Spreadbetting firm fined £1m for "serious and systematic" failings

 
Oliver Gill
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The failings took place between February 2014 and February 2015 (Source: FCA)

The City's top regulator has fined a London-based contracts for differences broker more than £1m for failing to report "suspicious client transactions".

Interactive Brokers (UK) was slapped with a penalty of £1,049,412 for failings between February 2014 to February 2015 by the Financial Conduct Authority (FCA), which labelled the breaches "serious and systematic".

The watchdog said Interactive Brokers also had "poor market abuse controls".

The broker delegated its post-trade monitoring to a team in the US. The FCA said Interactive Brokers' systems were not up to scratch and failed to provide effective oversight of the US team’s conduct of the reviews of the reports produced.

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"In particular, it carried out no quality assurance or monitoring of the review of the reports, and it failed to ensure that the staff conducting the reviews were adequately trained," the FCA found.

This meant the risk of failing to submit suspicious activity was heightened.

The company failed to submit any reports in relation to insider dealing in the year to February 2015, the FCA said, adding it identified three occasions suspicious trading was not reported to clients.

FCA director of enforcement Mark Steward said: "Firms not only have a key responsibility to report suspicious conduct in our capital markets, they also have an obligation to ensure their trading systems are not used for the purpose of financial crime. Interactive Brokers (UK)'s systems were inadequate and ineffective in the face of potentially suspicious transactions; they fell below the appropriate standards and exposed counterparties and the market to risks they did not bargain for. The FCA will continue to enforce appropriate standards of market conduct to ensure our markets function well."

A spokesperson for Interactive Brokers (UK) (IB UK) said:

IB UK fully cooperated with the inquiry, but respectfully disagreed with the FCA’s proposed findings. The FCA commenced a proceeding before the FCA Regulatory Decisions Committee (RDC), in which the firm disputed the FCA’s position.

The RDC concluded that IB UK should have, but did not, file STRs regarding trading by two IB UK customers. The RDC also reviewed the seriousness of the breaches and recognised that the penalty proposed by the FCA was disproportionate to the breaches and reduced it by 50 per cent.

IB UK has elected not to further appeal this fine. Since the period of the breaches, IB UK has implemented significant improvements to its systems and controls for detecting and reporting potential insider dealing. The RDC recognised that the increased number of STRs reported by IB UK was likely due to these improvements.

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