FCA fines brokers

11 Oct 2019

Electronic Broker Hit with £15.4m Fine from the FCA

Electronic and voice broker, Tullett Prebon, has been fined £15.4m by the FCA for “improper trading”.

The authority found “due skill, care and diligence” to be lacking in past business conducted by the inter-dealer broker, which now forms part of global firm TP ICAP. The company’s risk management systems were also found to be inadequate.

Tullett Prebon operates primarily as an intermediary in the wholesale financial and energy sector, facilitating trading activities of their clients. They have offices in 24 countries and claim to be “one of the world’s leading interdealer brokers.”

The business, whose typical clients include investment banks, has been criticised for not being open and cooperative with the regulator. According to Mark Steward, executive director of enforcement and market oversight for the FCA:

“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.”

The failings uncovered by the regulator relate to broker conduct; it’s reported that, between 2008 and 2010, the firm’s rates division lacked effective conduct controls. This in turn allowed for banned ‘wash trades’ to take place, that the FCA believes to have “generated unwarranted and unusually high amounts of brokerage for the firm.”

The term ‘wash trades’ refers to the process of one investor buying and selling the same commodity with no legitimate commercial purpose, in turn manipulating a company’s figures.

As Steward explains, “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.”

While it’s been acknowledged that Tullett Prebon’s management didn’t pick up on red flags indicating misconduct, their willingness to the resolve the issues highlighted by the FCA has resulted in a reduced fine. Without offering to explore satisfactory solutions, they would have faced the full penalty of £22m.

By Melissa Jones