Financial services investigations and enforcement monthly round-up - March 2019

A round-up of recent enforcement actions and investigations in the financial services sector.

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FCA fines UBS AG £27.6 million

  • The FCA has fined UBS AG £27.6 million for transaction reporting failures between November 2007 and May 2017.
  • Transaction reports detailing information about transactions such as the buyer and seller are sent to the FCA so that the authority can meet its objective of protecting and enhancing the integrity of the UK's financial system.
  • When a firm reports its transactions, it may do so through an Approved Reporting Mechanism which is a system that complies with the specific requirements detailed in the Markets in Financial Instruments Directive (MiFID).
  • The FCA found that UBS failed to report approximately 3.65 million transaction reports and failed to accurately report 83 million executed transactions. Overall, the FCA found UBS had failings relating to 135.8 million transactions that were reported under MiFID rules.
  • UBS qualified for a 30% discount because they agreed to resolve the matter under the FCA's executive settlement procedures. If it were not for this discount, the FCA would have imposed a fine of nearly £40 million.
  • This investigation and substantial fine illustrates the FCA's focus on market integrity and ensuring the information it receives is complete and accurate.

FCA fines Carphone Warehouse £29 million

  • The FCA has fined Carphone Warehouse £29.1 million for failings that led to the mis-selling of "Geek Squad", a mobile phone insurance product.
  • The FCA, alerted by a whistle-blower, investigated the Carphone Warehouse's practices of selling Geek Squad policies between 2008 and 2015, where it was found the retailer sold policies worth over £444.7 million. The investigation found that a high proportion of these policies were subsequently cancelled early. In January 2014, 35% of the policies sold were cancelled in the first three months of inception.
  • The FCA commented that such a high level of cancelation rates should have been an indicator to The Carphone Warehouse of mis-selling, something that they did not consider.
  • In its findings, the FCA reported that the company failed to train staff in advising customers when buying the insurance, sales consultants were not trained to assess whether customers needed the cover and instead, staff were trained to recommend Geek Squad to customers who already had insurance. This meant customers purchased insurance they did not need and exposed them to the risk of paying for it if they did not cancel in time.
  • The fine imposed could have been as high as £41.6 million had the Carphone Warehouse not accepted the FCA's findings and qualified for the 30% penalty discount.

FCA seeks to extend powers to pensions market

  • The Competition Markets Authority (CMA) has recommended to that FCA that it should extend its powers to investment consultancy services and fiduciary managers, following an investigation into how pension trustees oversee and invest their funds.
  • Investment consultants advise pension trustees how they should invest their funds.
  • The CMA investigation found that pension trustees would continue to use an investment consultancy for fiduciary management even if a better deal is available elsewhere, meaning that the market prevents, restricts and distorts competition.
  • Following the CMA recommendations, the FCA has asked the Treasury to extend its own regulatory remit, to cover investment consultants and fiduciary manager.
  • The government has not confirmed yet that it will be making such recommendations. John Glen, economic secretary to the Treasury made a statement on 12 March 2019, stating that there were competing priorities for the government and the financial services sector, meaning the Treasury will consider the recommendation and consult in due course.

Bank of England announces supervisory action over Visa Europe's partial outage

  • On 1 June 2018 there was a partial service disruption of Visa Europe's card authorisation system. It resulted in widespread disruption to users of Visa Europe's services and had the potential to affect confidence in the financial system.
  • Following the incident, Visa Europe commenced an external independent review, the scope of which was agreed with the Bank of England and the Payment Systems Regulator.
  • The independent review provided recommendations to Visa Europe in response to the incident. The Bank of England has used its statutory powers under the Banking Act 2009 to direct Visa Europe to fully implement the recommendations. The Bank of England has also appointed PwC, as an independent third party to monitor and progress Visa Europe's implementation of the recommendations.
  • PwC will provide a report to the Bank of England later this year assessing the progress in the implementation of each recommendation.

FCA commences enforcement investigation into debt management firm

  • The FCA published a thematic review of the debt management sector on 15 March 2019, the second of its kind. In the review, the FCA called for improvements to be made by the debt management sector in its treatment of vulnerable customers.
  • The FCA has commenced supervisory action against firms that it found to have "unacceptably poor standards and practices" and has also opened an enforcement investigation in one case.
  • The FCA has given feedback to firms in the sample for review. Firms have been instructed to look at the FCA's findings and consider the implications for their business; the review includes both good and poor practice to help them understand the FCA's approach.
  • The FCA took over responsibility for regulation of consumer credit in 2014, and the sector has changed considerably. Out of the 311 commercial firms which offer debt management plans that applied for authorisation under the FCA regime, only 39 were successful thus illustrating the FCA's focus on improving the practices of this industry.

FCA issues first decision under competition law

  • On 21 February 2019, the FCA issued an infringement decision which found three asset management firms, namely Hargreave Hale Ltd, Newton Investment Management Limited and River and Mercantile Asset Management LLP (the firms), breached competition law.
  • The FCA described the infringements as the "sharing of strategic information between competing asset management firms during one initial public offering and one placing before the share prices were set". The firms "disclosed and/or accepted otherwise confidential bidding intentions, in the form of the price they were willing to pay and the volume".
  • The FCA said that through this conduct, the firms were able to know one another's plans during the IPO, where in fact, they should have been competing for shares. Fines of £414,900 were imposed on Hargreave Hale and Mercantile, with Newton Investment escaping financial penalty as a result of their assistance with the investigation.
  • Separately, on 5 February 2019, the FCA announced it fined an individual under FSMA for conduct related to the same facts.
  • This is the FCA's first formal decision under its competition law enforcement powers and illustrates the regulators willingness to intervene where it sees competition infringements.

SFO opens an investigation into London Capital & Finance

  • London Capital & Finance (LC&F) entered into administration at the end of January 2019 after the FCA stopped it accepting new investments.LC&F took investments totalling £236 million from 11,600 savers.
  • On 18 March 2019, the SFO announced it had opened an investigation (following a referral from the FCA to the National Economic Crime Centre) into individuals associated with LC&F. Four individuals were arrested and released pending further investigation.
  • The FCA raised concerns that LC&F's fixed-rate ISA was in fact a high-risk mini-bond scheme. Instead of individual savings accounts, the FCA indicated that LC&F was selling mini-bonds to make loans to small companies.
  • The FCA has stated that it intends to work much more closely with the SFO and other regulators to take a more joined up approach to information sharing and potential actions. However, the FCA has recently come under fire from the Treasury Committee for not acting fast enough to intervene in LC&F's collapse.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at March 2019. Specific advice should be sought for specific cases. For more information see our terms & conditions.  

Date published

27 March 2019


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