Sun. Feb 23rd, 2020

Planet Compliance

Innovation & Regulation in Finance

FCA fines and restricts stockbroker for market abuse risks

4 min read

The Financial Conduct Authority (FCA) has fined W H Ireland Limited (WHI) £1.2million. The firm is also restricted for a period of 72 days from taking on new clients in its corporate broking division.

The FCA found that between 1 January and 19 June 2013, WHI failed to ensure it had the proper systems and controls in place to prevent market abuse being detected or occurring. WHI’s failings, which amounted to a breach of Principle 3, included:

  • deficient controls to ensure inside information did not leak from the private to the public side of its business or in ensuring disclosure to external parties was conducted in a controlled manner with proper safeguards in place
  • inadequate personal account dealing rules for employees
  • failures to maintain an effective written conflicts of interest policy, and inadequate recording of the kinds of service or activity carried out by WHI in which a conflict of interest had arisen or may arise
  • deficient compliance oversight, including the absence of formal risk management framework for market abuse and inadequate post-trade surveillance systems, in which parameters did not match WHI’s specific business activities or the full breadth of its market abuse risks, were set too narrowly to be effective and produced exceptions that were not reviewed in a timely and consistent manner.

The FCA considers these failings to be particularly serious because:

  • the range of services that WHI performed during this time meant that WHI was exposed to a broad range of market abuse risks
  • WHI received inside information on a regular basis. As such there was significant scope for an adverse impact on the market and on a large number of other market participants if that inside information was mishandled

In addition to the breach of Principle 3, WHI also breached the Senior Management Arrangements Systems and Controls (SYSC) rules in the FCA Handbook concerning conflicts of interest.

The failings were identified by a Skilled Person appointed by the FCA in a report of August 2013. In July 2014, WHI commissioned a follow-up report to look at the extent to which it had complied with the Skilled Person’s recommendations. This second report showed that there were some recommendations which had not been implemented adequately within the time set by the Skilled Person. In addition, throughout this period, the FCA had also been communicating widely with all firms about their responsibilities for countering the risks of market abuse by having effective controls.

At the time the failings took place, WHI had around 9,000 private wealth clients with approximately £2.5 billion of assets under management. These clients may have bought and sold financial instruments or may have been advised to do so by the firm without the necessary protections in place. WHI also had 87 corporate broking clients. Due to the lack of proper systems and controls in place, the firm could not protect against the risk of market abuse in respect of the information provided by these clients.

Mark Steward, director of enforcement and market oversight at the FCA, said: “We expect all firms to have the right controls in place to mitigate risks and protect their clients and the integrity of the markets.

“In this case, WHI’s failings were aggravated by the failure to implement adequately the skilled person’s recommendations. It is one thing to be given a chance; for the chance not to be taken up is especially culpable.”

WHI received a 20% Stage 2 settlement discount, without which the fine would have been £1.5 million and the restriction would have been 90 days.

The FCA’s restriction power enables the regulator to impose the sanction as a disciplinary measure. The FCA deemed the restriction both necessary and appropriate given WHI’s failure to adequately address issues identified by the Skilled Person’s Report within agreed deadlines.

The FCA statement and related documents can be found here.

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