A round-up of recent enforcement actions and investigations in the financial services sector.
On 18 October, the SFO announced the closure of its investigation into LIBOR manipulation.
The investigation has seen charges of conspiracy to defraud brought against 13 individuals. In October 2014, Peter Johnson pleaded guilty to manipulating the US Dollar LIBOR, the first criminal conviction for a LIBOR offence in the UK. Jonathan Matthew, Jay Merchant and Alex Pabon were convicted by a jury for the same charges in July 2016. In August 2015, Tom Hayes was convicted on eight counts of conspiracy to defraud in relation to the manipulation of Japanese Yen LIBOR.
Between January 2016 and April 2017, six individuals were acquitted by jury of manipulating Yen LIBOR and two of US Dollar LIBOR. The investigation is now closed.
The FCA and PRA have decided to ban and fine Stuart Malcolm Forsyth, former CEO of a small mutual insurer, £78,318 and £76,180 respectively. The regulators' respective decision-making committees found, following a joint investigation, that between February 2010 and July 2016 Mr Forsyth transferred excessive amounts of his own remuneration to his wife to reduce his own tax liability and took steps to conceal that arrangement.
Mr Forsyth allegedly transferred increasing amounts of his salary, and in most years all or part of his own bonus, to Mrs Forsyth (an employee of the company) in order to reduce his tax liability. Mrs Forsyth's salary (for administrative support and hospitality at home) rose from between £5,000-£10,000 per annum, to over £50,000 per annum during the period – making her the second highest paid employee after Mr Forsyth. Mr Forsyth is alleged to have consequently paid around £18,000 less income tax than he should have.
Mr Forsyth allegedly concealed the level of payments from the board by; creating false minutes of the Remuneration Committee signing off the increased salaries, inappropriately involving himself in an investigation by an external auditor and responding recklessly to an information request by the PRA – sending it the false Remuneration Committee minutes. He was found to have acted without integrity to his financial benefit.
The decisions were made by the FCA’s Regulatory Decisions Committee (‘RDC’) and the PRA’s Enforcement Decision Making Committee (‘EDMC’) following a joint investigation. This was the first jointly contested case before the RDC and EDMC.
Mr Forsyth referred these matters to the Upper Tribunal (Tax and Chancery Division) on 25 October 2019.
Back in May, we covered the story of a complaint made to the FCA that the register contained inaccurate information about two registered escrow firms, one of which is insolvent and the other had been dormant for two years at the time of the complaint. The FCA did not uphold the complaint, stating that responsibility for updates rests with the firms themselves.
The complainant referred the complaint to the Commissioner. Whilst the Commissioner agreed that the responsibility lies with firms to notify the FCA of material changes, he was concerned that the FCA's rigid approach here effectively put a box-ticking exercise above the interests of consumers.
The FCA was aware of the material change from third-party sources, but did not update the register as its policy was that the register could only be changed when a firm notifies it by submitting the appropriate form.
Though the FCA acted in line with its procedures, the Commissioner considered that this approach failed to address the risk of consumers being scammed by firms seeking to exploit the register's deficiencies.
The FCA has confirmed it is reviewing its processes and will make changes accordingly.
The National Crime Agency's (NCA) annual Suspicious Activity Reports (SARs) have been published for 2018/19, showing a significant increase – with 478,437 SARs received between April 2018 and March 2019.
The reports also show a staggering 52.7% uplift in requests for a Defence Against Money Laundering (DAML), or 'Consent SARs'. It also appears, though, that 70% of these reports did not result in criminal investigations. This may well be due the low threshold for what amounts to suspicion and increasing regulatory pressure on firms to file SARs. Despite this, the NCA reports that over £131m was denied to criminals as a result of DAML requests.
Credit and financial institutions account for more than 95% of the SARs lodged – compared with just 1% for accountants and tax advisors and just 0.58% from independent legal professionals. These sectors may well receive increased scrutiny from their regulators and the Home Office as a result of the lack of SARs reporting activity.
The FCA has fined Henderson Investment Funds Limited (HIFL) £1,867,900 for failing to treat fairly more than 4,500 retail investors in two of its funds, the Henderson Japan Enhanced Equity Fund and the Henderson North American Enhanced Equity Fund (the Japan and North American Funds). This was in contravention of Principle 6 of the FCA’s Principles for Business.
In November 2011, HIFL's appointed investment manager, Henderson Global Investors Limited (HGIL) decided to reduce the level of active management of its Japan and North American funds. HGIL informed nearly all of the institutional investors affected by this change, but did not communicate the change to any retail customers.
Over nearly 5 years, HIFL charged these investors £1,784,465.32 more than if they had invested in a passive fund, despite providing reduced active management. HIFL has now disclosed the matter to all affected customers and compensated them for additional costs incurred.
The situation revealed serious weaknesses in HIFL's systems and controls in contravention of Principle 3 – resulting in the issue not being identified and resolved for a considerable amount of time.
HIFL qualified for a 30% discount for the fine by agreeing to resolve the matter – otherwise the penalty would have been £2,668,547.40
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at November 2019. Specific advice should be sought for specific cases. For more information see our terms and conditions.