FSA

RBS Fined £87.5 Million over LIBOR Rates

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On February 6, the FSA issued a final notice to RBS imposing a fine of £87.5 million for misconduct in submitting rates for the calculation of LIBOR.  RBS’ misconduct included the manipulation of submissions and several failings in respect of risk management systems and controls (including ongoing failings to identify inappropriate LIBOR submissions), as well as RBS’ collusion with other LIBOR panel banks and brokers in setting rates.

The FSA stated that the significant financial penalty of £87.5 million is intended to reflect both the widespread nature of the misconduct, as well as the harm caused to market participants and the integrity of the UK financial system.  In related actions, RBS has agreed to pay $324 million to the US Commodities and Futures Commission and $150 million to the US Department of Justice. 

Interest Rate Hedging Products: Review of Misselling

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On January 31, the FSA published a report of its findings from pilot reviews conducted by banks into the misselling of interest rate hedging products to small businesses.  The report confirms the FSA’s initial view that there has been significant misselling of such products in the small business market.

The pilot reviews were undertaken in order to consider proposed methods of reviewing such sales, and have led to the FSA identifying the following areas where changes in the review approach are required:

    • Assessment of compliance with regulatory requirements: consideration of compliance with regulatory requirements and, in the event of non-compliance, redress should be undertaken on a specific case-by-case basis.
    • Redress: all non-compliant sales must be considered for redress.
    • Sophistication test: the review should be focused on small businesses that were likely to have misunderstood interest rate hedging products.

The FSA anticipates that banks should have completed their reviews within 6 months, although acknowledges that it may take longer for those with large volumes of cases to review.

Upper Tribunal Upholds FSA Swift Trade Market Abuse Fine

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On January 28, the FSA published a press release regarding the decision of the Upper Tribunal (Tax and Chancery Chamber) to uphold the FSA’s decision to fine Swift Trade Inc £8 million for market abuse, marking the largest fine ever issued against a firm for market manipulation.

The FSA first published its decision notice in August 2011, having identified that Swift Trade had engaged in market abuse prior to its dissolution under Canadian law in December 2010.  In response, Swift Trade referred the matter to the tribunal, and Peter Beck, the President and CEO, made an additional reference on the basis that he had been prejudicially identified in the decision notice.  However, the tribunal concluded that the FSA had provided sufficient proof that Swift Trade had engaged in deliberate, manipulative and deceptive layering activities which together constituted market abuse.  The tribunal also dismissed Mr Beck’s reference.

Joint Finalized Guidance from the FSA and OFT on Payment Protection Products

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On January 24, the FSA and the Office of Fair Trading (the OFT) published their joint finalized guidance on payment protection products.  The guidance sets out what the FSA and OFT require of firms as they seek to develop new payment protection products to meet the needs of consumers similar to those met by payment protection insurance (PPI).  The guidance stresses that new payment protection products may pose similar risks as PPI. When developing new payment protection products, firms should be mindful of the importance of: 

    • identifying the target market for the protection;
    • ensuring that the cover offered meets the needs of that target market; and
    • avoiding the creation of barriers to comparing, exiting or switching cover.

Charges Brought Against Former Trader and Former Broker Following FSA Insider Dealing Investigation

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On January 16, Paul Milsom, a former trader at the investment management arm of Legal & General, and Graeme Shelley, a former broker at Novum Securities, appeared at Westminster Magistrates Court charged with insider dealing.  Mr Milsom indicated an intention to plead guilty to one charge, encompassing 28 separate instances of passing information to Mr Shelley during the period of 2008 to 2010.  Mr Shelley correspondingly faces 28 counts of insider dealing.  It is alleged that profits of around £402,000 were split between the two defendants as a result of Mr Shelley placing contracts for difference in the knowledge that large trades placed by Mr Milsom would move the market in a certain direction.

The prosecution arose from a joint investigation by the FSA and the Serious Organized Crime Agency, marking the FSA’s largest insider dealing investigation to date.  Five other defendants have already been charged as part of the same investigation, reflecting the FSA’s ever increasing readiness to bring criminal prosecutions against those suspected of market abuse.

FSA Finalized Guidance in Relation to Risks to Customers from Financial Incentives

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On January 16, the FSA published finalized guidance in relation to risks to customers from financial incentives (FG13/01).  FG13/01 follows a review of sales incentives conducted by the FSA from September 2010 to September 2011 that found that most firms have in place incentive schemes likely to cause mis-selling, and that firms did not have in place effective systems and controls to manage these risks.  FG13/01 gives examples of these findings, and provides guidance on the action it expects firms to take, including:

    • proper consideration of whether their incentive schemes increase the risk of mis-selling and, if so, how;
    • effective review of whether their governance and controls are adequate; and
    • action to address any inadequacies – for example changing their governance and/or controls, and/or changing their schemes.

FG13/01 applies to all firms in retail financial services with staff who are part of an incentive scheme and deal directly with retail customer transactions.  It should also be considered by wholesale firms with staff in sales roles.  The FSA expects firms to be compliant with FG13/01 from the date of its publication.

UBS Fined £160 Million for Significant Failings in Relation to LIBOR and EURIBOR

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On December 19, 2012, the FSA announced that it had fined UBS £160 million for misconduct relating to LIBOR and EURIBOR. The FSA’s final notice found that the misconduct was extensive and widespread, occurred in various locations around the world including Japan, Switzerland, the UK and the USA and, between 1 January 2005 and 31 December 2010, included:

  • The adjustment of UBS LIBOR and EURIBOR submissions to benefit UBS traders’ trading positions;
  • Colluding with interdealer brokers  to manipulate the Japanese Yen LIBOR submissions of panel banks to the benefit of UBS traders; and

Adopting LIBOR submissions directives whose primary purpose was to protect UBS’s reputation.  

Insider Dealing

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On December 13, the FSA published a press release announcing that Thomas Ammann, a former investment banker and FSA Approved Person at Mizuho International plc, had been sentenced  to 2 years and 8 months imprisonment for two counts of insider dealing and two counts of encouraging insider dealing.  The press release stated that Mr Ammann received profits of several hundred thousand dollars through insider dealing relating to the acquisition of Océ by Canon, who were being advised by MIP at the time.  The FSA makes no criticism of Mizuho International plc.

UBS Fined £29.7 Million by the FSA for Failure to Prevent Unauthorised Trading

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 On November 26, the FSA published a final notice to UBS AG, fining it £29.7 million for having breached Principles 2 and 3 of the FSA’s Principles for Business.  The breaches occurred in the Global Synthetic Equities business, conducted from UBS’ London branch during the summer of 2011, and became apparent when UBS discovered that Kweku Adoboli, one of its traders, had lost a total of $2.3 billion through his trading. On November 20, Mr. Adoboli was convicted of two counts of fraud and received a seven year prison sentence.

Criminal Conviction for Insider Dealing

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On November 15, the FSA issued a press release stating that Thomas Amman, formerly an investment banker at Mizuho International plc, has pleaded guilty to two counts of insider dealing and two counts of encouraging insider dealing.  Mr. Amman will be sentenced at a later date.  Two associates were acquitted of one count of insider dealing each, following a trial at Southwark Crown Court.

The offences related to trading in the shares of Océ, a Dutch company, which in late 2008 and 2009 was in the process of being acquired by Canon.  Mr. Amman was part of a small team advising Canon on the acquisition and therefore had price sensitive information about Océ.  Knowing that he could not trade in the shares himself, Mr. Amman encouraged his two associates to trade in the shares prior to the acquisition being announced.

The conviction is the 21st insider dealing conviction for the FSA. A further 5 prosecutions are currently ongoing, indicating the FSA’s increased focus on this area.