanctions enforcement regime than has previously been the case. To this end, the government is also legislating to ensure that suitable remedies are available for sanctions enforcement. Provisions in the Policing and Crime Bill outline new administrative penalties, monetary penalties and an increase in the maximum custodial sentence for breaching financial sanctions to seven years on conviction on indictment (or six months imprisonment on summary conviction).
European Securities and Markets Authority Fines Trade Repository for Lack of Access to Trade Repository Data
The European Securities and Markets Authority published a decision of its board of supervisors that it had fined the trade repository DTCC Derivatives Repository Ltd EUR 64,000 for failing to provide regulators with access to derivatives trading data.
Two Acquitted of Money Laundering
James Campbell Sutherland and Jack William Flader were found not guilty of money laundering by a jury at Southwark Crown Court. The nine week trial was the last in a series of three "boiler room fraud" trials. The trial opened on January 14, 2016, following an investigation which commenced in 2007. The prosecution alleged throughout the series of trials that Mr. Sutherland, Mr. Flader, both based in Hong Kong, and others received or assisted in the transfer of proceeds of fraud from accounts held by numerous entities, between 2003 and 2008. Nine convictions were obtained with regard to the others in related trials between 2013 and 2014. Mr. Sutherland and Mr. Flader's charges related to the alleged laundering of the fraudulently obtained funds associated with the earlier trials.
View SFO press release.
Former Equities Trader Pleads Guilty to Insider Dealing
Damien Clarke pleaded guilty to two counts of insider trading at Southwark Crown Court, having previously pleaded guilty to seven counts of insider trading on July 24, 2015. Mr. Clarke is a former equities trader who, through his employment, allegedly received inside information about price sensitive events, mainly anticipated public announcements of mergers and acquisitions. Mr. Clarke admitted that he profited from this information by placing trades using various accounts, in his own name and relatives. In total, Mr. Clarke's profits amounted to at least £155,161.98. Mr. Clarke will be sentenced on June 13, 2016.
View the FCA press release.
UK Regulator Consults on Client Money Rules and the Special Administration Regime
The Financial Conduct Authority issued a discussion paper on client money rules (CASS 7) and the Special Administration Regime Review. The discussion paper is relevant to all regulated firms that hold client assets or money for investment business. Client money rules govern how client assets are to be distributed by an insolvency practitioner managing a failed investment firm. The discussion paper is in response to the recommendations made in the Bloxham Final Report which aims to improve the speed of return of client assets and minimize the market impact of a failed firm's entry into special administration.
Financial Conduct Authority Bans Former Trader from UK Financial Services Industry
The Financial Conduct Authority published a final notice that it had banned Gary Harold Arthur Fincher from the UK financial services industry. Mr. Fincher was convicted on, September 25, 2014 and April 9, 2015 of a total of 28 counts relating to criminal offenses of dishonesty and financial crime. Mr. Fincher was sentenced to 24 months' imprisonment and 18 months' respectively. The FCA found that, in respect of his criminal convictions, Mr. Fincher had breached the 'Fit and Proper' requirements set out in its Handbook because he lacked honesty, integrity and reputation. The ban, which took effect on March 8, 2016, prohibits Mr. Fincher from carrying out any function in relation to any regulated activity carried out by any authorized firm, exempt person or exempt professional firm.
View the final notice.
Financial Conduct Authority Bans Peter Charles Bottomley from UK Financial Services Industry
The Financial Conduct Authority published a final notice that it had banned Peter Charles Bottomley from the UK financial services industry. Mr. Bottomley was convicted on July 9, 2015 of eight counts of dishonesty and financial crime offenses and sentenced to 72 months' imprisonment. Mr. Bottomley's conviction comprised five counts of dishonestly making false representations to make gain for self or another or cause loss to another or expose others to risk; one count of false accounting; one count of making or supplying articles used in fraud, and one count of theft. The FCA found that, in respect of his criminal convictions, Mr. Bottomley had breached the Fit and Proper requirements set out in its Handbook because he lacked honesty, integrity and reputation. The ban, which took effect on March 8, 2016, prohibits Mr. Bottomley from carrying out any function in relation to any regulated activity carried out by any authorized firm, exempt person or exempt professional firm.
View the final notice.
UK Libor Fraud Supreme Court Appeal Application Blocked
London's Court of Appeal refused leave for Tom Hayes’ application to the UK Supreme Court to appeal his conviction. Mr. Hayes was convicted of eight charges of conspiracy to defraud and initially sentenced to 14 years in prison, which was subsequently downgraded to 11 years following an appeal. The conviction relates to the investigation by the Serious Fraud Office into the manipulation of LIBOR. Mr. Hayes' sentence is the longest in the UK for white collar crime. The six former brokers he was alleged to have conspired with were found not guilty in a separate London trial. The SFO is also pursuing Mr. Hayes in confiscation proceedings for proceeds of crime for around £3.8 million, scheduled to commence on March 12, 2016.
View SFO press release on conviction.
Upper Tribunal Decision Published on Whether a Third Party was Identified in a UK Regulator's Notice
A decision of Upper Tribunal Tax and Chancery Chamber on whether a Decision Notice issued by the Financial Conduct Authority prejudicially identified a third party was published. On April 23, 2015, the FCA issued Deutsche Bank AG with a Decision Notice (preceded by a Warning Notice and then subsequently a Final Notice) notifying the bank of the FCA's decision to impose on it a financial penalty of £226,000 as a result of serious misconduct. The finding of misconduct related to attempted manipulation of two benchmark interest rates. The Applicant, Mr. Vogt, was employed by the bank as a money market trader during the time of the alleged misconduct. The Applicant argued that the contents of the Decision Notice (and other relevant notices) prejudicially identified him. As the Applicant had not seen the Decision Notice he based his complaint on the contents of the Final Notice, assuming it was materially the same as the Decision Notice. The Applicant maintained that, in breach of its obligations under the Financial Services Markets Act, the FCA had failed to provide him with a copy of the Decision Notice at the time of issuance and prior to its publication. FSMA provides certain rights to third parties in relation to Warning and Decision Notices given to another person by the FCA. The FCA took the view that the Applicant was not identifiable from the Final Notice. In dismissing the application and deciding that the Applica had not been prejudicially identified in the Final Notice, the Upper Tribunal found that the contents of the Final Notice and other material would not lead a person professionally acquainted with Applicant to conclude that Mr Vogt was the third party identified in the Final Notice. This follows the Upper Tribunal's recent decisions in Christopher Ashton v FCA; Christian Bittar v FCA; and the Court of Appeal's judgment in Achilles Macris v FCA.
View the Upper Tribunal's decision.
Financial Conduct Authority Bans Trader for LIBOR-Related Misconduct Based on US Criminal Conviction
The Financial Conduct Authority issued a final notice against Michael Rose Curtler prohibiting him from performing any function in relation to any regulated activity carried on by a UK authorized firm. This final notice arose as a result of Mr Curtler’s conduct in allegedly manipulating or attempting to manipulate the USD London Interbank Offer Rate. When assessing an approved person's fitness and propriety to carry out a controlled function in a regulated firm, the FCA has regard to a person's honesty and integrity. On October 8, 2015, Mr Curtler pleaded guilty before the United States District Court for the Southern District of New York to a single count of conspiracy to commit wire fraud and bank fraud. The FCA deemed that Mr Curtler's criminal conviction demonstrated a lack of integrity and a level of dishonesty which was further worsened by the fact that he knew what he was doing was wrong.
View the final notice.
UK Regulator Issues Final Notice Against F J Autos Limited For Failure To Co-Operate
The Financial Conduct Authority issued a Final Notice cancelling F J Autos Limited's permission to carry out consumer credit activities. The FCA was of the opinion that FJAL did not conduct its affairs in a sound and prudent manner. The FCA deemed that FJAL's conduct was in breach of Principle 11 of the FCA Handbook in that it failed to disclose information relating to the firm which the FCA had requested in an open and cooperative way. The FCA issued a warning notice that FJAL had failed to cooperate by not responding to repeated requests from the FCA to discuss concerns relating to its conduct as a credit broker. FJAL did not refer the matter to the Upper Tribunal (Tax and Chancery) within the prescribed 28 day statutory period and consequently the FCA's decision to cancel FJAL's permission to carry out the regulated activity of a consumer credit business, has come into effect.
View the FCA's final notice.
UK Regulator Fines W H Ireland Limited for Market Abuse Failings
The Financial Conduct Authority found that W H Ireland Ltd had failed to adequately install systems and controls for the prevention of market abuse or detection. The FCA fined WHI £1.2 million and imposed a restriction preventing WHI for 72 days from taking on new clients in its corporate broking division. The restriction was imposed because WHI had failed to address issues identified in a FCA-appointed Skilled Person report dated August 2013. The FCA found that WHI had failed to take precautions against market abuse during the period between January 1 and June 19, 2013. During this period WHI had approximately £2.5 billion of assets under management, around 9,000 private wealth clients and 87 corporate broking clients. WHI's failings were deemed to be in breach of Principle 3 of the FCA’s Handbook as WHI had failed to take reasonable care to organise and control its affairs responsibly and failed to maintain adequate risk management systems. Some of the failings included inadequate controls to prevent inside private information from leaking into the public component of the firm, insufficient rules for employees on dealing with personal accounts and inadequate conflicts of interest policies. The range of services provided by WHI meant that it was exposed to the possibility of market abuse risks and therefore the FCA considered WHI's failings to be extremely serious. WHI's exposure was compounded as it was in regular receipt of client inside information which, if mishandled, would have had an adverse impact on the market, potentially affecting a large number of market participants. WHI benefited from a 20% Stage 2 settlement discount which reduced the fine and restriction period from £1.5 million and 90 days respectively.
View the FCA's Final Notice.
Sweett Group Convicted for Failing to Prevent Bribery
The Serious Fraud Office announced that Sweett Group Plc had been convicted and sentenced for failing to prevent bribery by an associated person under section 7 of the Bribery Act 2010. It is the first conviction of the section 7 corporate offence since the Bribery Act came into force on 2011 and it follows an investigation by the SFO into the activities of the Sweett Group in the UAE between December 1, 2012 and December 1, 2015. The investigation uncovered that Sweett Group Plc’s subsidiary company, Cyril Sweett International Limited had made corrupt payments to the Vice Chairman of the Board and Chairman of the Real Estate and Investment Committee of AAAI to secure the award of a contract with AAAI for the building of the Rotana Hotel in Abu Dhabi. Sweett Group, who pleaded guilty to the charges in December 2015, were ordered to pay £2.35 million, made up of a fine of £1.4 million, £851,152 in confiscation and approximately £95,000 in costs. The amount due under the confiscation order must be paid within three months. Half the fine is due by February 19, 2017, with the remainder due in February 2018. The SFO's related investigation into individuals continues. The judgment provides guidance as to the circumstances in which a subsidiary, including a foreign subsidiary, may be considered to be an "associated person" of its parent. In this case, the Court considered that Cyril Sweett International, despite being a separate and distinct legal entity from its parent company, Sweett Group, was not independently run. The court found that the Sweett Group had treated and run Cyril Sweett International as an extension of its Middle East operations. The SFO's related investigation into individuals continues.
View the SFO press release.
UK Regulator Publishes Proposed Guidance on Enforcing Security and Default Notices under the Consumer Credit Act
The Financial Conduct Authority published proposed guidance on the FCA's updated view on enforcing security under the Consumer Credit Act and when a default notice is required to be issued. The guidance is aimed at firms that provide consumer credit services and products. The proposed guidance invites comment on "what is enforcement" in the context of when a firm could breach the CCA. The proposed guidance relates to the requirement under the CCA to serve a default notice, following the breach of a regulated agreement, before taking certain enforcement actions. In a previous feedback statement published in September 2015, the FCA stated that a default notice was not required when taking or demanding payment from guarantors following a default because this was deemed to be enforcement of a security. This guidance provides the updated view that this statement made in the feedback statement was incorrect. The guidance provides specific circumstances where a default notice would be required in the context of guarantor loans. One such circumstance is where a creditor wishes to request or take payment from a guarantor following non-payment by a debtor. The FCA has taken the view that a creditor cannot take payment from the guarantor where it has failed to serve a valid default notice. Comments on the consultation may be submitted until March 18, 2016.
View the Proposed Guidance.
UK Court Orders the Return of £2.9 Million to Defrauded Investors
The Southwark Crown Court ordered Mr. Alex Hope and Mr. Raj Von Badlo to return around £2.9 million to investors who were defrauded by a collective scheme that Mr. Hope established and operated without regulatory authorization to do so. The Court made a confiscation order against Mr. Hope, pursuant to the Proceeds of Crime Act 2002, for an amount of £166,696. Mr. Hope's co-defendant, Mr. Von Badlo, was also subject to a confiscation order made at a hearing on December 18, 2015, in which he was ordered to pay £99,819. The Orders follow a prosecution by the Financial Conduct Authority. The scheme, which was closed down by the FCA in April 2012, had a significant impact on over 100 investors. Mr. Hope had represented himself as a talented and skilful trader however he only actually traded around 12% of the total money his investors had given him and spent the majority of his investors' funds on himself. Mr. Hope was found guilty of fraud for operating an investment scheme without authorization in September 2015. Mr. Badlo pleaded guilty in July last year to recklessly making false representations to investors and promoting a collective investment scheme without authorization. Both individuals were sentenced to seven and two years’ imprisonment respectively in January 2015. Failure by Mr. Hope or Mr. Von Badlo to comply with the Court’s orders could result in their current prison sentences being extended.
View the FCA’s press release.
UK Regulator Fines Former Head of JPMorgan's CIO International
The Financial Conduct Authority issued JPMorgan's former head of CIO International, Mr. Achilles Macris, a Final Notice and a fine of £792,000 for failing to be open and co-operative. The FCA found that Mr. Macris was responsible for a number of portfolios, including the Synthetic Credit Portfolio, later known as the "London Whale" trades. The notice states that, between March and April 2012, Mr. Macris failed to inform the FCA's predecessor, the Financial Services Authority, about concerns related to the SCP even though Mr. Macris was also aware that the firm was subject to a "close and continuous" relationship with the FSA from October 2010, meaning that the firm had been recognized as requiring close monitoring and possibly carrying a high probability of risk. The SCP suffered increasing losses from January 2012, and the FCA found that Mr. Macris, despite having attended a meeting with the FSA in March 2012, failed to update the FSA on the full extent of those difficulties, including, according to the FCA, the SCP having by then made a $200 million loss and having experienced rebalancing problems. The FCA also found that, in April 2012,
UK Regulator Must Reconsider its Decision Refusing Authorization based on "Unjustified Accusation"
The Upper Tribunal published its decision directing the Financial Conduct Authority to reconsider its refusal to approve a firm for regulated activities based on the fact that its sole director, Mr. Ladele, had been charged with fraud, notwithstanding his acquittal. Mr. Ladele simultaneously applied for approval to perform certain controlled functions. In 2010, Mr. Ladele had accessed confidential customer information during his employment at HSBC. This information was used by one or more persons for fraudulent transactions. Mr. Ladele was acquitted in 2012 of the criminal offence of fraud by abuse of position relating to the fraudulent transactions. In 2014, the firm applied to the FCA for approval to carry on a range of regulated activities, including advising on pensions, arranging regulated mortgage contracts and arranging deals in investments. The FCA refused approval in 2015 on the grounds that Mr. Ladele, on the balance of probabilities, had been involved in the previous fraudulent activities, despite his acquittal. As a result, the FCA did not consider that the firm for which Mr. Ladele was sole director would satisfy the threshold conditions, in particular the suitability condition requiring the firm to be a fit and proper person. The firm referred the FCA's decision to the Tribunal. The Tribunal found that the firm had been subject to an unjust accusation and directed the FCA to reconsider its decision.
View the Tribunal's decision.
UK Regulators Take Action against Three Firms and Five Individuals for Insurance Scheme Failures
The Financial Conduct Authority banned Mr. Shay Reches from performing any function in relation to a regulated activity and fined him £1,050,000. Mr. Reches also agreed to pay £13,130,000 to three insurers, which amount, if he fails to pay to them, will be added to the FCA's penalty. Mr. Reches was found to have undertaken regulated activities as a director at Coverall Worldwide Limited without being approved by the FCA and for recklessly directing insurance premium payments to parties other than the insurers or reinsures responsible for paying claims. His conduct contributed to the failure of several insurance schemes and to three insurers going into administration.
Six Individuals Found Not Guilty in the UK on Charges of Manipulating LIBOR
Five individuals (a former employee of Tullett Prebon Group Ltd, two former employees of ICAP Plc and two former employees of RP Martin Holdings Limited) have been found not guilty of conspiracy to defraud in the Southwark Crown Court in connection with Yen LIBOR manipulation allegations. A sixth individual, who was also a former employee of ICAP Plc, has also been found not guilty on two counts, one of which was also conspiracy to defraud. The UK Serious Fraud Office brought the charges. In particular, the SFO alleged that the individuals had conspired with another person to defraud. It was alleged that the defendants had, upon instruction from a former derivatives trader at UBS and Citigroup, agreed to influence the submissions of panel banks in the Yen LIBOR setting process. The former trader was convicted and sentenced last year for conspiracy to defraud. Further trials against other individuals relating to the manipulation of the US Dollar LIBOR and the EURIBOR are scheduled to begin in February 2016 and September 2017 respectively.
View the SFO press release.
UK Regulators to Investigate Former HBOS Senior Managers
The Prudential Regulation Authority and the Financial Conduct Authority announced that they would be conducting an investigation into certain former senior managers of HBOS plc. This is the entity which resulted from merger of the Halifax Building Society and Bank of Scotland, which following financial failings was placed into state ownership in 2008. The decision follows the recommendations made by Andrew Green Q.C. in his final Report into the Financial Services Authority's enforcement actions following the failure of HBOS, in particular that the regulators should conduct investigations to determine whether any prohibition proceedings should be brought against the relevant individuals.
View the PRA press release.
View the report of Andrew Green Q.C.
UK Regulator Bans Two Former Co-operative Bank Senior Managers
The Prudential Regulation Authority published two Final Notices: one for Barry Tootell, former Chief Executive Officer of the Co-operative Bank Plc and another for Keith Alderson, former Managing Director of the bank's Corporate and Business Banking Division. The PRA has prohibited both individuals from holding significant influence functions in a PRA-authorized firm on the basis that neither is fit and proper.
US Office of the Comptroller of the Currency Terminates Mortgage Servicing-Related Consent Orders against JPMorgan Chase and EverBank and Issues Civil Money Penalties
The US Office of the Comptroller of the Currency terminated mortgage servicing-related consent orders against JPMorgan Chase Bank, N.A. and EverBank, determining that the banks are now in compliance with the orders. As a result, business restrictions affecting JPMorgan and EverBank that were previously mandated by amendments to the original orders have also been lifted. The OCC also assessed a $48 million civil money penalty against JPMorgan and a $1 million civil money penalty against EverBank for previous violations of the orders. According to the OCC, JPMorgan engaged in filing practices in bankruptcy courts with respect to payment change notices that did not comply with bankruptcy rules and constituted unsafe or unsound banking practices. EverBank violated a 2011 consent order by improperly charging fees related to mortgage electronic registration system assignments, property inspections, and late fees to approximately 47,000 borrowers.
View the OCC press release.
View the termination for JPMorgan.
View the termination for EverBank.
Threadneedle Asset Management Limited Fined by UK Regulator
The Financial Conduct Authority published a final notice issued against Threadneedle Asset Management Limited imposing a £6,038,504 fine for not having adequate controls in place for its fixed income desk, providing inaccurate information to the FCA and failing to correct its inaccurate representation for four months. Threadneedle was asked in April 2011 by the FCA's predecessor, the Financial Services Authority, to address concerns raised about the number of errors originating from its fixed income desk including its Emerging Markets Debt desk, as well as concerns about fund managers initiating, booking and executing their own trades. Threadneedle advised the FSA that it had employed individuals that had taken on responsibility for all aspects of dealing on those desks. However, the individuals had not actually taken on all the responsibilities. Shortly after Threadneedle's response, a fund manager on the Emerging Markets Debt desk initiated, executed and booked a $150 million trade at four times its market value without having the authority to make the trade. The trade was not settled as the problem was identified in time by Threadneedle's outsourced back office. The trade - had it not been identified in time, and had gone on to settle - could have caused a $110 million loss to client funds.
View the FCA's final notice.
European Commission Closes Antitrust Proceedings against 13 Banks
The European Commission issued a press release announcing that it has closed antitrust proceedings against all 13 investment banks it was investigating for their alleged involvement in anti-competitive behaviour in the Credit Default Swaps market. The 13 banks in question are Bank of America Merrill Lynch, Barclays, Bear Stearns, BNP Paribas, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JP Morgan, Morgan Stanley, Royal Bank of Scotland and UBS. The Commission alleged that the banks, together with Markit and the International Swaps and Derivatives Association, collectively blocked Deutsche Börse and the Chicago Mercantile Exchange from entering the CDS market to protect their revenues from OTC trading. According to the Commission's preliminary findings, the banks instructed Markit and ISDA to license Deutsche Börse and CME only for OTC trading of CDS and not for exchange trading. The Commission concluded that the evidence collected from the parties, as well as additional documents obtained through further fact-finding and a hearing that took place in May 2014, was not sufficiently conclusive to confirm its concerns. The closure of the proceedings against the banks does not impact the Commission's antitrust investigations in relation to Markit and ISDA, which are still on-going.
View the press release.
European Banking Authority Reports on Administrative Penalties Published on an Anonymous Basis
The European Banking Authority published a report on the administrative penalties for breach of national law implementing the Capital Requirements Directive imposed by Member States and published on an anonymous basis. Under the CRD, Member States must publish details of any administrative penalties imposed for breach of the relevant national law except in certain circumstances where the CRD allows the publication to be anonymous. The EBA is required to report on any divergences between member states in their approach to the publication of penalties on an anonymous basis and in the duration of the publication under national law. The EBA makes the following recommendations: (i) the penalties should be published on a dedicated part of the website to enhance accessibility; (ii) the decision should also be published in English or a summary thereof; and (iii) that the grounds for deciding to publish a decision on an anonymous basis should be disclosed, where appropriate.
View the report.
UK Serious Fraud Office Agrees First UK Deferred Prosecution Agreement for Bribery Failings
The UK Serious Fraud Office announced that its application for a Deferred Prosecution Agreement with Standard Bank Plc had been approved by Lord Justice Leveson at Southwark Crown Court. This is the first time that a DPA has been used in the UK. Standard Bank was subject to an indictment for failure to prevent bribery in contravention of the UK Bribery Act 2010. Under the terms of the DPA, the indictment has been suspended and Standard Bank must pay USD25.2 million (made up of disgorgement profits and a financial penalty) to the SFO and USD7 million to the Government of Tanzania. The bank has also agreed to cooperate fully with the SFO and will be subject to an independent review of its anti-bribery and corruption policies and procedures. A separate penalty of USD4.2 million has been agreed between the US Securities and Exchange Commission for separate related conduct.
View the SFO announcement and the DPA.
UK Prudential Regulator Fines Firm for Outsourcing Failures Impacting its Capital Position
The Prudential Regulation Authority brought enforcement action against R. Raphael & Sons Plc for failings related to outsourcing certain functions to other group companies. Raphaels provides consumer finance facilities, offers savings accounts and owns ATMs around the UK which are available for public use. Under a joint venture agreement, two other group companies were to provide various aspects of Raphaels' finance function, including payment of third parties on behalf of Raphaels and replenishment of cash stocks in the ATMs. A written agreement on the outsourced functions was not entered into until 21 months after the provision of the outsourced services began. During the relevant time, various employees of one of the group companies improperly transferred funds without the knowledge or consent of Raphaels. The improper transfers impacted Raphaels' regulatory capital in that it had large exposures to one group company. Unaware of the improper transfers, Raphaels submitted inaccurate regulatory returns to the regulators and failed to have an accurate understanding of its capital position. The PRA fined Raphaels for breach of Principle 3 of the PRA's Principles of Business which state that a firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems, imposing a financial penalty of £1,278,165.
View the PRA's Final Notice.
UK Regulator Fines Barclays Bank for Financial Crime Failings
The Financial Conduct Authority fined Barclays Bank plc £72,069,400 for failing to minimise financial crime risks appropriately. The failings of the bank relate to a transaction worth around £1.88 billion that was arranged and executed for ultra-high net worth clients that were politically exposed and should therefore have been subject to enhanced due diligence checks. The FCA found that a lower level of due diligence was undertaken by Barclays for those clients and that Barclays had not followed its own standard procedures, going to unacceptable lengths to accommodate the clients in question. Whilst the FCA did not specifically find that the transaction itself involved financial crime, this is the largest fine to be imposed by the FCA (and its predecessor, the Financial Services Authority) for failing to minimise financial crime risks.
View the FCA notice.
Luxembourg Referred to European Court of Justice for Failure to Implement EU Legislation on Reducing Reliance on Credit Ratings
The European Commission announced that it had referred Luxembourg to the Court of Justice of the EU for failing to transpose the EU Directive on reducing over-reliance on credit ratings into national legislation. The Directive was due to be transposed by all EU Member States by December 21, 2014. The referral follows a written notice served on Luxembourg by the Commission in January 2015 and an Opinion filed in June 2015. According to the Directive, investors should not overly rely on credit ratings when assessing the risks related to investments made by institutions for occupational retirement provision, Undertakings for the Collective Investment in Transferable Securities and Alternative Investment Funds.
View the announcement.
Final Report on the Enforcement Actions Following the Failure of HBOS Published
The final Report into the Financial Services Authority's enforcement actions following the failure of HBOS plc, prepared by Andrew Green Q.C., was published by the Prudential Regulation Authority and the Financial Conduct Authority. The Report assesses the reasonableness of the scope of the FSA's enforcement investigations in relation to the failure of HBOS from October 1, 2008 to September 12, 2012 and concludes that the scope was not reasonable, that the FSA's decision-making process was materially flawed and that the FSA should have conducted a wider investigation or series of investigations into the conduct of the HBOS Corporate Division and Mr Cummings, CEO of the Corporate Division at the relevant time. Recommendations include: (i) the regulators should have a system for pre-referral decision-making through which they identify and record the potential individuals that could be the subject of enforcement action related to an event/s, including reasons. One individual at the regulator/s should be made responsible for the pre-referral decision-making process; (ii) there should be an ongoing dialogue between Supervision and Enforcement, including discussions on the appropriateness of the scope of the investigation and any decisions should be recorded; (iii) the Memorandum of Appointment of Investigators issued to individuals by the regulators should include a summary of the potential breaches and an explanation of the matters that give rise to those alleged breaches; and (iv) the minutes of a regulators' Executive Committee meetings should be subject to review and approval. The Report also recommends that the PRA and FCA consider whether to investigate other former senior managers at HBOS with a view to prohibition proceedings.
View the report.
US New York State Department of Financial Services Enforcement Order against Barclays
The New York State Department of Financial Services announced that Barclays will pay an additional $150 million penalty for misconduct related to automated, electronic foreign exchange trading through its “Last Look” system. Barclays was also ordered to terminate its Global Head of Electronic Fixed Income, Currencies and Commodities Automated Flow Trading. This action brings the overall penalty Barclays has paid to NYDFS for foreign exchange enforcement actions to $635 million. Barclays Last Look system was designed to protect Barclays against “toxic order flow” caused by another market maker’s more sophisticated electronic trading system detecting market movement some milliseconds before the Barclays’ systems. As such, Last Look imposed a hold period between its receipt of a customer order and its acceptance and execution of the same in order to allow Barclays’ systems time to properly adjust prices based on such market movement. According to the order, in certain instances Barclays used its Last Look system to automatically reject client orders that would otherwise be unprofitable for the bank due to subsequent price movements during the milliseconds-long hold period. Furthermore, Barclays failed to disclose to clients the reason that the trades were rejected.\
View the press release.
View the order.
UK's Serious Fraud Office Issues Criminal Proceedings for Manipulation of Euro Interbank Offered Rate
The Serious Fraud Office issued criminal proceedings against six Deutsche Bank and four Barclays Bank employees for conspiracy to defraud by manipulating the Euro Interbank Offered Rate, known as EURIBOR. These are the first criminal proceedings issued in connection with the SFO's investigation into the manipulation of EURIBOR. The defendants are expected to appear in court on January 11, 2016.
View the press release.
US Banking Regulators Announce Actions against Deutsche Bank Regarding US Sanctions Violations
The US Federal Reserve Board, in conjunction with the New York Department of Financial Services, announced $258 million in total civil monetary penalties and a cease and desist order against Deutsche Bank AG in regards to US sanctions violations. According to the orders, Deutsche Bank conducted business at its offices outside of the United States with respect to, and in violation of, certain US-sanctioned countries including Iran, Libya, Syria and Sudan. The order requires Deutsche Bank to implement an enhanced global compliance program in accordance with US sanctions rules established by the US Department of Treasury’s Office of Foreign Assets Control. Additionally, Deutsche Bank will be required to terminate six employees allegedly involved, as well as bar three other employees from US operations-related duties. The Federal Reserve Board and NYDFS announced $58 million and $200 million civil monetary penalties, respectively. Deutsche Bank still faces investigations by the US Department of Justice and the NYDFS regarding possible sanctions violations with respect to its Russian activities.
View the Federal Reserve Board order.
View the NYDFS order.
European Commission Takes Action Against Six Member States for Failing to Implement Bank Recovery and Resolution Directive
The European Commission announced that it had referred the Czech Republic, Luxembourg, the Netherlands, Poland, Romania and Sweden to the Court of Justice of the EU for failing to transpose the Bank Recovery and Resolution Directive into national legislation. The BRRD was due to be transposed by all EU Member States by December 31, 2014. The referral follows a request in May 2015 by the Commission to eleven Member States, including the above six Member States, to fully implement the BRRD.
View the press release.
US Regulators and Law Enforcement Agencies Announce Enforcement Orders Against Credit Agricole S.A. and Credit Agricole Corporate and Investment Bank
The US Department of Justice, the US Department of Treasury’s Office of Foreign Assets Control, the New York County District Attorney’s Office, the New York Department of Financial Services and the Federal Reserve Board jointly announced penalties against Crédit Agricole and Credit Agricole Corporate and Investment Bank,—headquartered in Paris, France—in connection with violations of US sanctions laws, and imposed a total of $787.3 million in criminal and civil financial penalties. According to the agencies, CACIB and certain predecessor banks thereof processed thousands of transactions to or through US financial institutions involving countries/persons subject to sanctions regulations issued by OFAC through 2008, even as personnel within these entities were aware of the sanctions programs requiring US financial institutions to block and reject transactions involving such countries. In addition to monetary penalties, the Federal Reserve Board announced that Crédit Agricole and CACIB have consented to a cease and desist order requiring the firms to implement an enhanced global compliance program to meet US sanctions requirements administered by OFAC. CACIB has also entered into settlement agreements with OFAC, the New York District Attorney’s Office and the NYDFS. Furthermore, CACIB has entered into deferred prosecution agreements with the US Attorney’s Office of District of Columbia for violations of the International Emergency Economic Powers Act and the Trading With the Enemy Act and with the New York County District Attorney’s Office for violations of New York State law based on falsification of records of New York financial institutions. The NYDFS has also required Crédit Agricole to install an independent consultant for one year.
US Securities and Exchange Commission Charges UBS for Misleading US Investors as a Structured Products Issuer
The SEC announced that UBS AG has agreed to pay $19.5 million to settle charges that it misled US investors by providing false or misleading statements and omissions in its offering materials regarding certain structured notes linked to a proprietary foreign exchange trading strategy. The SEC investigation found that UBS falsely stated that the investment relied on a "transparent" and "systematic" currency trading strategy and used "market prices" to calculate the securities underlying the index to which the securities were linked, the V10 Currency Index with Volatility Cap. However, the company did not disclose that its employees were engaged in certain hedging trades that could impact the index price, which trades were determined to have depressed the V10 Currency Index price by approximately five percent, resulting in losses to investors. This is the SEC’s first case related to misstatements and omissions by an issuer of structured notes.
View the SEC press release.
View the SEC order.
US Securities and Exchange Commission Charges Blackstone with Disclosure Failures
The US Securities and Exchange Commission announced that three private equity fund advisers within The Blackstone Group ("Blackstone") agreed to pay approximately $39 million to settle charges regarding their failure to inform investors about benefits that the advisers received from accelerated monitoring fees and legal fee discounts. Nearly $29 million of the $39 million will be distributed to fund investors impacted by the disclosure failures. According to the SEC’s order, Blackstone breached its fiduciary duty by failing to adequately disclose to fund investors the acceleration of monitoring fees paid by certain portfolio companies owned by its funds prior to the companies’ sale/initial public offering. In essence, these fees reduced the value of the companies prior to their sale. The SEC order states Blackstone further violated its fiduciary duty by negotiating a legal fee arrangement for services by an outside law firm that provided greater discounts for itself than the funds, without adequately disclosing such arrangement to fund investors.Without admitting or denying the findings by the SEC, Blackstone consented to the entry of the SEC order. Blackstone agreed to cease and desist from further violations and to disgorge $26.2 million of ill-gotten gains as well as prejudgment interest of $2.6 million. It further agreed to pay a civil penalty of $10 million.
View the SEC press release.
View the SEC order.
US Commodity Futures Trading Commission Orders Deutsche Bank AG to Pay a $2.5 Million Civil Monetary Penalty for Swaps Reporting Violations
The US CFTC issued its first action enforcing new requirements issued pursuant to Dodd-Frank that provide for real-time public reporting of swap transactions and the reporting of swap data to swap data repositories, against Deutsche Bank. The Order finds that Deutsche Bank, a provisionally registered Swap Dealer, failed to properly report its swaps transactions and did not have a satisfactory supervisory system governing its swaps reporting requirements. Deutsche Bank is required to pay a $2.5 million civil monetary penalty in addition to complying with certain steps to improve its internal controls related to the accuracy of its swaps reporting.
View the press release.
View the Order.
US Securities and Exchange Commission Charges Three RMBS Traders at Nomura Securities International with Defrauding Investors
The US Attorney’s Office for the District of Connecticut brought criminal charges, and the SEC announced civil charges, against three traders at Nomura Securities International. The traders were accused of lying to customers who were relying on such traders for honest and accurate pricing information with respect to certain residential mortgage-backed securities. As a result, the traders generated millions of dollars in additional revenue for Nomura. According to the SEC, the traders misrepresented the bids and offers being provided to Nomura for the securities, the prices at which Nomura purchased and sold RMBS, and the spreads the firm earned intermediating trades. The traders further directed junior traders to engage in similar behavior.
The US Attorney’s Office charges the traders with one count of conspiracy, two counts of securities fraud, and seven counts of wire fraud – all of which carry terms of imprisonment. The SEC’s complaint charges the three traders with violating Section 10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5 and Section 17(a) of the Securities Act of 1933.
View the U.S. Attorney's press release.
View the SEC press release.
View the SEC complaint.
US Securities and Exchange Commission Charges Citigroup Global Markets for Compliance and Surveillance Failures
On August 19, 2015, the US Securities and Exchange Commission announced that Citigroup Global Markets Inc. (CGMI) agreed to pay a $15 million penalty in connection with settling charges for failing to enforce policies and procedures to prevent and detect securities transactions that could involve the misuse of material, nonpublic information. Additionally, CGMI agreed that they had failed to implement policies and procedures to prevent and detect principal transactions conducted by an affiliate.
According to the SEC’s order, CGMI violated Section 15(g) of the Securities Exchange Act of 1934 requiring brokers and dealers to establish, maintain and enforce policies and procedures to prevent the misuse of material, nonpublic information. The SEC’s order also found that CGMI violated Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-(7) requiring registered investment advisers to adopt and implement written policies and procedures reasonably designed to prevent violations of the Advisers Act and its rules. In additional to paying the penalty, CGMI has agreed to hire a consultant to review and recommend improvements to the firm’s trade surveillance and advisory account order handling and routing.
View the press release.
US Securities and Exchange Commission Charges BNY Mellon with Foreign Corrupt Practices Act Violations08/18/2015
Citigroup Affiliates to Pay $180 Million to Settle Hedge Fund Fraud Charges with US Securities and Exchange Commission
08/17/2015 | http://www.sec.gov/news/pressrelease/2015-168.html
US Consumer Financial Protection Bureau, US Office of the Comptroller of the Currency and US Federal Deposit Insurance Corporation Announce Enforcement Actions Against Citizens Bank
On August 12, 2015, the Consumer Financial Protection Bureau, Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation each issued enforcement actions against various Citizens Bank entities for unfair and deceptive and unsafe and unsound practices relating to the processes by which the bank reconciled discrepancies between amounts shown on deposit tickets and the actual amount of items submitted for deposit in violation of Section 5 of the Federal Trade Commission Act and other applicable laws. The enforcement actions impose civil money penalties on Citizens Bank and order the various entities to make restitution to affected customers and businesses as well as take certain other remedial corporate governance and other compliance-related actions.
View the press release.
UK High Court Issues Injunction and Penalties for Market Abuse
The UK High Court of Justice, Chancery Division issued a judgment granting a permanent injunction to prohibit market abuse and imposing fines amounting to £7,750,000 against Da Vinci Invest Ltd and Mineworld Ltd as well as individual traders Szabolcs Banya, Gyorgy Szabolcs Brad and Tamas Pornye. Four of the five defendants were resident or incorporated abroad. The defendants were found to have committed market abuse in 2010 and 2011 using a trading tactic called “layering” or “spoofing,” which enabled them to trade UK-listed shares at artificial prices. This is the first time that the Financial Conduct Authority has asked the High Court to impose a permanent injunction for market abuse and to impose a penalty. Usually, the FCA would impose any penalty for market abuse.
View the judgment.
View the FCA’s press release.
UK Regulators Publicly Censure the Co-operative Bank for Risk Management Failings
The Prudential Regulation Authority and Financial Conduct Authority issued final notices publicly censuring the Co-operative Bank Plc. The PRA and FCA carried out a joint investigation and found serious breaches and failings in the bank’s systems between July 2009 and December 2013. The PRA focused its investigation on the bank’s risk management framework, capital management and corporate lending policies, whist the FCA focused on the bank’s publication of false and misleading information on the bank’s capital, which amounted to breaches of the listing rules. The regulators found, amongst other things, that the bank had: (i) inadequately assessed the level of risk it assumed, leading to a failure to manage that risk; (ii) mismanaged the information that it produced, leading to the bank’s Board not being familiar with key issues affecting the bank’s business; and (iii) prioritized its short-term financial position without taking reasonable and prudent actions for the longer-term. Both the FCA and PRA also noted the lack of notification to them of changes in senior management at the bank. These failings would usually trigger considerable fines however the regulators are not imposing any financial penalty, deeming it more appropriate to issue a public censure, in the interest of maintaining the safety and soundness of the firm. The regulators also took into account the turnaround plan that the bank has put in place to remedy the failings and to meet the individual capital guidance provided by regulators. The PRA would have otherwise imposed a significant fine of around £120 million on the bank.
View the PRA's final notice.
View the FCA's final notice.
New York State Department of Financial Services Issues Report on Investigation of Promontory Group08/03/2015 | http://www.dfs.ny.gov/reportpub/promontory_inv_rpt_2015.pdf.
UK Conviction for Manipulation of LIBOR
Tom Hayes was convicted in the UK for conspiracy to defraud and sentenced for 14 years in prison. The conviction relates to the investigation by the Serious Fraud Office into the manipulation of LIBOR. The trial for the alleged co-conspirators of Mr. Hayes will begin on September 21, 2015. The Financial Services Act 2012 introduced the criminal offence of knowingly or deliberately making false or misleading statements in relation to benchmark-setting as well as making the administration of a benchmark a regulated activity.
View the SFO press release.
Financial Conduct Authority Bans Former Trader from UK Financial Services Industry 07/30/2015
The Financial Condict Authority announced that it had banned Lee Stewart from the UK financial services industry. Mr. Stewart pleaded guilty in March 2015 in the US to charges of attempting to manipulate US Dollar LIBOR. He was formerly a trader at Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. The FCA found that Mr. Stewart had breached the Fit and Proper requirements set out in its Handbook because he lacked integrity and honesty. The ban, which took effect on July 21, 2015, prohibits Mr. Stewart from carrying out any function in relation to any regulated activity carried out by any authorized firm, exempt person or exempt professional firm.
View the final notice.
European Securities and Markets Authority Issues Public Notice to European Credit Rating Agency
The European Securities and Markets Authority issued a public notice to EU credit rating agency DBRS Ratings Limited for failing to comply with corporate governance, compliance and record-keeping requirements under the EU Credit Rating Agencies Regulation. ESMA found DBRS to have governance arrangements whereby the board of directors and a body called the Executive Group worked alongside one another. There was however no delegation by the directors to the Executive Group and the two bodies did not report to each other. ESMA also found that DBRS failed to have adequate policies or maintain decision-making procedures and organizational structures which clearly specified responsibilities and reporting lines. DBRS was fined €30,000 for acting negligently in record-keeping failings.
View the public notice.
Report on Credible Deterrence in the Enforcement of Securities Regulation
The International Organization of Securities Commissions published a report on credible deterrence in the enforcement of securities regulation. With the objective of promoting awareness of deterrence, the report sets out the following as factors that may lead to credible deterrence of misconduct in the securities and investment markets if adopted by regulators: (i) legal certainty of the consequence of misconduct; (ii) detecting misconduct by being well connected and getting the right information; (iii) co-operation and collaboration between regulatory authorities; (iv) bold and resolute enforcement in investigations and prosecution of misconduct; (v) strong punishments which ensure that there is no profit from misconduct; (vi) promoting public understanding; and (vii) good regulatory governance.
View the report.
OCC Announces Plans to Escheat Funds from the Foreclosure Review, the Termination of Orders against Certain Mortgage Servicers and the Imposition of Restrictions on Six Other Mortgage Servicers
The OCC announced its intention to escheat at the end of 2015 any remaining uncashed payments made pursuant to the Independent Foreclosure Review Payment Agreement. According to OCC estimates, approximately $280 million from OCC-supervised institutions will remain unclaimed at the end of 2015 despite efforts to locate eligible borrowers. The decision to escheat all funds available from uncashed checks provides an opportunity for the remaining eligible borrowers and their heirs to claim the funds through their states’ escheatment claims processes. Concurrently with the decision, the OCC terminated foreclosure-related consent orders against three national bank mortgage servicers (Bank of America, N.A., Citibank N.A., and PNC Bank, N.A.) that the OCC deemed to have met the consent order requirements, and imposed business restrictions on six banks that have not completed the required corrective actions. The restrictions issued by the OCC include limitations on the acquisition of residential mortgage servicing or residential mortgage servicing rights; new contracts for the bank to perform residential mortgage servicing for other parties; outsourcing or sub-servicing of new residential mortgage servicing activities to other parties; off-shoring new residential mortgage servicing activities; and new appointments of senior officials responsible for residential mortgage servicing or residential mortgage servicing risk management and compliance. The specific restrictions imposed on the banks vary based on the particular circumstance of each bank.
View the OCC press release.
Lloyds Banking Group Fined for Failures to Handle PPI Complaints Fairly
The Financial Conduct Authority issued a final notice imposing a fine of £117m on Lloyds Bank Plc, Bank of Scotland Plc and Black Horse Ltd (together LBG). The fine relates to the unfair approach of LBG’s complaint handling operations and failures to treat customers fairly when handling Payment Protection Insurance complaints between March 2012 and May 2013. In handling PPI complaints, LBG designed and implemented a policy which sought to comply with the rules and guidance of UK regulators. However, during the relevant period, LBG advised its complaint handlers that LBG’s PPI sales processes had been “compliant and robust,” unless notified otherwise. This was described as “the Overriding Principle.” The Overriding Principle affected the judgments of some complaint handlers who relied on this principle to dismiss customer accounts of what had happened during the PPI sale, and some complaints were therefore not fully investigated. LBG also failed to notify its complaints handlers of the known failings of its sales of PPI. The investigation showed that a significant number of customer complaints were rejected unfairly due to these reasons. The FCA found that customers who had originally been mis-sold PPI and treated unfairly were once again treated unfairly and denied the redress that was owed to them.
View the final notice.
US Securities and Exchange Commission Charges Deutsche Bank with Misstating Financial Reports during Financial Crisis
The US Securities and Exchange Commission announced a settlement with Deutsche Bank AG in connection with the filing by Deutsche Bank of misstated financial reports during the financial crisis that failed to take into account a material risk for potential losses estimated to be in the billions of dollars. The investigation found that Deutsche Bank overvalued a derivatives portfolio consisting of Leveraged Super Senior trades through which the bank purchased protection against credit default losses. Because these positions were leveraged, the collateral posted for such positions by the sellers was only a fraction of the total in purchased protection. This leverage created a "gap risk" that the market value of Deutsche Bank’s protection could at some point exceed the available collateral, and the sellers could decide to unwind the trade rather than post additional collateral in that scenario. Thus, Deutsche Bank was not protected for the full market value of its credit protection. In connection with the settlement, and in addition to the SEC cease and desist order, Deutsche Bank agreed to pay a $55 million penalty.
View the SEC order.
View the SEC press release.
UK Financial Conduct Authority Fines Barclays for FX Failings
The Financial Conduct Authority imposed a fine of £284.4 million on Barclays Bank PLC for failing to have adequate systems and controls in place over its FX business in London. The FCA considered that the failings were particularly serious because of the potential impact on the systematically important spot FX market. The failure by the bank to have the necessary systems and controls in place led its traders to engage in misconduct such as inappropriate sharing of information of clients’ activities, attempts to manipulate spot FX currency rates and colluding with traders at other firms.
View the FCA’s final notice.
US Financial Regulators Impose Fines on Six Major Banking Organizations for Practices in the Foreign Exchange Markets
Merrill Lynch International Fined for Transaction Reporting Failures
The Financial Conduct Authority fined Merrill Lynch International £13,285,900 for failing to report, or to accurately report, transactions between November 2007 and November 2014. Transaction reporting is required to assist the FCA in monitoring the market and to provide information relating to investigations into market abuse, insider trading and market manipulation. In the final notice, the FCA notes that Merrill Lynch has since taken steps to ensure accurate reporting and to remediate the causes of the failings, including a review of internal systems and processes.
View the final notice.
BNY Mellon Fined by Financial Conduct Authority for Failing to Comply with Custody Rules
The Financial Conduct Authority announced that it had fined The Bank of New York Mellon, London Branch and The Bank of New York Mellon International Limited, £126 million for failing to arrange adequate protection for the safe custody of client assets and for failing to comply with the FCA custody rules as set out in the Client Assets Sourcebook under which firms are required to maintain records and reconcile accounts at regular intervals on a legal entity-specific basis. The breaches occurred between November 1, 2007 and August 12, 2013. The FCA’s custody rules aim to ensure that the wind-down of an insolvent firm could be carried out in an orderly manner with minimum loss to clients and as little delay in the return of assets to clients. According to the FCA, the BNY entities are the third and eighth largest custody banks in the UK and a failure of either firm could have a severe impact on the UK market and therefore their breaches were considered to be very serious.
View the FCA announcement and final notices.
German Regulator Imposes Fine on BlackRock Investment Management
The German Federal Financial Supervisory Authority issued a press release stating that it has imposed a fine of €3.25m on BlackRock Investment Management (UK) Ltd for publishing information late or incorrectly on its holdings of corporate voting rights and financial instruments. The inaccurate and late disclosures are deemed to have happened further to a misinterpretation of German disclosure rules and the German regulator stated that BlackRock had approached BaFin on the matter so that it could be rectified.
View the press release
UK Regulator Bans Former Trader Following LIBOR Related Conviction in US
The Financial Conduct Authority issued a press release and final notice announcing that it has banned a former Rabobank trader, Paul Robson, from the UK financial services industry further to his guilty plea and criminal conviction in the US for fraud and conspiracy to manipulate Rabobank’s Yen LIBOR submissions. In January 2014 Mr Robson was criminally charged along with two others by the US Justice Department for wire fraud that took place between 2006 and 2011. Mr Robson’s sentencing is due to take place in June 2017.
View the FCA’s press release and final notice
Federal Reserve Board and Other Agencies Announce Civil Money Penalty and Cease and Desist Order Against Commerzbank
The Federal Reserve Board announced a $200 million civil money penalty and issued a cease and desist order against Commerzbank AG due to violations of the Bank Secrecy Act and other anti-money laundering laws, as well as certain US sanctions requirements. Commerzbank, along with its US branch, will be required to implement an enhanced global compliance program going forward. The Federal Reserve Board order is issued in conjunction with actions from the US Department of Justice, the US Department of Treasury’s Office of Foreign Assets Control, the New York County District Attorney’s Office, and the New York Department of Financial Services, with total fines totaling $1.71 billion.
View the Federal Reserve Board press release
UK Regulator Imposes Fines and Ban on Bank of Beirut (UK) Ltd
The Financial Conduct Authority imposed a fine of £2.1 million on Bank of Beirut (UK) Ltd for repeatedly providing misleading information to the FCA on the bank’s financial crime systems and controls. The FCA also banned the bank from securing new customers from high-risk jurisdictions for 126 days, and imposed fines on the bank’s internal auditor and former compliance officer of £9,600 and £19,600 respectively for failing to deal with the FCA in an open and cooperative way when asked about steps taken by the bank to mitigate the risk of financial crime. The bank also provided the FCA with false assurances on the improvements made to its processes.
View the FCA’s final notices
UK Regulator Fines Aviva Investor Global Services Ltd
The Financial Conduct Authority imposed a fine of £17.6 million on Aviva Investor Global Services Ltd for failing to manage conflicts of interest fairly between its customers, and between itself and its customers. Aviva used a “side-by-side” approach in the management of some of its desks, which meant that the same desks were used in the management of funds paying out different levels of performance fees. This structure created conflicts of interest, as traders were incentivized to favor certain funds over others. Weaknesses in the Aviva systems and processes were found which meant that traders were able to delay recording the allocation of executed trades for several hours. Traders who managed funds on a side-by-side basis could evaluate trade performance during the course of the day and, when recorded, allocate trades with favorable intraday price movements to one fund, and trades with unfavorable movements to others, which amounted to an abusive practice generally known as “cherry picking.” Compensation in the sum of £132,000,000 has already been made by Aviva to the eight funds it identified as possibly having been adversely affected by its failings.
View the FCA’s final notice
Enforcement Powers over Auditors and Actuaries Granted to UK Regulators
HM Treasury published the Financial Services and Markets Act 2000 (Regulation of Auditors and Actuaries) (PRA Specified Powers) Order 2015 together with an explanatory memorandum. The Order gives effect to enforcement powers previously granted to the Prudential Regulation Authority over auditors and actuaries under the Financial Services Act 2012. The PRA was not able to use these powers until HM Treasury granted effect to those powers under this Order. The Order allows the PRA to apply dissuasive sanctions such as monetary fines or disqualification measures on auditors and actuaries that breach PRA rules or statutory duties. The PRA intends to issue further guidance on the use of these enforcement powers following a consultation. The Order enters into force on February 20, 2015.
View the Order.
View the Explanatory Memorandum.
UK Financial Conduct Authority Takes Further Action for Misconduct relating to LIBOR
The UK Financial Conduct Authority imposed a fine on two former senior executives of Martin Brokers (UK) Ltd and banned them from performing significant influence functions at financial services firms. The sanctions relate to compliance and cultural failings that contributed to misconduct relating to the London Interbank Offered Rate. The FCA found that David Caplin and Jeremy Kraft contributed to a culture that allowed LIBOR manipulation to take place. They were also found to have enabled the misconduct to continue unnoticed over an extended period of time. David Caplin was fined £300,000 and Jeremy Kraft was fined £150,000. Both individuals settled at an early stage of the investigation and qualified for a 30% discount under the FCA’s settlement discount scheme. These are the first fines issued by the FCA to individuals holding significant influence functions for failings that contributed to LIBOR misconduct.
Conviction of Unauthorized Forex Trader
Alex Hope was found guilty in the UK of fraud for operating an investment scheme without authorization. Mr Hope claimed to be making large returns for investors by trading their money on the foreign exchange market. He was found to have taken over £5 million of investor money and to have used over £2 million of it for personal expenditure. He appeared to be a successful trader whilst in reality he was making heavy losses. Raj Von Badlo, Mr Hope’s co-defendant, pleaded guilty in July last year to recklessly making false representations to investors and promoting a collective investment scheme without authorization. Both individuals will be sentenced on January 16, 2015.