Tullett Prebon, now part of TP ICAP, has today been fined £15.4m by the City watchdog for lax controls which allowed “improper trading” to occur.
The Financial Conduct Authority (FCA) said Tullett Prebon failed to conduct its business with due skill, care and diligence, failed to have adequate risk management in place and failed to be open an co-operative with the FCA.
Tullett Prebon is an electronic and voice inter-dealer broker which acts for institutional clients, typically investment banks, doing business in the wholesale financial markets.
The FCA found that between 2008 and 2010 its rates division had ineffective controls over broker conduct.
“Lavish entertainment and a lack of effective controls allowed improper trading to take place,” the FCA said.
This included so-called wash trading, which involves no change in beneficial ownership and has no legitimate commercial purpose.
These trades generated “unwarranted and unusually high amounts of brokerage for the firm,” the FCA said.
The watchdog said the firm’s management wrongly believed proper controls were in place and missed obvious red flags.
In one example, when the firm asked one broker about “inordinately high brokerage” on one trade, the broker said “you don’t want to know,” and no further steps were taken to look into the trade.
Mark Steward, executive director of enforcement and market oversight at the FCA, said: “While these trades did not mislead the market, nor amount to market abuse, the wash trades were entirely improper, undermining the proper function of the market. Senior management and compliance were cocooned from seeing the misconduct, and systems and controls failed to probe broker conduct, even when warning signs were visible.
“The case against Tullett Prebon was a long and complex one. The firm’s failure to be open with the FCA about the existence of key evidence reflected a high degree of culpable incompetence and prejudiced the FCA enquiries.”
Tullett Prebon also failed to be open and cooperative with the FCA.
Broker audio tapes were requested in 2011 but only provided in 2014. Tullett Prebon initially provided an incorrect account of why this was.
Tullett Prebon agreed to resolve the issue and received a 30 per cent discount on its penalty.
With this discount its fine would have been £22m.
TP ICAP was contacted for comment.