Financial services investigations and enforcement monthly round-up - April 2019
A round-up of recent enforcement actions and investigations in the financial services sector.
- The FCA issued an ambitious business plan earlier this month which sets out its key priorities for the next 12 months.
- Whilst ensuring the UK's withdrawal from the EU is smooth remains top of the priority list, the FCA have some stretching cross-sector work planned in the coming year. The Business Plan recognises the speed of technological change and consequently the changing ways consumers are engaging with firms to access products and services. Focus on firms' culture, individual responsibility and financial crime threats remain high.
- Read our summary on how this will impact your firm.
- The FCA published its updated Approach to Enforcement and Approach to Supervision documents following consultations last year.
- Key objectives of these documents are to provide further transparency into how the FCA intends to further their Mission through the use of its statutory powers. The Approach to Enforcement sees the FCA reiterate its focus on identifying harm quickly and utilising all of its powers to secure better outcomes for customers. Read more
- The FCA has fined Standard Chartered Bank (Standard Chartered) £102.2 million for AML control breaches. This is the second largest penalty ever imposed by the FCA in relation to AML breaches, the largest being its £163 million fine of Deutsche Bank in 2017.Standard Chartered failings relate to two higher risk areas of its business, its UK Wholesale Banking correspondent business and branches in the United Arab Emirates between 2009-2014.
- The FCA found serious and sustained shortcomings in Standard Chartered's AML controls, and identified that they failed to establish and maintain risk-sensitive policies and procedures. In its UAE branches, it failed to apply UK equivalent AML and counter-terrorist financing controls.
- Standard Chartered benefitted from a 30% discount to the financial penalty on the basis of its agreement to the relevant facts. It also made successful representations to reduce the financial penalty in "Step 2" of the FCA's penalty calculation. This step considers the proportionality of the penalty and the Deutsche Bank fine appears to have been used by Standard Chartered as a useful leveller.
- A spokesperson for the FCA stated that "these breaches are especially serious because they occurred against a backdrop of heightened awareness within the broader, global community."
- Focused Resolution Agreements (FRAs) have been available for parties subject to enforcement proceedings to enter into since March 2017.There has been much talk about their efficacy; we now have the first three final decisions published where FRAs were utilised.
- FRAs allow the party under investigation to reach “an agreed position on one or more, but not all of the issues relevant to a proposed enforcement action”. This, should, speed up the enforcement process and allow parties under investigation to contest certain aspects (most likely the level of financial penalty) of the FCA's case.
- The three cases mentioned above include those related to Standard Chartered, Linear Investments (reported in this newsletter) and the Carphone Warehouse fine (reported in March).
- The FCA has fined Goldman Sachs International (GSI) £34.3 million for failing to provide accurate and timely reporting relating to 220.2 million transaction reports between November 2007 and March 2017.
- Transaction reports help the FCA identify possible instances of market abuse and tackle financial crime. GSI failed to provide complete, accurate and timely information in relation to approximately 213.6 million reportable transactions. Over the period of nearly 10 years, the FCA found that GSI made 220.2 million errors in its transaction reporting.
- Mark Steward, FCA Executive Director of Enforcement and Market Oversight commented that the investigation found "serious and prolonged failures" and reminded all firms to "ensure they can fully detail their activity and are regularly checking their systems".
- The fine imposed could have been as high as £49 million, had GSI not agreed to resolve the case and therefore qualifying for a 30% discount of the overall penalty.
- Samrat Deep Bhandari, who was sentenced in January 2018 to 3 and a half years’ imprisonment for his role in operating an investment scheme which led to 300 investors losing £1.4 million, has this month been subject to a prohibition order.. The FCA decided that Mr Bhandari is not a fit and proper person to perform a regulatory activity.
- Mr Bhandari was a director of William Albert Securities Ltd, a UK company which acted as corporate advisors to Symbiosis Healthcare Plc and mis-sold their shares to many vulnerable investors.
- In addition to the custodial sentence, Mr Bhandari was also disqualified from holding the position of Director for 12 years in January 2018. It is unclear why the FCA waited over a year to take this action.
- On 9 April 2019, the Upper Tribunal agreed with the FCA that it was appropriate to impose a penalty of £409,300 on Linear Investment Services (Linear).
- Linear is an authorised firm providing its clients with a range of brokerage services, including access to trade execution via electronic Direct Market Access. There was an inherent risk that clients may commit market abuse and Linear did not carry out its own separate surveillance, instead relying on post-trade surveillance carried out by brokers who executed the transactions.
- In June 2018, the FCA issued a Decision Notice citing Linear's failure to take reasonable care to organise and control its affairs responsibly and effectively. Linear agreed the factual findings but disputed the £409,300 penalty.
- This was the first decision by the Upper Tribunal to consider partly contested cases. It allows firms or individuals under investigation to enter into a contract called a Focused Resolution Agreement (FRA) where only parts of the case are agreed (see above).
- A 30% reduction to the penalty applies to cases where the parties have entered into an FRA. If Linear had not participated in the FRA, the penalty imposed could have been significantly higher.
- The FCA has published a Feedback Statement summarising the responses received to its Discussion Paper – ‘A duty of care and potential alternative approaches’.
- The FCA plans to review its Principles of Business and consider changes to its regulatory approach to increase protection for consumers.
- Further consultation on specific changes should follow in the autumn.
- From 1 April 2019, the FCA will regulate the claims management industry. All new and existing claims management companies (CMC's) will need to apply to the FCA for authorisation.
- More than 900 CMC's have registered for temporary permission to continue operating whilst they go through the FCA authorisation process. Once authorised, the FCA has a range of tools and powers it can use if firms do not comply with the rules. This may involve requiring a firm to change its business practices, impose financial penalties or refuse authorisation if there is serious misconduct.
- The FCA has said that the new regime "has consumer protection and CMC professionalism at its heart. It will mean that customers will be protected from claims management cowboys and get a better deal".
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at April 2019. Specific advice should be sought for specific cases. For more information see our terms & conditions.