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Enforcement, regulatory sanctions and financial crime round-up, November 2010
September and October were comparatively slow months for enforcement activity in the wholesale sector. However, the FSA has carried on with their ‘credible deterrence’ approach involving large fines to big institutions with a £17.5m fine for Goldman Sachs. The majority of FSA’s enforcement activity for the period has related more closely to the insurance and mortgage Sector which often occupies the enforcement spot light.
However, the total amount of fines since 1st April 2010 has already exceeded the equivalent amount (£33.6 million) for the preceding 12 months. The long term trend also demonstrates this increase. In the FSA’s Enforcement Annual Performance Account 2009/2010, published on 19th August 2010, the key themes of market abuse, transaction reporting and failure to make proper disclosures to the FSA were noted. These continuing areas of focus are relevant to all wholesale investment firms, even though some of the specific sanctions may relate to other firm types.
Failures to make proper Disclosures to the FSA
Our round-up of some of the more relevant cases from the past two months below prominently features three examples of the latter area of focus – FSA disclosure failings. As well as the aforementioned Goldman Sachs sanction, there are two sanctions against approved persons for failure to make adequate disclosures.
The first of the following few cases highlight the need to make timely disclosures to the FSA in regard to any information which the FSA may reasonably expect to be informed of under the Supervision (SUP) sourcebook of the FSA handbook and FSA Principle 11. In order to ensure that these disclosures are made Firms should consider their internal reporting lines and staff training and awareness.
Also now that paper Form As (applications to hold Control Functions) have fallen away, replaced by the new Online Notifications and Applications (ONA) system, firms should ensure that they retain proper controls to ensure the applicant has had a chance to check all the details submitted on ONA especially in regard to Fitness and Propriety and has attested to the accurateness of this data prior to submission. The firm must also ensure that it conducts its own due diligence and reference checking against any new staff.
- Goldman Sachs (London)
The FSA fined Goldman Sachs International £17.5 million for breaching FSA Principles 2, 3 and 11 for failing to ensure that it had in place adequate systems and controls to enable it to comply with its regulatory reporting obligations. This resulted in a failure to notify the FSA of matters relating to the SEC investigation into the Abacus 2007 synthetic collateralized debt obligation which was structured by Goldman Sachs’ US affiliate, and marketed (in part) by Goldman Sachs London from the UK to institutional investors. Fabrice Tourre was, while at the US, part of the team that structured Abacus. Later, Mr. Tourre became an FSA approved person.
In breach of FSA Principles 2 and 3, Goldman Sachs International did not have effective procedures in place to ensure that its compliance department was made aware of the SEC investigation into its US affiliate and that principle 11 was breached by Goldman Sachs International who did not inform the FSA that a “Wells Notice” had been issued to Mr. Tourre in September 2009, although several senior managers were aware of the fact. As a consequence of the failure to notify the FSA, Mr. Tourre remained approved in the UK and able to perform a controlled function for several months without further enquiry or challenge from the FSA.
- Shore Capital Stockbrokers
The FSA refused an application made by Shore Capital Stockbrokers for Stuart Alex Moore to perform the Customer Function (CF30).
The FSA was not satisfied that Mr. Moore was a fit and proper person to perform the controlled function applied for, in terms of his honesty, integrity and reputation, arising from his failure to disclose relevant information to the FSA of which it required disclosure.
Mr. Moore failed to disclose that;
1) he had had two County Court Judgements (CCJs) made against him;
2) he had a conviction for possessing intoxicating liquor in a sports ground; and
3) he had a drink driving conviction.
- First Colonial Investments LLP
The FSA has banned Gerald Classey, a partner at First Colonial Investments LLP (FCI), for several failings, including failing to exercise proper oversight of the stock-broking business of the firm and not telling the FSA about previous convictions which constituted two minor offences in the USA. He did not disclose this in three separate applications to the FSA to become an approved person.
- Fabio Massimo De Biase
The FSA fined Fabio Massimo De Biase, a former cash equities broker, £252,239 for acting without integrity. The FSA has also banned De Biase from working in the financial services industry on the grounds that he is not a fit and proper person.
Between January 2008 and September 2009 he paid £131,000 in kickbacks to Anjam Ahmad, a hedge fund trader at AKO Capital LLP (AKO), in return for Ahmad giving broking business to De Biase.
On 20 occasions in 2008 and 2009, Ahmad and De Biase agreed between them that a higher level of commission would be charged to AKO. The standard commission rate was 0.05% or 5bps (basis points), but on these 20 occasions the level of commission averaged 46bps. This represented an overcharge to AKO of $739,000.
Earlier this year, Ahmad pleaded guilty to insider dealing offences and was sentenced to a suspended 10 month prison sentence, 300 hours of community service, and a £50,000 fine.
