Financial services investigations and enforcement monthly round up

October 2020


A round-up of recent enforcement actions and investigations in the financial services sector.

This month in summary:

FCA unsuccessful in prosecution attempts of former banker who destroyed documentation relevant to an investigation

The FCA has expressed disappointment in the outcome of the case it brought against Konstantin Vishnyak, a former banker at VTB Bank who destroyed documents relevant to an investigation. The FCA claimed Mr Vishnyak deleted the WhatsApp application on his phone when it became clear he would be required to provide his WhatsApp conversations under an FCA investigation. The FCA were looking to investigate Mr Vishnyak in relation to suspected insider dealing offences. Mr Vishnyak testified that WhatsApp messages were deleted in a panic due to fears his conversations in the app would reveal his ties with Russian suspects in a British murder investigation, and therefore put his family under threat. The Southwark Crown Court therefore found Mr Vishnyak not guilty under FSMA for destroying documents relevant to an FCA investigation.

This prosecution was the first brought by the FCA in relation to the destruction of documentation offence under FSMA. While the FCA are clearly dissatisfied, they reiterated that they are ready to take action whenever evidence they require is tampered with or destroyed.

FCA secures £1.6m confiscation order against inside dealer

On 5 October 2020, Southwark Crown Court ordered Richard Baldwin, previously convicted of inside dealing, to pay a confiscation order to the FCA of £1.6m. This order was made in Mr Baldwin’s absence after he fled from attending his previous trial and conviction for money laundering offences in 2017. Mr Baldwin had previously been sentenced to over 5 years in prison for money laundering activities, as well as contempt of court.

The confiscation order reflects the amounts Mr Baldwin received from laundering the proceeds of a conspiracy to commit insider dealing between October 2007 and November 2008. Mr Baldwin used offshore companies, bank accounts and false invoices, in cooperation with his co-conspirators Martyn Dodgson and Andrew Hind, to launder the money.

The conviction was part of Operation Tabernula, one of the biggest insider dealing investigations led by the FCA. An arrest warrant has been issued for Mr Baldwin to be brought before the court as he is still currently eluding authorities. Mr Baldwin has 3 months to pay the confiscation order, or could face a further 8 years in prison.

Only four fines handed out by the FCA so far in 2020 – a record low for the regulator

According to a freedom of information request, the FCA has seen fines imposed for breaches of financial regulation drop by over 75% in 2020 so far, when compared to the same period in 2019. This has meant only four fines have been handed out by the regulator throughout 2020, which is a record low.

It has been suggested that the disruption caused by the Covid-19 pandemic would have likely hampered the FCA’s ability to complete investigations at its expected pace. This is particularly important considering lockdown requirements have made face-to-face investigation interviews difficult for the regulator.

Having said this, an FCA spokesperson recently stated that the regulator’s conduct has continued as normal throughout the pandemic, and the FCA will continue to open cases where it suspects misconduct. The regulator also indicated that new cases fluctuate on a monthly basis and these figures should be treated with caution.

FCA delivers £873,118 fine to ARCM for breaching short selling rules

Asia Research Capital Management Ltd (ARCM) has been fined £873,118 by the FCA for failing to notify the regulator of, and disclose to the public, its net short position in Premier Oil Plc between February 2017 and July 2019.

In accordance with the Short Selling Regulation 2012 (SSR), ARCM would have been expected to notify and disclose to the public any net short positions it held. Instead, the FCA found that ARCM repeatedly breached these rules. Between February 2017 and July 2019, ARCM failed to make 155 notifications to the FCA, and 153 public disclosures, of its net short position in Premier Oil Plc. According to the FCA, ARCM’s net short position was the equivalent of 16.85% of the issued share capital in Premier Oil Plc by July 2019. This was held by ARCM for a further 106 trading days before the FCA were finally notified, and the disclosure was made to the public.

This marks the first occasion in which the FCA has taken enforcement action for a breach of the SSR. ARCM would have been fined a higher figure (over £1m), but qualified for a 30% discount under the FCA’s executive settlement procedure, bringing the fine down to £873,118.

FCA unreasonable in failing to consider the impact of an enforcement investigation on a firm’s ability to obtain PII and to pay its fees/levies before seeking to cancel a firm’s permissions

Recently, the FCA were ordered to pay the legal costs of Financial Solutions (Euro) Ltd (FSE), a mortgage broker, after the Tax and Chancery Chamber (TCC) overturned the Decision Notice the FCA issued to FSE.

The FCA originally issued the Decision Notice in May 2019 to cancel FSE’s trading permissions, due to FSE failing to obtain professional indemnity insurance and pay FCA fees and levies. FSE appealed this and made a reference to the TCC. They explained that its failures to obtain insurance and pay fees and levies were directly due to its ongoing FCA investigation. The FCA were investigating FSE in relation to alleged breaches of regulatory requirements and fraud. FSE further explained that the investigation dissuaded any insurers from offering a policy, which caused FSE to cease trading and therefore not have the financial capacity to pay any fees and levies.

The TCC held that the FCA had erred in failing to look into the reasons as to why FSE could not comply with its requirements under FSMA. The TCC also stated that the FCA acted unreasonably in issuing a Decision Notice to cease trading permissions, while not considering that its ongoing investigation could have been the reason for FSE’s lack of compliance. The TCC also ordered the FCA to pay FSE’s costs of £20,000 after the cancellation of the Decision Notice.

The Insolvency Service hands bans to traders who owed over £11m to clients

The Insolvency Service has delivered a combined 24-year ban to two foreign exchange traders, after their company collapsed while owing clients £11.2m. The two traders, Francis Tarling and Peter Roebuck, individually received 12-year bans, after they were found to have wrongly used client funds while trading.

The traders were in charge of Concept Consultancy Services Limited (CCS), and between 2011 and 2016 made private loan agreements worth over £9m with multiple clients. The traders informed clients that the funds they had received would be used for foreign exchange trading, with returns expected in the form of monthly interest and loan repayments. Instead, the money was used by the traders to pay other clients, to whom they already owed money. In the midst of this, CCS fell into administration in 2017, with no funds in its accounts and £11.2m owed to over 200 clients.

The Insolvency Service remarked that there were “several instances of misconduct”, with multiple client investors receiving no repayments after entering into loan agreements with CCS from September 2015 onwards.

The ban from the Insolvency Service prevents the traders from acting as directors, or becoming involved in the promotion or management of a company, for a 12-year period, unless allowed by a competent court.

Goldman Sachs fined over £96m for risk management failures

The FCA and the PRA have each fined investment bank Goldman Sachs £48.3m (roughly £96.6m in total) for risk management failures in relation to bond transactions for 1MDB, a Malaysian state-owned development company. Goldman Sachs arranged, underwrote and purchased three bond transactions for 1MDB, raising $6.5bn for the Malaysian company. 1MDB have been the focus of allegations of embezzlement for several years, with the regulators finding that Goldman Sachs had failed to address bribery and misconduct allegations aimed at 1MDB between 2013 and 2015.

The FCA and PRA also found that the parties involved with the 1MDB transactions were from jurisdictions of a higher financial crime risk. The FCA, in particular, found that Goldman Sachs had failed to assess and manage the risk and relevant risk factors to a standard that would have been required in light of the high-risk profile of 1MDB and its transactions.

In response, Goldman Sachs Chairman and CEO, David Solomon, made it clear that Goldman Sachs have learned their lesson from the case. Goldman Sachs’ penalty was subject to a 30% discount due to their cooperation in resolving the case, with the original fine being £69m from each regulator.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at October 2020. Specific advice should be sought for specific cases. For more information see our terms & conditions.


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