UK Brokerage Firm Fined for Inadequate Controls Against Potential Market Abuse

The U.K. Financial Conduct Authority has published a Decision Notice (dated June 7, 2018) imposing a fine of £409,300 on a U.K. brokerage firm for failure to take reasonable care to organize and control its affairs responsibly and effectively with adequate risk management systems in relation to the detection and reporting of potential instances of market abuse.

During the period from January 2013 to August 2015, the firm was authorized by the FCA and provided its customers with a range of services, including placing trades on behalf of clients with wholesale Direct Market Access providers. The firm would enter into DMA agreements with the wholesale brokers and separately enter into individual contracts with clients wishing to trade, thereby providing a "back to back" market access service. This arrangement meant that trading activity was primarily monitored by compliance-based surveillance. The firm was unaware until November 2014 that it needed to conduct its own post-trade surveillance and had relied instead on post-trade surveillance checks being undertaken by underlying brokers. The firm did not have an adequate post-trade surveillance capability until August 2015.

The FCA found that the firm failed to take care to ensure that it could conduct post-trade surveillance adequately, which increased the risk that potentially suspicious trading would go undetected. This breached Principle 3 of the FCA's Principles for Businesses. This is the first case to be completed under a new process introduced for partly contested cases. The firm has agreed with the FCA's findings and accepted liability. However, it has disputed the amount of the penalty and the matter has been referred to the Upper Tribunal for reconsideration of that issue.

View the Decision Notice.

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