ARTICLE
9 October 2018

UK Brokerage Firm Fined For Inadequate Controls Against Potential Market Abuse

SS
Shearman & Sterling LLP

Contributor

Our success is built on our clients’ success. We have a long and distinguished history of supporting our clients wherever they do business, from major financial centers to emerging and growth markets. We represent many of the world’s leading corporations and major financial institutions, as well as emerging growth companies, governments and state-owned enterprises, often working on ground-breaking, precedent-setting matters. With a deep understanding of our clients' businesses and the industries they operate in, our work is driven by their need for outstanding legal and commercial advice.
On September, 27, 2018, the U.K. FCA published a Decision Notice (dated June 7, 2018).
United Kingdom Finance and Banking

On September, 27, 2018, the U.K. FCA 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.

The Decision Notice is available at: https://www.fca.org.uk/publication/decision-notices/linear-investments-limited.pdf .

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Mondaq uses cookies on this website. By using our website you agree to our use of cookies as set out in our Privacy Policy.

Learn More