The first half of 2021 only saw £298,000 in FCA fines, and the following two quarters remained slow. Then in Q4 things really sped up, with over £300m in fines issued in December alone.
Rundown of FCA Fines in 2021
- National Westminster Bank Plc (fined £264.7m)
- Credit Suisse (fined £147.2m)
- Lloyds Bank General Insurance (fined £90.7m)
- HSBC Bank plc (fined £63.9m)
- Sunrise Brokers LLP (fined £642.4k)
- Sapian Capital (fined £178k)
- Omar Hussein (fined £116k)
- Crossfill & Archer Claims (fined £110k)
- Simon John Varley (fined £68.3k)
- Adrian Horn (fined £52.5k)
The total value of fines in 2021 was well over double FCA Fines in 2020, and even eclipsed the 2019 peak, with the largest fine of the year totalling more than the whole of last year's fines! For the latest FCA fines, see the highest FCA fines of 2022.
1. National Westminster Bank Plc (fined £264.7m)
Money Laundering Regulations 2007 - AML failings
This case is the first where the FCA has pursued criminal charges for money laundering failings. They relate to NatWest’s failure to properly monitor the activity of Fowler Oldfield between 2012 and 2016.
The Bradford based jewellery business deposited £264m cash with Natwest.
Red flags reported included large amounts of Scottish banknotes deposited throughout England, notes carrying a prominent musty smell, and individuals acting suspiciously when depositing cash in NatWest branches.
In spite of bank employees reporting suspicions to those responsible for investigating money laundering, no appropriate action was taken.
The bank’s automated transaction monitoring system recognised some cash deposits as cheques. This compounded the failure across many other customers depositing cash, as well as Fowler Oldfield.
The bank's guilty plea meant that the fine was reduced by a third.
"NatWest is responsible for a catalogue of failures in the way it monitored and scrutinised transactions that were self-evidently suspicious. Combined with serious systems failures, like the treatment of cash deposits as cheques, these failures created an open door for money laundering...Anti-money laundering controls are a vital part of the fight against serious crime, like drug trafficking, and such failures are intolerable ones that let down the whole community, which, in this case, justified the FCA’s first criminal prosecution under the Money Laundering Regulations."
2. Credit Suisse (fined £147.2m)
Prin 2 & Prin 3 breaches - Financial crime
The FCA fined Credit Suisse over £147 million for serious financial crime due to diligence failings related to loans worth over $1.3 billion, which the bank arranged for the Republic of Mozambique. The bank had arranged these loans, and a bond exchange, for the Republic of Mozambique. Due to this corruption, Credit Suisse has also agreed with the FCA to forgive US$200 million of debt owed by the Republic of Mozambique.
Over the period from October 2012 to March 2016, Credit Suisse failed to properly manage the risk of financial crime within its emerging markets business. There was an unacceptable level of risk of bribery associated with the two Mozambican loans and a bond exchange, relating to government-sponsored projects. Furthermore, Credit Suisse has sufficient information to this end.
The risk of government officials being corrupt in Mozambique was high and the projects were not subject to public scrutiny or formal procurement processes. Credit Suisse was aware of this. The contractor engaged by Mozambique on the projects was described as a “master of kickbacks”.
In order to secure the loans at more favourable terms, this contractor secretly paid significant kickbacks, estimated at over US$50 million, to members of Credit Suisse’s deal team. This includes two Managing Directors.
Despite the fact that these Credit Suisse employees concealed the kickbacks, warning signs of potential corruption should have been clear to Credit Suisse’s control functions and senior committees.
Repeatedly, there was insufficient scrutiny and inquiry within the company in the face of important risk factors and warnings. The Republic of Mozambique has subsequently claimed that the minimum total of bribes paid in respect of the two loans is around US$137 million.
The FCA fine is part of an approximate US$475 million global resolution agreement involving the US Department of Justice, the US Securities and Exchange Commission, and the Swiss Financial Market Supervisory Authority (FINMA).
"The FCA’s fine reflects the impact of these tainted transactions which included a debt crisis and economic harm for the people of Mozambique. The fine would have been higher if not for Credit Suisse agreeing to provide the debt write-off of US$200 million. The FCA will continue to pursue serious financial crime control failings by regulated firms."
3. Lloyds Bank General Insurance (fined £90.7m)
PRIN 3 & PRIN 7 breaches – Communications with customers
The FCA fined LBGI (Lloyds Bank General Insurance Limited, St Andrew’s Insurance Plc, Lloyds Bank Insurance Services Limited and Halifax General Insurance Services Limited) for failing to ensure that language was clear, fair and not misleading within millions of home insurance renewals communications.
LBGI sent 9m renewal communications to home insurance customers from January 2009 and November 2017 with language to the effect that they were receiving a ‘competitive price’ at renewal.
They did not substantiate the ‘competitive price’ language used by checking that it was accurate. Around 87% received the letters renewed. From 2009 the ‘competitive price’ wording was amended, but the language remained in a substantial number of renewals communications despite repeated missed opportunities to address it.
This caused a risk of harm as it was likely that the premium quoted to them at renewal would have increased versus their prior premium. Renewal premiums would also likely have been higher than the premium quoted to new customers or those switching. Particularly for customers who renewed repeatedly.
Separately, LBGI informed half a million customers they would receive a discount based on their ‘loyalty’, they were a ‘valued customer’, or another promotional or discretionary basis. The discount wasn't applied and was never intended to. It affected around 1.2m renewals, with approximately 1.5m communications sent by LGBI. It was only identified and rectified by LBGI during the course of the FCA’s investigation.
The FCA did not impose a requirement for LBGI to pay redress to customers who received a renewal letter, including the 'competitive' renewal premium claim.
LBGI made voluntary payments of approximately £13.5 million to customers who received communications that erroneously referred to the application of a discount when none was applied, which was taken into account in the financial penalty. LBGI is contacting customers proactively, meaning customers do not have to take any steps to receive payment.
In its General Insurance pricing practices market study conducted between 2018 and 2020, the FCA found that, typically, insurance premiums increased each year on renewal as insurers sought to recover any losses that may have been incurred by the insurer offering an introductory discount. The effect of this is that existing policyholders will likely have paid more at renewal than a new customer presenting an equivalent insurance risk unless they shopped around.
"Firms must ensure their communications with customers are clear, fair and not misleading. LBGI failed to ensure that this was the case. Millions of customers ended up receiving renewal letters that claimed customers were being quoted a competitive price which was unsubstantiated and risked serious consumer harm."
Under new FCA rules, from 1 January 2022, insurers will be required to offer customers a renewal price no higher than they would pay as a new customer. The FCA estimates it will save consumers £4.2 billion over 10 years.
4. HSBC Bank plc (fined £63.9m)
Money Laundering Regulations 2007 - Deficient transaction monitoring
The FCA found that three key parts of HSBC’s automated transaction monitoring systems showed serious weaknesses over a period of eight years.
Firstly, whether the scenarios used were relevant to the risks at the time and whether timely risk assessments took place. Next, failing to appropriately test and update the parameters used to determine whether a transaction was potentially suspicious. Finally, failing to check the accuracy and completeness of data fed into, and contained within their monitoring systems.
Because HSBC did not dispute the FCA’s findings and agreed to settle at the earliest possible opportunity, the fine was reduced by 30%. The bank has since undertaken a large-scale remediation programme into its AML processes, supervised by the FCA.
"HSBC’s transaction monitoring systems were not effective for a prolonged period despite the issue being highlighted on numerous occasions. These failings are unacceptable and exposed the bank and community to avoidable risks, especially as the remediation took such a long time. HSBC continued their remediation to address these weaknesses after the relevant period."
5. Sunrise Brokers LLP (fined £642.4k)
PRIN 2 and PRIN 3 - Financial crime risk
Sunrise Brokers LLP was fined over £600,000 for deficient anti-money laundering systems and controls.
This is the second case brought by the FCA in relation to cum-ex trading, dividend arbitrage and withholding tax (WHT) reclaim schemes. The first FCA case relating to cum-ex trading concluded in May 2021 (the fourth-highest FCA fine).
The FCA found that Sunrise had deficient systems and controls to identify and mitigate the risk of facilitating fraudulent trading and money laundering in relation to business introduced by the Solo Group, between 17 February 2015 and 4 November 2015.
Upon review, the FCA found that the Solo trading was characterised by a circular pattern of purported trades throughout the abovementioned period. These are characteristics typically associated with financial crime. It appears that trading was carried out to allow for the arrangement of withholding tax reclaims in Denmark and Belgium.
"Sunrise should not have carried out these self-evidently suspicious trades without proper due diligence. Sunrise’s failings were significant and this outcome demonstrates we will not tolerate firms’ lax controls and that we will work with overseas agencies to ensure London is not viewed as a haven for poor controls and practices."
More generally, the FCA found that Sunrise failed to exercise due skill, care and diligence in applying anti-money laundering policies and procedures. Additionally, it failed to properly assess, monitor and mitigate the risk of financial crime in relation to clients introduced by the Solo Group and the purported trading.
As Sunrise agreed to resolve all issues of fact and liability, it qualified for a 30% discount under the FCA’s executive settlement procedures.
6. Sapian Capital (fined £178k)
PRIN 2 and PRIN 3 breaches – Financial crime risk
The first FCA case concerning cum/ex trading, dividend arbitrage and withholding tax (WHT) reclaim schemes.
Breaches relate to failings that led to the risk of facilitating fraudulent trading and money laundering. The fine would have been higher but was curbed to avoid 'serious financial hardship'.
"The FCA expects firms have systems and controls that test the purpose and legitimacy of transactions, reflecting scepticism and alertness to the risk of money laundering and financial crime, and failures here constitute serious misconduct."
Sapien did not undertake appropriate due diligence and failed to perform effective risk assessments on clients introduced by the Solo Group.
Sapien executed purported OTC equity trades of approximately £2.5 billion in Danish equities and £3.8 billion in Belgian equities.
The Solo trading was characterised by what appeared to be a circular pattern of extremely high-value trades undertaken to avoid the normal need for payments and delivery of securities in the settlement process.
The trading pattern involved the use of Over the Counter (OTC) equity trading, securities lending and forward transactions involving EU equities, on or around the last day securities were cum dividend.
The way the Solo Group and their clients conducted these trades, combined with their scale and volume, were highly suggestive of financial crime and appear to have been undertaken to create an audit trail to support withholding tax reclaims in Denmark and Belgium.
7. Omar Hussein (fined £116k)
Breaches of Statements of Principle for Approved Persons 1 and 7
Former director and senior financial adviser at pension switching firm Consumer Wealth Ltd (CWL), Omar Hussein, has been prohibited from working in financial services. Mr Hussein has also been fined £116,000 by the FCA for providing reckless and unsuitable pension switching advice.
The FCA found that Mr Hussein advised customers to switch their existing pensions when this was often unnecessary and not in their best interest.
Mr Hussein and his firm advised 620 customers to switch their pension into a self-invested personal pension (SIPP) between 2015 and 2017. These SIPPs contained significant investments in ‘Portfolio 6’ (P6), an investment offered by the Discretionary Fund Management firm, Greyfriars Asset Management LLP (Greyfriars). His misconduct put an estimated amount of £13.5m of CWL customers’ retirement savings at risk.
P6 was a high-risk investment. It comprised of unregulated mini-bonds relating to overseas investments in car parks, renewable energy and holiday resorts. Since these investments were illiquid in nature, they are unsuitable for the low net worth, financially inexperienced investors who were the firm’s target market.
The FCA found that Mr Hussein disregarded clear statements and risk warnings about P6 contained in Greyfriars promotional material. He claimed that customers investing in P6 were ‘experienced investors’ when there was no reasonable basis for this claim. Mr Hussein also charged fees to customers for an ongoing advice service which the firm did not provide.
The failings by Mr Hussein were particularly serious due to the FCA’s findings that he acted recklessly and abused a position of trust when advising clients who were often financially inexperienced, vulnerable and had no or limited capacity for loss.
Furthermore, he admitted to being aware of the FCA’s pension alerts, published prior to CWL being established. These alerts remind financial advisers that they must assess the suitability of the underlying investments to be held in the SIPP when advising customers to switch to a SIPP. In addition, these alerts warn that non-mainstream investments are unlikely to be suitable options for the vast majority of retail customers.
"Consumers work hard over many years to save for their retirement and unsuitable pensions advice can significantly impact their quality of life in retirement – or their ability to retire at all. Mr Hussein acted recklessly and abused the trust of his clients by taking unjustifiable risks with their retirement savings. He has proven himself unfit to work in the financial services industry."
CWL ceased trading and is now in liquidation. At an early stage in the investigation, Omar Hussein agreed to settle which allowed him to qualify for a 30% discount. Without the discount, the fine would have been £165,797.38.
8. Crossfill & Archer Claims (fined £110k)
Conduct of Authorised Persons breach – Unfair treatment of customers
The company made unsolicited telemarketing calls to those who had registered not to receive such calls. The firm provided no evidence they had consented to receive the call or could not confirm what consent had been obtained relating to customer data purchased from third-party data providers.
Regulatory responsibility for claims management companies (CMCs) was transferred to the FCA on 1 April 2019.
The MoJ imposed the original fine in 2018. The Upper Tribunal struck out the appeal after the firm failed to file relevant documents in time.
"Cold calling customers who elected not to receive sales calls is an example of the type of cavalier behaviour claims management firms should not be engaging in. Firms need to ensure they have the right governance and due diligence in place, and we will take action when we see behaviour that threatens legitimate consumer rights and interests."
9. Simon John Varley (fined £68.3k)
Section 63A FSMA/APER 1 & FIT breaches - Lack of honesty & integrity
Simon Varley, formerly a Director of Dickinsons, a Birmingham based IFA, was fined and banned from working in financial services by the FCA.
He knowingly performed a controlled function without approval and provided investment advice to retail customers when he knew he was not qualified or approved to do so.
Mr Varley repeatedly misled his fellow directors by providing false information about sitting and passing the required exams in board meetings. He falsely claimed that he had applied for CF30 approval but that the FCA had not updated the Financial Services Register. In fact, he made no application.
Mr Varley also knowingly facilitated the provision of false information to Dickinsons’ PII (professional indemnity insurance) providers about the qualifications he held to be insured to advise retail investors after 2013.
As part of his CF10 function, Mr Varley was required to provide regulatory information to the FCA in Dickinsons’ Retail Mediation Activities Returns. In discharging this responsibility, Mr Varley knowingly misled the FCA into believing that only one person at Dickinsons provided retail investment advice to customers instead of two. He also provided explanations to the FCA that were untrue to conceal his own misconduct.
Mr Varley’s actions led to Dickinsons voluntary liquidation and being dissolved.
10. Adrian Horn (fined £52.5k)
Breaches of MAR and FIT
Adrian Horn, a former market-making trader at Stifel Nicolaus Europe, was fined for market abuse and prohibited from performing any functions relating to regulated activity.
The FCA found Mr Horn had engaged in market abuse by executing trades with himself in the shares of McKay Securities.
He had placed buy orders in McKay shares that traded with his existing sell orders (and vice versa). This practice is known as 'wash trading'. These orders were placed in a way to avoid anyone detecting that he was wash trading. The aim was to ensure that McKay stocks remained in the FT All-Share Index.
The financial penalty was reduced by 25% as a result of significant cooperation. In addition, Mr Horn received a further 30% settlement discount.
"The FCA has also developed ways to detect this type of manipulation as well as other forms of market abuse and, as this case demonstrates, we will take robust action against such abuse."
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