FSA fines and enforcement actions in 2010

The FSA published a Final Notice on 22 April 2010 fining Winterflood Securities Ltd £4,000,000 for market abuse connected to trading in Fundamental‑E Investments Plc. The regulator found Winterflood, acting as a market maker, mis‑used and delayed ‘rollovers’, creating a distortion in the market and misleading investors for about six months in 2004. The FSA said the trades had unusual features that should have alerted Winterflood to a clear and substantial risk of manipulation, but the firm continued the highly profitable trading rather than taking steps to ensure the trades were genuine. The FCA register records the action on 25 October 2010.

Between July 2009 and 16 April 2010 the UK regulator (the FSA, predecessor to the FCA) fined Goldman Sachs International £17.5m for failing to tell the FSA, until 16 April 2010, that SEC staff had served a Wells Notice on 29 September 2009 relating to an approved person’s prior US activities connected to the Abacus 2007-AC1 synthetic CDO. The FSA found breaches of Principle 11 (failing to inform the regulator), and of Principles 2 and 3 for inadequate systems and controls to pass on information about group regulatory investigations and for failing to conduct its business with due skill, care and diligence in relation to regulatory reporting. The firm settled at an early stage and qualified for a 30% settlement discount (without the discount the penalty would have been £25.0m).

On 2 August 2010 the Financial Services Authority (the FSA) fined four members of the Royal Bank of Scotland Group £5,600,000 for breaches of the Money Laundering Regulations 2007 that took place between 15 December 2007 and 31 December 2008. The breaches were failures in systems and controls to prevent breaches of UK financial sanctions: RBSG did not adequately screen incoming cross‑border payments (and certain sterling and euro payments), missed the majority of trade‑finance SWIFT messages, failed to record and continuously screen directors and beneficial owners, and did not maintain effective ‘fuzzy matching’ parameters in its screening software. RBSG agreed an early settlement so qualified for a 30% (Stage 1) discount (the penalty would otherwise have been £8,000,000); once current management identified the problems they reported them to the FSA, implemented remedial screening and governance improvements and cooperated with the investigation.

Between 1 November 2002 and 8 July 2009 J.P. Morgan Securities Limited’s Futures & Options business failed to segregate client money: instead of holding overnight balances in a segregated money‑market account the firm held them in an unsegregated account with J.P. Morgan Chase Bank. On 25 May 2010 the FSA fined JPMSL £33.32m for breach of Principle 10 (which requires firms to arrange adequate protection for client assets) and for breaches of the client money rules; the action was recorded on the FCA register on 3 June 2010. The average amount of unsegregated F&O client money over the relevant period was about US$8.55bn; JPMSL settled at an early stage and qualified for a 30% discount (the undiscounted fine would have been £47.6m, equal to 1% of that average).

Between 1 January 2006 and 31 December 2007, UBS AG’s London international wealth management business failed to prevent or detect unauthorised trading by certain employees, which caused losses to customers. The FSA found breaches of Principle 2 (conduct business with due skill, care and diligence) and Principle 3 (take reasonable care to organise and control affairs responsibly and effectively) and imposed an £8,000,000 financial penalty on UBS on 5 August 2009. UBS has paid more than USD 42.4 million in compensation to affected customers.