Tullett Prebon Fined £15m for Risk Management Failings

Inter-dealer broker showed a "high degree of culpable incompetence", the FCA says, and failed to co-operate with the regulator in its investigation

James Gard 11 October, 2019 | 11:07AM
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FCA building in London

The Financial Conduct Authority has fined inter-dealer broker Tullett Prebon £15.4 million for “serious failings that undermine the proper function of wholesale markets”.

In a statement, the FCA said the fine was levied due “for failing to conduct its business with due skill, care and diligence, failing to have adequate risk management systems and for failing to be open and cooperative with the FCA.”

The City regulator investigated the conduct of the broker’s rates division between 2008 and 2010 and found that there was “ineffective controls around broker conduct”, including “lavish" entertainment.

The investigation centred on “wash trades”, which involve brokers trading with themselves to generate broker commission. In some cases, this can be to create a misleading impression of demand for securities, but the FCA that while Tullett Prebon’s activity was “improper”, it found that these trades did not mislead the market or amount to abuse – which carries more serious penalties.

The regulator was concerned that senior management had not spotted “obvious red flags of broker misconduct” and opportunities to challenge the behaviour internally were missed.

Warning Signs Visible

Mark Steward, executive director of enforcement and market oversight at the FCA said: “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 FCA also censured Tullett Prebon for a lack of co-operation with the regulator, which requested audio tapes in August 2011 – but only received them more than three years later, in October 2014. This breached the FCA’s Principles for Businesses, which require regulated firms to comply with requests for information. Steward said that the firm’s failure to be open with the FCA “reflected a high degree of culpable incompetence and prejudiced the FCA enquiries”.

The fine would have been 30% larger if Tullett had no agreed to settle the case.

Ian Mason, head of financial services, Gowling WLG, says: "This case shows the risks in staff being highly incentivised to generate business without sufficient monitoring and challenge by senior management. The case is also a rare example of the FCA fining a firm for not co-operating fully with its investigation – this was an aggravating factor".

The Chicago Mercantile Exchange (CME) defines a wash trade thus: “A wash trade is a form of fictitious trade in which a transaction or a series of transactions give the appearance that authentic purchases and sales have been made, but where the trades have been entered without the intent to take a bona fide market position or without the intent to execute bona fide transactions subject to market risk or price competition.”

Tullett Prebon is part of TP Icap group (TCAP), a member of the FTSE 250. Fund manager Terry Smith is a former chief executive of Tullett Prebon, and he left in 2014 to head up the asset management firm set up in his name.



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James Gard

James Gard  is senior editor for Morningstar.co.uk


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