Interdealer broker TP ICAP plc, announced this Friday that its subsidiary, Tullett Prebon (Europe) Limited (TPEL) has entered into a £15.4 million settlement with the Financial Conduct Authority (FCA).
The settlement follows on from the FCA’s investigation into certain trades undertaken between 2008 and 2011. Namely, the regulator found that Tullett Prebon’s Rates Division had “ineffective controls around broker conduct,” a statement from the UK regulator released today said.
“Lavish entertainment and a lack of effective controls allowed improper trading to take place, including ‘wash’ trades (a ‘wash’ trade involves no change in beneficial ownership and has no legitimate underlying commercial purpose) which generated unwarranted and unusually high amounts of brokerage for the firm,” the statement from the FCA said.
FCA: Tullett Prebon missed “obvious red flags”
Furthermore, the FCA outlined that TPEL missed obvious red flags. In particular, when the firm made inquiries of one broker regarding inordinately high brokerage on one trade the broker responsible said ‘you don’t want to know.’ According to the regulator, no steps were taken to identify the reasons, let alone whether they were appropriate.
Commenting on the case, 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.
“The case against Tullett Prebon was a long and complex one. The firm’s failure to be open with the FCA about the existence of key evidence reflected a high degree of culpable incompetence and prejudiced the FCA enquiries.”
TPEL failed to produce audiotapes
In TP ICAP’s statement, which was filed through the London Stock Exchange (LSE), the interdealer broker also mentions that the UK watchdog’s investigation related to TPEL’s failure in 2011 to discover certain audio files and produce them to the FCA in a timely manner.
According to the FCA’s statement, the regulator requested in August of 2011 that Tullett Prebon provide broker audiotapes. Despite the fact that the company had the majority of the audio that the regulator required, TPEL didn’t produce the audio until 2014.
“Tullett Prebon initially provided an incorrect account as to how the audio had been discovered,” the statement from the British watchdog said.
“We are pleased to put this historical matter behind us,” added Nicolas Breteau, the Chief Executive Officer of TP ICAP. “None of the individuals involved in the relevant broking activities remain with our firm, which has long since taken the opportunity to significantly enhance its systems and controls to comply with regulatory expectations.”