FCA fines broker £1m for failing to flag suspicious trades

FCA fines broker £1m for failing to flag suspicious trades

The Financial Conduct Authority (FCA) has fined Interactive Brokers (IBUK) £1,049,412 for poor market abuse controls and failure to report suspicious client transactions.

The regulator said the firm failed in its post-trade systems and controls for identifying and reporting suspicious transactions in the period February 2014 to February 2015.

IBUK is a London-based online broker which arranges transactions in certain financial instruments such as CFDs (contracts for difference) and executes other products on behalf of entities in the wider Interactive Brokers group.  

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The FCA found IBUK had delegated its post-trade monitoring to a team based at another company within the group in the US. 

However, it had failed to adequately test the post-trade monitoring systems to ensure potential market abuse by its clients would be captured, the regulator said.

In particular, the broker 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, the FCA said.

This heightened the risk of IBUK failing to submit suspicious transaction reports (STRs) to the FCA. 

During the period the FCA identified three occasions on which IBUK failed to report suspicious trading by IBUK clients.

In fact, it had failed to submit any STRs in relation to insider dealing between February 2014 to February 2015, the regulator said.

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 said it considers the breach revealed serious and systemic weaknesses within IBUK's procedures.

This was the second fine dished out by the regulator this year.

On 8 January it fined former Royal Bank of Scotland (RBS) interest rate derivatives trader, Neil Danziger, £250,000 for his role in manipulating the interbank lending rate Libor..

Figures published in December showed the value of fines handed down by the FCA had increased tenfold in the past year.