FS Express Continued on next page > 10629 July 2017 Special edition on the FCA’s Enforcement annual performance report 2016/17 Financial crime Case example: • Sonali Bank (UK) Ltd and its former MLRO and compliance officer Mr Steven Smith were fined £3,250,600 and £17,900 respectively. It was found that the bank failed to comply with its operational obligations regarding customer due diligence, the identification and treatment of PEPs, transaction and customer monitoring and making suspicious activity reports. Mr Smith also failed to oversee the operation and effectiveness of the bank’s AML systems and controls, and demonstrated a “serious lack of competence and capability”. Going forward: • Financial crime remains one of the FCA’s key priorities in their Business Plan 2017/18. Number of cases opened in the financial year 43 Number of cases closed in the financial year 7 Number of open cases as at 31 March 2017 56 Number of financial penalties imposed 3 Total value of financial penalties imposed £166.3m Market abuse Case example: • In August 2016, the FCA imposed a financial penalty on Cenkos Securities plc of £530,500 for failure in its sponsor services business. The company failed to have appropriate systems and controls in place across its business, and in one instance represented that one of its clients was eligible for a Premium Listing despite not having carried out the requisite due diligence to verify this. Top ten takeaways 1. Imposed 15 financial penalties totalling £181m 2. Issued 180 final notices (155 against firms and 25 against individuals) 3. Secured 209 outcomes using enforcement powers (198 regulatory/civil and 11 criminal) 4. Completed the FCA’s longest and most complex insider dealing case, which led to five convictions and jail terms for two defendants, one of which was for 4.5 years- the longest jail term ever imposed for insider dealing 5. Took action against Deutsche Bank over failed anti-money laundering controls, fining the company £163m, the largest ever fine for such failures 6. Took action against Tesco plc and Tesco Stores Ltd for market abuse arising from a misleading trading update 7. Number of prohibition orders has increased by c.15% 8. Received 998 requests for assistance from regulatory and law enforcement agencies across 59 different countries 9. Secured six criminal convictions for insider dealing. These included guilty pleas from three individuals including a former Equity Portfolio Manager at BlackRock 10. The average length of all cases has decreased from 25.7 months in 2015/16 to 17.6 months in 2016/17 but average length of criminal investigations increased by 514% from 14.7 months to 75.6 months.
Transcript
FS Express
Continued on next page >
10629
July 2017Special edition on the FCA’s Enforcement annual performance report 2016/17
Financial crime
Case example:
• Sonali Bank (UK) Ltd and its former MLRO and compliance officer Mr Steven Smith were fined £3,250,600 and £17,900 respectively. It was found that the bank failed to comply with its operational obligations regarding customer due diligence, the identification and treatment of PEPs, transaction and customer monitoring and making suspicious activity reports. Mr Smith also failed to oversee the operation and effectiveness of the bank’s AML systems and controls, and demonstrated a “serious lack of competence and capability”.
Going forward:
• Financial crime remains one of the FCA’s key priorities in their Business Plan 2017/18.
Number of cases opened in the financial year 43
Number of cases closed in the financial year 7
Number of open cases as at 31 March 2017 56
Number of financial penalties imposed 3
Total value of financial penalties imposed £166.3m
Market abuse
Case example:
• In August 2016, the FCA imposed a financial penalty on Cenkos Securities plc of £530,500 for failure in its sponsor services business. The company failed to have appropriate systems and controls in place across its business, and in one instance represented that one of its clients was eligible for a Premium Listing despite not having carried out the requisite due diligence to verify this.
Top ten takeaways1. Imposed 15 financial penalties totalling £181m2. Issued 180 final notices (155 against firms and 25 against individuals)3. Secured 209 outcomes using enforcement powers (198 regulatory/civil and 11 criminal)4. Completed the FCA’s longest and most complex insider dealing case, which led to five convictions
and jail terms for two defendants, one of which was for 4.5 years- the longest jail term ever imposed for insider dealing
5. Took action against Deutsche Bank over failed anti-money laundering controls, fining the company £163m, the largest ever fine for such failures
6. Took action against Tesco plc and Tesco Stores Ltd for market abuse arising from a misleading trading update
7. Number of prohibition orders has increased by c.15%8. Received 998 requests for assistance from regulatory and law enforcement agencies across 59
different countries 9. Secured six criminal convictions for insider dealing. These included guilty pleas from three individuals
including a former Equity Portfolio Manager at BlackRock10. The average length of all cases has decreased from 25.7 months in 2015/16 to 17.6 months in 2016/17
but average length of criminal investigations increased by 514% from 14.7 months to 75.6 months.
FS Express
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July 2017Special edition on the FCA’s Enforcement annual performance report 2016/17
Number of cases opened in the financial year 120
Number of cases closed in the financial year 52
Number of open cases as at 31 March 2017 122
Number of financial penalties imposed 3
Total value of financial penalties imposed £0.6m
Number of criminal convictions secured 6
Unauthorised business
Case example:
• The FCA wound up Asset Land Investments Plc following confirmation from the Supreme Court that it had been operating an unauthorised collective investment scheme.
Going forward:
• The FCA are preparing for two trials: one in relation to an authorised forex trading scheme in June 2017, and another in relation to a number of unauthorised collective investment schemes in July 2017.
• The FCA are also preparing for two share fraud trials taking place in September 2017.
• An individual acting as an unlicensed consumer credit lender has also been charged, and a trial date fixed for January 2018.
• One of the main emerging trends in unauthorised activity over the past few years has been binary options trading. From 3 January 2018, as a result of amendments to MiFID II, binary options will become regulated financial instruments and come under the scope of the FCA’s oversight and regulation.
Number of cases opened in the financial year (the most serious matters where investigators are appointed)
18
Number of cases closed in the financial year 6
Number of open cases as at 31 March 2017 69
Number of consumer alerts issued 285
Wholesale conduct
Case example:
• Deutsche Bank AG- fined £163m for failing to properly oversee the formation of new customer relationships and the booking of global business in the UK. As a result of these failings, the bank was used by unidentified customers to transfer approximately $10bn, of unknown origin, from Russia to offshore bank accounts, in a manner highly suggestive of financial crime.
Going forward:
• The FCA has reinforced their intention to increase their focus on ensuring that wholesale markets are “efficient, stable, fair, clean and resilient, that their infrastructure is made more robust, and that conduct standards are improved”
Number of cases opened in the financial year 20
Number of cases closed in the financial year 16
Number of open cases as at 31 March 2017 48
Number of financial penalties imposed 3
Total value of financial penalties imposed £163.2m
Retail conduct
Case example:
• Between 1 January 2013 and 2 September 2015, Aviva Pensions Trustees UK Limited and Aviva Wrap UK Limited breached the Clients Assets Sourcebook (CASS) rules and requirements that firms should have adequate management, systems and controls, and properly safeguard clients’ assets. The rules are designed to be preventative, and therefore although there was no actual loss of client money or custody assets, Aviva was fined £8,246,800 for failings in its oversight of outsourced providers in relation to the protection of client assets.
For a full list of the jurisdictions where we operate, see www.pinsentmasons.com
FS ExpressJuly 2017Special edition on the FCA’s Enforcement annual performance report 2016/17
Save the date
This year’s Regulatory Conference will take place on 16 November 2017 at our offices in Crown Place, London. Please save the date, or get in contact for any further information.
The Summing Up Podcast: Episode 48
This 15 minute episode features Michael Ruck, along with Jenny Burton and Catherine Lusher.
Under discussion:
• Key points arising from the Serious Fraud Office’s Annual Report and Accounts 2016-17
• Updates relating to the Financial Conduct Authority, including its recent Annual Report and Accounts 2016-17 and Annual Public Meeting
• News that two former traders at Rabobank have had their US convictions in relation to the Libor scandal overturned
• The launch of the new International Anti-Corruption Coordination Centre.
