Regulation

The FCA fines broker firm £15.4 million

The firm's rates division had ineffective controls around broker conduct which allowed improper trading to take place, including ‘wash’ trades.

Rozi Jones
|
11th October 2019
FCA new
"While these trades did not mislead the market, nor amount to market abuse, the wash trades were entirely improper, undermining the proper function of the market."

The FCA has fined Tullett Prebon £15.4 million in relation to a number of conduct failures in its broking division.

Tullett Prebon is an electronic and voice inter-dealer broker, acting for institutional clients transacting in the wholesale financial markets, typically investment banks.

The regulator found that the firm failed to conduct its business with due skill, care and diligence and didn't have adequate risk management systems.

The FCA's investigation found that the firm's rates division had ineffective controls around broker conduct which allowed improper trading to take place, including ‘wash’ trades which generated unwarranted and unusually high amounts of brokerage for the firm.

Senior management wrongly believed sufficient systems and controls were in place and obvious red flags of broker misconduct and opportunities to probe were missed. For example, when the firm made inquiries of one broker about the basis for inordinately high brokerage on one trade the broker responsible said 'you don’t want to know' and no steps were taken to identify the reasons or whether they were appropriate.

The FCA says these are "serious failings that undermine the proper function of wholesale markets".

Additionally, the regulator found that Tullett Prebon failed to be open and cooperative by failing to produce broker audio tapes for three years.

Tullett Prebon agreed to resolve the matter and therefore qualified for a 30% discount under the FCA’s settlement discount scheme. Without this discount, the fine would have been £22 million.

Mark Steward, executive director of enforcement and market oversight at the FCA, said: "The market performs important public functions and is not a private game of self-enrichment. While these trades did not mislead the market, nor amount to market abuse, the wash trades were entirely improper, undermining the proper function of the market. Senior management and compliance were cocooned from seeing the misconduct, and systems and controls failed to probe broker conduct, even when warning signs were visible.

"The case against Tullett Prebon was a long and complex one. The firm’s failure to be open with the FCA about the existence of key evidence reflected a high degree of culpable incompetence and prejudiced the FCA enquiries."

Ian Mason, head of financial services at law firm Gowling WLG, commented: "This case shows the risks in staff being highly incentivised to generate business without sufficient monitoring and challenge by senior management. The case is also a rare example of the FCA fining a firm for not co-operating fully with its investigation – this was an aggravating factor".

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