Introduction
On 5 June 2023, the Financial Conduct Authority (the “FCA”) published its Final Notice following a five-year regulatory investigation into trades brokered by ED&F Man Capital Markets Limited (“ED&F Man”) between 2012 and 2015. The FCA imposed a financial penalty of £17,219,300 on ED&F Man after concluding it had breached Principles 2 and 3 of the Authority’s Principles for Business, which require firms to (a) conduct its business with due skill, care and diligence; and (b) take reasonable care to organize and control its affairs responsibly and effectively, with adequate risk management systems.
Having agreed to resolve the matter (at stage 1 of the FCA’s executive settlement procedures), ED&F Man qualified for a 30% discount to its financial penalty and a further reduction of 10% was made to the financial penalty to account for ED&F Man’s assistance to the FCA during the investigation.
Assisting the FCA with its investigations
The FCA’s Final Notice demonstrates the importance of regulated firms taking a proactive and constructive approach to the FCA’s investigations. As highlighted by the FCA, ED&F Man took the initiative to commission a report from its legal advisors (Rosenblatt) and forensic consultants reviewing the trades under investigation, as well as a review by Rosenblatt of its compliance procedures. ED&F Man accepted the findings of the report and provided copies to the FCA, which assisted its investigation. These mitigating steps were taken into account by the FCA, leading to a reduction of 10% (c. £1.9m) in the size of the financial penalty.
Ensuring to implement proper systems and controls
The FCA now has a history of issuing sizeable fines to regulated firms for failing to implement adequate risk management systems and/or not conducting their business with due skill, care and diligence, underlining its importance. For example, in 2022 the FCA imposed a financial penalty of £107,793,300 on Santander UK Plc for breaches of Principle 3 relating to the risk of financial crime in the retail banking sector and a penalty of £29,750,000 on TSB Bank Plc (in 2022) for breaches of Principle 2 relating to its failure to exercise due skill, care and diligence and Principle 3 for not taking reasonable care in organizing and controlling its affairs responsibly and effectively, with adequate risk management systems, in the retail banking sector.
This latest FCA Notice further demonstrates the necessity for regulated firms to ensure implementation of proper systems and controls, in particular as it pertains to (a) monitoring and understanding the risks of a firm’s trading activities; (b) identifying what systems and controls would be appropriate from a compliance perspective in relation to a firm’s trading activities; and (c) ensuring risk management systems are in place to meet the requirements or checks necessary for a firm’s trading activities.
ED&F Man’s successful defence of SKAT’s claim
The FCA’s Final Notice follows ED&F Man’s successful resistance of SKAT’s appeal against the High Court decision to dismiss SKAT’s claim against ED&F Man relating to the dividend tax reclaims made by its clients between 2012 and 2015 (see our previous article, Rosenblatt act for ED&F Man Capital Markets Limited in Successful Dismissal of SKAT Appeal). Rosenblatt acted for ED&F Man in respect of both the claim and the appeal.
How we can help
Rosenblatt has an experienced team that advises on all aspects of regulatory law and investigations. For enquiries, please contact Dispute Resolution Partners Justin Nimmo / Anthony Field at Justin.Nimmo@rosenblatt.co.uk / Anthony.Field@rosenblatt.co.uk or Dispute Resolution Legal Director Luther Kisanga at Luther.Kisanga@rosenblatt.co.uk or Dispute Resolution Senior Associate Charlotte Woodward at Charlotte.Woodward@rosenblatt.co.uk.
Disclaimer: We at Rosenblatt (and our parent company RBG Holdings plc) support and encourage free/independent thinking in relation to issues which are sometimes considered to be controversial subject matters. However, the views and opinions of the authors do not necessarily reflect the opinions, views, practices and policies of either Rosenblatt or RBG Holdings plc.
