So far, 2021 has seen the level of FCA fines drop off a cliff. Perhaps all of that compliance training is paying off. The alternative does not bode well.
In the first half of 2021, there have been £298,000 in fines. To put that into perspective, 2020 saw a total of £200 million in fines. It beggars belief that the industry cleaned up its act that much. Whilst that may mean fewer fines in 2021, more than likely the breaches will be found in due course - perhaps in 2022, we may expect record fines.
To keep up with what happens in 2021, be sure to bookmark this blog!
1. 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.
2. 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 had been knowingly performing a controlled function without approval and providing 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 in board meetings about sitting and passing the relevant exams required. 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 was providing 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.
3. 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 in relation 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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