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.
The first half of 2021 saw £298,000 in fines. But Q3 has seen one hefty fine bringing the yearly total to £91m. Still, the number of fines remains low in 2021, meaning that, more than likely, the breaches will be found in due course, perhaps in 2022.
Even if another major penalty is issued in the final months of the year, it would still mean a huge fall from last year's total of £200 million in fines.
And to keep up with what happens in 2021, be sure to bookmark this blog!
1. Lloyds Bank General Insurance (fined £90.7m)
PRIN 3 and 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% receiving 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.
2. 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.
3. 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."
4. 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.
5. 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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