For Martin Brokers (UK) Limited and two of their senior executives, a lack of sufficient compliance controls and cultural failings have resulted in significant financial penalties and, in respect of the two executives, bans.
The company was originally to be fined £3.6m, but this was reduced to £900,000 due to the fact that Martin’s other fines in relation to LIBOR were such that the company was not able to pay a fine of this size. The company also agreed to early settlement, further reducing the penalty by 30%, leaving the firm with a fine of £630,000.
Former Chief Executive, David Caplin, was fined £300,000, and former Compliance Officer, Jeremy Kraft, £150,000. These sums were reduced to £210,000 and £105,000 respectively following the pair also agreeing to early settlement. Both were also banned from performing Significant Influence Functions at financial services firms and as such are the first individuals holding Significant Influence Functions to be sanctioned for failings related to the LIBOR investigations.
Caplin and Kraft were criticised for ignoring risks and contributing to the firm’s culture which allowed the breaches to occur in the first place and then continue and remain undetected. Kraft was also singled out for failing to challenge Caplin on his approach to compliance matters, and for delegating compliance responsibilities to unqualified members of staff.
Georgina Philippou, acting director of enforcement and market oversight at the FCA, said that this case should act as a warning that “if a firm's misconduct can be attributed to cultural failings, then we expect senior management to answer for this."
The fines are another clear example of how a business can find itself at risk if it is not seen to be doing enough to prevent a breach of FCA regulations. Similar failures by a commercial organisation can also give rise to an offence under s.7 Bribery Act 2010 if adequate procedures are not put in place to prevent persons associated with the company from committing bribery offences.
There is very much a need for businesses to take a proactive approach to complying with legislation and regulations. Businesses do therefore need to consider what they have in place now, what more could be done, how often should these procedures be reviewed and communicated to staff and relevant third parties. In essence, would a regulator or enforcement agency be satisfied that the business had done all it could reasonably be expected to do.
The Martin case also highlighted the fact that merely engaging the services of an external compliance consultancy will not be enough to show that a firm is attempting to meet its obligations if the recommendations of the consultancy are not implemented. In fact, this could have the opposite effect if specific recommendations have been made for improvements and that these recommendations have been ignored, or not sufficiently implemented.
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