At the beginning of this year, the ICA published the top Financial Conduct Authority (FCA) fines of 2016. So as we come to the end of 2017, I thought we’d take a look at who’s been on Santa’s naughty list this year; in other words, the top FCA fines of 2017.
What I found really interesting is that this year, the total amount of fines were ten times as much as 2016. However, most of this does stem from the number one fine given to Deutsche Bank back in January. Last year there were many more fines and of those fines, a larger proportion of them were more sizeable. Additionally, of the twelve fines doled out this year, eight of them targeted individuals, which could mean that the FCA is focusing their attention on individuals more than in previous years.
Below I have broken down the top five fines issued by the FCA in 2017:
5. Lukhvir Thind - £105,000
This fine was actually issued against an individual, Lukhvir Thind, for engaging in market abuse. Mr Thind was a chartered accountant and Financial Controller at Worldspreads Limited, a financial spread-betting company. Between June 2010 and March 2012, he falsified critical financial information concerning Worldspreads Limited’s client liabilities. By doing this he helped to conceal from the market client money shortfalls in the 2010 and 2011 Annual Accounts.
He therefore engaged in market abuse by deliberately distributing information that gave a false and misleading impression of the business’s financial position, knowing that such information was false and misleading. He was fined £105,000 and the FCA ruled that a prohibition order should be imposed to prevent him from performing any function in relation to any regulated activities.
4. Bluefin Insurance Services - £4,023,800
Bluefin Insurance Services are a large insurance broker who, at the time, were solely owned by AXA UK Plc. Between March 2011 and December 2013, they made themselves out to appear ‘truly independent’ in the advice that they were providing and the insurers that they were recommending to customers.
However, Bluefin failed to manage the conflict that arose from its ownership. Additionally, the culture at the time promoted business strategies, including a policy which focused on increasing business placed with AXA, over treating their customers fairly.
Therefore, Bluefin were fined £4,023,800 for having inadequate systems and controls and failing to provide information to its customers about Bluefin’s independence in a way that was fair and not misleading.
3. Rio Tinto Plc - £27,385,400
In October, Rio Tinto, one of the world's largest metals and mining corporations, was fined £27,385,400 for breaching Disclosure and Transparency Rules. In what was, at the time the largest ever fine for such a breach, it was found that in 2012, Rio Tinto failed to ‘to carry out an impairment test and to recognise an impairment loss on the value of mining assets’.
In other words, when it was found that they couldn’t transport coal from a mine they acquired in the Republic of Mozambique via the Zambezi River and it would cost considerably more to transport the coal via other means, Rio Tinto carried out financial modelling of its mining business which indicated that the value of the mine was negative. Then, in spite of this, Rio Tinto decided not to carry out an impairment test to assess whether an impairment was required to be recorded in its financial reporting of its 2012 half year interim results. They did this as they judged there was a lack of clarity around how the mine would be developed and therefore it was too early to revalue this asset. Therefore, they decided (wrongly) to carry on and value the mining assets at the acquisition price.
The FCA stated that this showed a ‘serious lack of judgement’.
2. Merrill Lynch International - £34,524,000
This fine imposed on Merrill Lynch was the first enforcement action against a firm for failing to report details of trading in exchange traded derivatives. Reporting this helps authorities assess and address the risk inherent in financial systems caused by a lack of transparency. This requirement was one of the key reforms introduced to improve transparency, following the financial crisis in 2008
For failing to do this, Merrill Lynch were fined £34,524,000 in October.
1. Deutsche Bank AG - £163,076,224
In a case that you may already be aware of, and one that is the largest penalty for AML controls failings ever imposed by the FCA, Deutsche Bank were fined £163,076,224 in January for failing to maintain an adequate AML control framework between 2012 and 2015.
Deutsche Bank were found to have failed to properly oversee the formation of new customer relationships and the booking of global business in the UK. This therefore meant that the bank was used by unidentified customers to transfer in the region of $10 billion, of unknown origin, from Russia to offshore bank accounts in manner which was indicative of financial crime.
The Director of Enforcement at the FCA had this to say regarding this case:
‘Deutsche Bank was obliged to establish and maintain an effective AML control framework. By failing to do so, Deutsche Bank put itself at risk of being used to facilitate financial crime and exposed the UK to the risk of financial crime.’
What about next year?
The FCA plans to change its regime in 2018 from the 900 banks, insurance firms and deposit-takers currently covered to more than 56,000 regulated firms. These firms will need to ensure that they are familiar with the rules or they could find themselves on Santa’s naughty list next year.