Compliance News | August 2023

Posted by

Emmeline de Chazal

on 31 Aug 2023


This month’s key compliance news includes Morgan Stanley's WhatsApp use fine, Visa's tokenisation pricing, the FCA's Travel Rule and more.

Compliance News August 2023

Our pick of key compliance stories this month

CMA defeats legal challenge in landmark judgement

The UK's Competition and Markets Authority (CMA) has received a judgement that supports its decision regarding liothyronine tablets, a vital medication for treating thyroid hormone deficiency.

The CMA had accused Advanz, the exclusive supplier of these tablets, of raising prices by over 1,000% from £20 to £248 per pack between 2009 and 2017, leading to an £84 million fine.

"We are delighted that the Competition Appeal Tribunal has unanimously upheld the CMA’s infringement findings. Today’s landmark judgment reinforces the need for companies to think carefully about how they set prices and paves the way for the NHS to seek compensation."

- Michael Grenfell, Executive Director, the CMA

The CMA initially determined that Advanz's exorbitant pricing constituted an abuse of its dominant market position and breached competition regulations in July 2021. Consequently, Advanz Pharma, along with former owners HgCapital and Cinven, now faces a combined fine of over £84 million for the relevant periods of their unlawful conduct.

Advanz Pharma, HgCapital, and Cinven contested the CMA's decision by appealing to the Competition Appeal Tribunal. They disputed the fairness and excessiveness of the liothyronine tablet prices and sought to overturn the imposed fines.

However, the Tribunal delivered a unanimous verdict that upheld the CMA's findings. It concluded that Advanz had indeed exploited its dominant market position and breached competition law by imposing unreasonable and excessive prices for the tablets from 2009 to 2017.

Market Abuse Prevention Tips

SEC & CFTC crackdown on recordkeeping failures

Regulatory bodies, the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) are once again taking action against companies for failing to maintain proper records.

In September 2022, the SEC imposed fines totalling $1.1bn on 15 Wall Street broker-dealers and updated its recordkeeping regulations the following month.

In this latest instance, the SEC is penalising 11 firms with a combined fine of $289m, while the CFTC is imposing fines of $260m on four financial institutions.

Among the fined companies, Wells Fargo faces the most substantial penalties of $125m from the SEC and an additional $75m from the CFTC. Similarly, BNP Paribas is being fined by both regulatory bodies, with fines of $35m from the SEC and $75m from the CFTC.

Key takeaways:

  • Maintain accurate, comprehensive, and organised records - financial institutions must have systems in place to capture, store, and retrieve electronic communications and other relevant data in accordance with regulatory requirements.
  • Have regulatory vigilance - firms should closely monitor changes to regulatory rules and requirements. The SEC amended its recordkeeping rules after the 2022 fines, which indicates that regulations can evolve, and institutions need to stay up-to-date to avoid non-compliance.
  • Acknowledge wrongdoing - admitting any wrongdoing and cooperating with regulators can lead to more favourable outcomes in regulatory actions.

Free Compliance Audit Checklist

National Grid trainee wins sexual harassment case

A trainee project supervisor at the National Grid, Emma Tahir, working at the National Grid has testified at an employment tribunal about the inappropriate behaviour of Colin Higgins, a colleague in his 50s. Tahir is in her mid-twenties. She was granted compensation of almost £360k after winning the case.

Higgins sent frequent texts and emails expressing attraction, even writing "marry me" in an email to her. He also made suggestive comments, asking if they would have a relationship if their ages were closer. Despite Tahir's complaints and an internal investigation by National Grid, Higgins retained his position.

Tahir resigned from the company in 2021 and filed a tribunal appeal for sexual harassment, victimisation, and wrongful dismissal. She was awarded £357k as she successfully argued that the harassment she endured at National Grid had hindered her career progression.

Key takeaways:

  • Ensure zero tolerance for harassment: maintaining a zero-tolerance policy for harassment in the workplace, irrespective of the position or tenure of the individuals involved.
  • Employ staff training: implement comprehensive training programmes which can help educate employees about appropriate workplace behaviour, reporting mechanisms, and prevention of harassment.
  • Be prompt and thorough: it is crucial for firms to be swift and thorough when looking into any complaints of inappropriate behaviour.

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Archipelago Trading to pay a $1.5m settlement

Archipelago Trading Services has agreed to pay $1.5 million to settle allegations by the U.S. Securities and Exchange Commission (SEC) that it neglected to submit hundreds of suspicious activity reports (SARs) over eight years in relation to over-the-counter securities trading.

The SEC claimed that from 2012 to 2020, Archipelago, a subsidiary of Intercontinental Exchange, failed to file at least 461 SARs for transactions conducted on its alternative trading system, Global OTC. These transactions mostly pertained to microcap or penny-stock securities.

The SEC alleged that Archipelago did not adequately monitor transactions conducted on Global OTC to identify potential signs of suspicious manipulative trading practices, such as spoofing, layering, wash trading, and prearranged trading. Additionally, the SEC contended that the brokerage did not establish an anti-money laundering program until September 2020.

Archipelago will pay the amount of $1.5 million but has neglected to admit or deny the SEC's findings.

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Morgan Stanley fined over WhatsApp use

Morgan Stanley has been fined £5.41 million  ($6.9 million) for violating regulations by allowing energy traders to discuss business over WhatsApp on personal phones. The UK regulator, Ofgem, stated that the bank's failure to record messages related to energy trading breached transparency rules aimed at safeguarding consumers from market manipulation and insider trading.

This is the first fine of its kind under these rules. While the potential fine could have been £7.7m, Morgan Stanley received a 30% discount by settling the case. Ofgem found that the bank's policies prohibited WhatsApp use for trading, yet it didn't adequately enforce these rules.

The lapse in recording communications from January 2018 to March 2020 jeopardised the transparency of wholesale energy markets. Ofgem requires firms to record electronic communications tied to energy trading to prevent insider trading and market manipulation.

Browse Bite-sized Compliance

The FCA is set to enforce the Travel Rule

From the 1st of September, digital asset firms in the UK will need to adhere to the Travel Rule. This is a set of regulations designed to prevent illicit activities involving cryptocurrencies established by the Financial Action Task Force (FATF).

It requires crypto operators to gather and transmit specific information regarding the source of funds and beneficiaries when conducting transactions, similar to traditional money transfers. The UK's Financial Conduct Authority (FCA) announced this new requirement as a measure to combat money laundering and terrorist financing using digital assets.

While UK crypto operators must comply with the Travel Rule, they can still send and receive digital assets from jurisdictions that have not yet implemented the rule but with specific conditions. The UK's adoption of the Travel Rule aims to strengthen AML regulations without isolating non-compliant jurisdictions.

The FCA's expectations include:

  • Take reasonable steps and exercise all due diligence to comply with the Travel Rule.
  • Remain responsible for achieving compliance with the Travel Rule, even when using third-party suppliers.
  • Fully comply with the Travel Rule when sending or receiving a cryptoasset transfer to a firm that is in the UK or any jurisdiction that has implemented the Travel Rule.
  • Regularly review the implementation status of the Travel Rule in other jurisdictions and adapt business processes as appropriate.

Consumer Duty Outcomes Desk Aid

Goldman Sachs incurs a $5.5m civil fine

Goldman Sachs has agreed to pay approximately $5.5 million to settle accusations of not properly documenting and preserving mobile calls made by its traders at the start of the Covid-19 pandemic. This failure violated both record-keeping regulations and a prior settlement agreement.

The Commodity Futures Trading Commission (CFTC) announced the civil fine which marks the latest instance of Goldman settling charges related to inadequate record-keeping. In a separate incident last September, Goldman had agreed to a $200 million payment to the SEC and CFTC.

This was due to their traders using prohibited messaging apps, such as WhatsApp, for business discussions, thus violating record-keeping regulations. This situation has triggered discussions about compliance with remote work policies and recurrent breaches.

CFTC Commissioner Kristin Johnson expressed concerns about the relatively small size of the current penalty. She questioned its effectiveness in deterring repeated compliance failures, especially for influential market participants who should be setting industry standards.

The CFTC said that Goldman cooperated with its investigation - this was recognised in the settlement agreement.

Compliance Challenges 2024

Visa faces probes over tokenisation pricing

Visa is facing scrutiny from the U.S. Justice Department (DoJ) for its fees related to tokenization technology used to secure cardholder data. This technology replaces card numbers with unique tokens for specific devices or merchants, with only Visa capable of unlocking these tokens.

The DoJ is now investigating Visa's practice of charging higher fees to retailers who don't adopt this technology. This inquiry is part of a larger, ongoing two-year investigation into claims that Visa is trying to monopolise the debit card market. Visa contends that its technology, introduced in 2014, enhances payment security during the transmission of cardholder data.

Over 4 billion tokens have been issued so far, surpassing the number of actual cards in circulation. Around 13,000 retailers are utilising this service. Recent information reveals that Visa and its partners will be implementing fee adjustments, including higher charges for merchants opting out of using Visa's tokenisation technology. This announcement has reignited the DoJ's interest in the matter.

Key takeaways:

  • Ensure transparent fee structures: it is important to have transparency in fee structures so that they do not raise concerns about unfair or discriminatory practices.
  • Use technology wisely: the adoption of technology to enhance data security is commendable, but it should not be used to create a competitive disadvantage for merchants. This could be seen as unfair practice.
  • Be consistent: ongoing compliance monitoring is crucial.  Companies need to regularly assess their practices to avoid unexpected legal challenges.
  • Proceed with caution to ensure fair competition: be cautious about actions that could be interpreted as attempts to monopolise a market. Antitrust violations and monopoly concerns could lead to being in hot water with regulators.

Free Market Abuse Training Presentation

3M to pay the SEC $6.5m over tourism bribes

3M Company has agreed to pay the SEC $6.5 million in penalties and disgorgement to settle FCPA violations tied to its Chinese subsidiary. The SEC accused 3M of breaching FCPA's provisions related to record-keeping and internal controls.

Without admitting guilt, 3M will pay $4.5 million in disgorgement and prejudgment interest, along with a $2 million civil penalty. The SEC stated that the Chinese subsidiary arranged overseas trips for state-owned healthcare facility employees, disguising them as conferences and educational events. These trips often included luxury tourist activities overlapping with the supposed conferences and events.

From 2014 to 2017, 3M arranged leisure activities for Chinese officials at the same time as the events they were supposed to be attending. The SEC revealed that the subsidiary funded around 24 trips for Chinese officials, including tourism.

3M China's employees provided legitimate itineraries to compliance teams while secretly collaborating with Chinese travel agents to create alternate itineraries for tourism. The investigation was disclosed by 3M in a 2019 SEC filing.

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