The FCA fines City broker £15.4m for management failures
The Financial Conduct Authority has fined leading City broker Tullett Prebon (Europe) Limited £15.4m for failing to conduct its business with “due skill, care and diligence.”
The watchdog said the firm, which mainly provides electronic and voice inter-deal broker services, failed to have adequate risk management systems and failed to be open and cooperative with the FCA.
High brokerage fees, often based on unneeded trades, lavish entertainment and poor management oversight were at the root of many of the firm's problems.
Tullett Prebon is part of TP ICAP and acts for institutional clients dealing in the wholesale financial markets, typically commercial and investment banks. It has a significant presence in dealing in trading in fixed income securities, equities, Treasury products and derivatives.
Following an FCA investigation, the FCA found that, between 2008 and 2010, Tullett Prebon’s Rates Division had ineffective controls around broker conduct.
Lavish entertainment and a lack of effective controls allowed “improper trading” to take place, said the FCA. This generated high amounts of brokerage for the firm.
These included ‘wash trades’ - trades carried out mainly to generate brokerage income with no beneficial owner.
Mark Steward, executive director of Enforcement and Market Oversight at the FCA said: “The market performs important public functions and is not a private game of self-enrichment.
“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.
“Obvious red flags of broker misconduct and opportunities to probe were missed. For example, when the firm made inquiries of one broker about the basis for inordinately high brokerage on one trade the broker responsible said 'you don’t want to know' and no steps were taken to identify the reasons, let alone whether they were appropriate.”