Half an year after the UK Financial Conduct Authority (FCA) issued a warning notice to Interactive Brokers (UK) over alleged business principles breach, the UK regulator has taken more decisive action against the broker. Today, the FCA announces that it imposed a financial penalty on IBUK in the amount of £1,049,412 for failings in its post-trade systems and controls for identifying and reporting suspicious transactions in the period February 2014 to February 2015 (‘the Relevant Period’).
The FCA explains that IBUK delegated its post-trade monitoring to a team based at another company within the Interactive Brokers Group in the US. However, IBUK failed to adequately input into the design and calibration of the post-trade monitoring systems, or test their operation, to ensure that potential market abuse by its clients would be captured, and it failed to provide effective oversight of the US team’s conduct of the reviews of the reports produced. In particular, it carried out no quality assurance or monitoring of the review of the reports, and it failed to ensure that the staff conducting the reviews were adequately trained.
This increased the risk of IBUK failing to submit suspicious transaction reports (STRs) to the FCA. Prior to being notified of the FCA’s concerns, during the Relevant Period IBUK failed to submit any STRs in relation to insider dealing and the Authority has identified three occasions on which IBUK failed to report suspicious trading by IBUK clients.
Mark Steward, Director of Enforcement and Market Oversight at the FCA, said:
‘Firms not only have a key responsibility to report suspicious conduct in our capital markets, they also have an obligation to ensure their trading systems are not used for the purpose of financial crime. IBUK’s systems were inadequate and ineffective in the face of potentially suspicious transactions; they fell below the appropriate standards and exposed counterparties and the market to risks they did not bargain for. The FCA will continue to enforce appropriate standards of market conduct to ensure our markets function well.’
The FCA considers that the breach revealed serious and systemic weaknesses within IBUK’s procedures. The FCA has therefore fined IBUK £1,049,412.