Shearman & Sterling LLP | Financial Regulatory Developments Focus
Financial Regulatory Developments Focus

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.

  • Bank of England Establishes Enforcement Decision Making Committee and Appoints Members

    Following a consultation that ran between November 2017 and February 2018, the Bank of England has published a policy statement on the procedure and necessary revisions to existing policies and procedures required for the establishment of an Enforcement Decision Making Committee.

    The EDMC has been established as a response to a recommendation from HM Treasury arising from its review of enforcement decision-making at the U.K. financial 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. The BoE has gone beyond HM Treasury's original recommendation and, going forward, the EDMC will be the BoE's decision-making body in contested enforcement cases that relate to all areas in which the BoE has enforcement powers (that is, prudential regulation, financial market infrastructure, resolution and note issuances). It will ensure the necessary functional separation between the BoE's investigation teams and decision-makers.

    Alongside the Policy Statement, the BoE has published revised statements of policy and procedures reflecting the EDMC's establishment. These cover the EDMC's remit and operation and the selection, appointment, remuneration and governance of EDMC members. The BoE has also issued a press release announcing its appointment of six EMDC members. Members are appointed for renewable, fixed, three-year periods and cannot serve more than two consecutive terms.

    Read more.
    TOPICS: EnforcementPeople
  • Five EU Banks Fined for Issuing Credit Ratings Without Authorization

    The European Securities and Markets Authority has fined five EU banks for issuing credit ratings without being authorized to do so by ESMA. The Credit Rating Agencies Regulation requires firms to register with ESMA as a Credit Rating Agency before issuing credit ratings to ensure that such ratings are independent, objective and of adequate quality.

    ESMA found that the banks had each issued credit research to their clients that included shadow ratings and opinions. ESMA deemed that these aspects of the reports amounted to a credit rating as defined in the CRA Regulation. None of the five banks have been authorized by ESMA under the CRA Regulation, nor have any of them applied for such authorization.

    The banks have a right of appeal to the Board of Appeal of the European Supervisory Authorities.

    View ESMA's press release and decision notices.
  • UK Serious Fraud Office Confirms Benchmark Manipulator Sentencing and Will Pursue Retrial of Bankers for Benchmark Manipulation

    The U.K.'s Serious Fraud Office has announced that two former bankers that had been convicted of conspiracy to defraud for manipulating the Euro Interbank Offered Rate (EURIBOR) have been sentenced to a combined total of just over 13 years' imprisonment. The SFO has also announced that it is going to pursue a retrial of three other bankers for whom the jury could not reach verdicts.

    View the SFO's announcement.
    TOPIC: Enforcement
  • Two Bankers Found Guilty by UK Court of Manipulating EURIBOR

    The U.K.'s Serious Fraud Office has announced that two former bankers have been found guilty by a jury of conspiracy to defraud for manipulating the Euro Interbank Offered Rate (EURIBOR). One other former banker has been found not guilty by a jury. The findings follow an investigation launched by the SFO 2012.

    The jury could not reach verdicts on the case of three other bankers. By July 20, 2018, the SFO will inform the court whether it intends to proceed with a retrial. The two convicted bankers will be sentenced on July 20, 2018.

    View the SFO's press release.
    TOPIC: Enforcement
  • US Federal Banking Regulators Issue Policy Statement Regarding Coordination of Enforcement Actions

    The U.S. Board of Governors of the Federal Reserve System, U.S. Office of the Comptroller of the Currency and U.S. Federal Deposit Insurance Corporation issued a policy statement with respect to notification and coordination of formal enforcement actions. The policy statement was issued in response to the rescission of the Federal Financial Institutions Examination Council's "Interagency Coordination of Formal Corrective Action by the Federal Bank Regulatory Agencies" revised policy statement, which was issued on February 20, 1997. The interagency policy statement provides that when a federal banking regulator determines that it will take a formal enforcement action against any federally insured depository institution, depository institution holding company, non-bank affiliate, or institution-affiliated party, the agency should consider whether the enforcement action involves the interests of another federal banking regulator. If it is determined that the enforcement action does involve the interest of another federal banking regulator, the agency proposing the enforcement action should notify the other relevant federal banking agency or agencies at the earlier of when written notification is provided to the subject financial institution regarding the enforcement action, or when the respective agency determines that an enforcement action is expected to be taken. If it is determined that the enforcement action does involve the interest of another federal banking regulator, the agency proposing the enforcement action should provide sufficient information to allow the other federal banking regulator to take necessary action in examining or investigating the financial institution or institution-affiliated party.

    Read more
    TOPIC: Enforcement
  • Major European Investment Bank Settles Charges of Manipulation, Attempted Manipulation and False Reporting of Reference Rates

    On June 4, 2018, the Commodity Futures Trading Commission filed and settled charges against a major European investment bank, and the U.S. Department of Justice entered into a deferred prosecution agreement with the bank relating to charges of manipulation and attempted manipulation of LIBOR and Euribor at various points from 2006 to 2012.

    The CFTC and DOJ alleged that from around 2010 to 2012, the investment bank made deliberately false reports of USD and Euro LIBOR and Euribor to artificially lower the bank's submissions to create the appearance that the bank was able to borrow money at more favorable rates and was therefore more creditworthy than it was.

    Read more.
    TOPIC: Enforcement
  • New Memorandum of Understanding Signed Between UK Financial Conduct Authority and Insolvency Service

    The U.K. Financial Conduct Authority and the Insolvency Service have signed a Memorandum of Understanding to establish a framework for their cooperation in matters of common interest.

    Both the FCA and the IS have statutory powers of investigation and enforcement under their respective enabling legislation. Both organizations are also legally obliged, from May 25, 2018, to handle personal information according to the requirements of the EU General Data Protection Regulation.

    The areas of cooperation include misconduct, investigations and enforcement within their respective remits.

    The MoU outlines the structure and process for the FCA and IS to be able to exchange information (including personal data) and intelligence, in a lawful and proportionate manner, to further their respective objectives. The MoU includes details of the circumstances in which the FCA will be permitted to disclose confidential information (such disclosure generally being prohibited under the Financial Services and Markets Act 2000) and outlines how each of the two organizations will treat information that is subject to legal professional privilege, including the circumstances in which privilege might be waived. The FCA and IS have agreed to apply a number of principles for the exchange and use of information, including the sharing of intelligence, the use of information for investigations and enforcement or other action, how data security controls will be applied and how data breaches will be handled.

    The FCA and IS will monitor the effectiveness of the MoU and review it from time to time as necessary. The MoU has been published on the website of each organization.

    View the MoU.
  • European Commission Proposes Protective Legislation for Whistleblowers Reporting EU Law Breaches

    The European Commission has published a proposal for a Directive on the protection of persons reporting on breaches of Union law. Whistleblowers help prevent damage and detect threat or harm to the public interest that may otherwise remain hidden, but fear of retaliation can often discourage them from reporting concerns.

    The importance of providing effective whistleblower protections for safeguarding the public interest has been acknowledged both at European and international level. At EU level, whistleblower protections are currently provided only for specific sectors and to varying degrees. This means that, in many situations, whistleblowers are not properly protected against retaliation. The proposed Directive will address this fragmentation by encompassing "the broadest possible range of categories of persons, who, by virtue of work-related activities (irrespective of the nature of these activities and whether they are paid or not), have privileged access to information about breaches." Areas covered include financial services, money laundering and terrorist financing.

    Read more.
  • UK Regulator Consults on Mission Approach Documents for Supervision and Enforcement

    The U.K. Financial Conduct Authority has published two consultations, seeking feedback on draft documents setting out its regulatory approach to supervision and enforcement. The two documents, once finalized, will form part of a series of formal "approach documents" explaining the FCA's approach to regulation in more depth. They should be read alongside the FCA's Mission document, which was first published in October 2016 and most recently updated in November 2017.

    Read more.
    TOPIC: Enforcement
  • 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).

    Read more.
  • 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.

    Read more.
    TOPIC: Enforcement
  • 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.

    Read more.
    TOPIC: Enforcement
  • US Department of Justice and Federal Financial Regulators Allege AML Failures at Large US Financial Institution and Its National Bank Subsidiary

    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.

    Read more.
    TOPIC: Enforcement
  • 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.
    TOPIC: Enforcement
  • 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.
    TOPIC: Enforcement
  • 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.

    Read more
    TOPIC: Enforcement
  • Federal Reserve Board Adjusts Maximum Civil Money Penalties
    The 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.
    TOPIC: Enforcement
  • 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.
    TOPIC: Enforcement
  • 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.
    TOPIC: Enforcement
  • 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.
    TOPIC: Enforcement
  • 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
    TOPIC: Enforcement
  • 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.
    TOPIC: Enforcement
  • 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.

    Read more.
    TOPIC: Enforcement
  • 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.
    TOPIC: Enforcement
  • 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.
    TOPIC: Enforcement
  • 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. 

    Read more.
    TOPIC: Enforcement
  • 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. 

    Read more.
    TOPIC: Enforcement
  • 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. 

    Read more.
  • 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.

    Read more.
  • 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.
    TOPIC: Enforcement
  • 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.
    TOPIC: Enforcement
  • 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.
    TOPIC: Enforcement
  • 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.

    Read more.
    TOPIC: Enforcement
  • 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.
    TOPIC: Enforcement
  • 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. 

    Read more.
    TOPIC: Enforcement
  • 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. 

    Read more.
    TOPIC: Enforcement
  • 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.
    TOPIC: Enforcement
  • 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
    TOPIC: Enforcement
  • 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 hearing.

    View Comptroller statement.
    TOPIC: Enforcement
  • 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). 

    Read more.
    TOPIC: Enforcement
  • 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.
    TOPIC: Enforcement
  • 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. 

    Read more.
    TOPIC: Enforcement
  • 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.
    TOPIC: Enforcement
  • 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.
    TOPIC: Enforcement
  • 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.
    TOPIC: Enforcement
  • 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.

    Read more.
  • 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
    TOPIC: Enforcement
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