Release Date: 11th October 2019
To access the original FCA document, click here.
Summary
The Financial Conduct Authority (FCA) has fined Tullett Prebon (Europe) Limited £15.4 million for significant failings in conducting its business with due skill, care, and diligence, lacking adequate risk management systems, and failing to be open and cooperative with the FCA. Tullett Prebon, now part of TP ICAP, operates as an electronic and voice inter-dealer broker for institutional clients in the wholesale financial markets.
The FCA’s investigation revealed that between 2008 and 2010, Tullett Prebon’s Rates Division had ineffective controls over broker conduct. This environment enabled improper trading activities, including ‘wash’ trades that served no legitimate commercial purpose and generated excessive brokerage fees for the firm. Lavish entertainment practices further contributed to these lapses in control.
Mark Steward, Executive Director of Enforcement and Market Oversight at the FCA, stated, “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 at Tullett Prebon wrongly believed that adequate systems and controls were in place. However, these systems were either not used effectively or not directed appropriately, leading to missed red flags of broker misconduct. For example, a broker who generated unusually high brokerage on a trade responded to inquiries with “you don’t want to know,” and no further steps were taken to investigate the appropriateness of the trade.
Additionally, Tullett Prebon breached Principle 11 of the FCA’s Principles for Businesses by failing to be open and cooperative. Despite having the majority of the required broker audio tapes from August 2011, Tullett Prebon delayed providing them to the FCA until 2014 and initially gave an incorrect account of how the audio was discovered. This breach is considered serious as it undermines the regulatory system’s reliance on firms to provide accurate information and comply with information requirements.
Tullett Prebon agreed to resolve the matter, qualifying for a 30% discount under the FCA’s settlement discount scheme, reducing the fine from £22 million to £15.4 million.
Key Takeaways for Other Firms:
- Implement Effective Controls: Ensure robust systems and controls are in place and actively used to monitor broker conduct and prevent improper trading activities.
- Respond to Red Flags: Actively investigate and address any signs of misconduct to prevent and mitigate risks.
- Cooperate with Regulators: Be open and cooperative with regulatory bodies, providing accurate and timely information as required.
- Avoid Conflicts of Interest: Maintain a clear separation between personal gain and professional responsibilities to uphold market integrity.
In conclusion, the FCA’s fine against Tullett Prebon highlights the necessity for financial firms to maintain effective controls, promptly address misconduct, and cooperate fully with regulators to ensure the integrity of the financial markets.
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