Sigma Broking

Release Date: 4th October 2022

To access the original FCA document, click here.

Summary

Sigma Broking Limited was fined £531,600 by the Financial Conduct Authority (FCA) on 4 October 2022 for significant compliance failures. The fine, reduced from £590,700 due to a 10% early settlement discount, addressed breaches of regulatory reporting and market abuse controls between 1 December 2014 and 12 August 2016. Sigma’s governance, risk management, and compliance functions were found severely lacking, compromising the integrity of the financial system.

Key Takeaways for Other Firms:

• Robust Risk Assessment:
  • Conduct thorough risk assessments when expanding business areas, particularly when dealing with high-risk financial products like CFDs and Spread-Bets.
• Effective Governance:
  • Ensure regular board meetings with adequate management information and proper documentation of decisions.
  • Establish clear governance structures and reporting lines within compliance functions.
• Compliance with Regulatory Reporting:
  • Maintain accurate and complete transaction reporting as required by regulatory standards.
  • Implement strong systems and controls to monitor and report suspicious transactions promptly.

Summary of Findings:

• Inadequate Preparation and Risk Assessment:
  • Sigma expanded its business to include CFDs and Spread-Bets without adequate risk assessment or preparations to ensure compliance with regulatory standards.
  • The firm’s board of directors failed to hold regular meetings or maintain proper records, impairing their governance role.
• Failures in Transaction Reporting:
  • Sigma failed to report an estimated 56,000 transactions accurately, breaching SUP 17.1.4R and SUP 17.4.1 EU/SUP 17 Annex 1 EU.
  • This failure hindered the FCA’s ability to conduct market surveillance and detect market abuse.
• Neglect in Identifying and Reporting Suspicious Transactions:
  • Sigma did not report any suspicious transaction reports (STRs) or suspicious transaction and order reports (STORs) during the relevant period, despite 97 transactions warranting such reports.
  • This contravened SUP 15.10.2R and Article 16(2) EU MAR, undermining the FCA’s efforts to detect and prevent market abuse.
• Deficient Compliance Function:
  • Sigma’s compliance department lacked clear reporting lines, adequately qualified staff, and effective policies and procedures.
  • The firm failed to ensure compliance with transaction monitoring and reporting obligations, and did not take adequate steps to prepare for the implementation of EU MAR in July 2016.
• Overall Governance and Oversight Failures:
  • Sigma’s board did not monitor or approve policies and procedures for the CFD desk.
  • The firm lacked adequate systems to identify, measure, and control risks associated with market abuse, insider dealing, and financial crime.

In conclusion, the FCA’s penalty against Sigma Broking Limited underscores the critical importance of robust compliance and governance frameworks in financial firms. Effective risk management, accurate regulatory reporting, and diligent monitoring are essential to maintain the integrity of the financial system and avoid significant regulatory penalties.

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