Advice Matters – from the archive

Advice Matters is an accredited monthly e-journal. Each edition contains a number of articles written by industry experts, that combine knowledge and skills related topics, with technical and regulatory updates. Every edition is aligned to the ApEx standards, with a review at the end of each journal to show the learning outcomes and standards covered. (This is not available in the sample below).

Advice Matters will allow professionals to access 12 hours of structured CPD throughout the year from the comfort of their desk, or on the go using a mobile device. Each edition is also accompanied by associated questions and answers to help test and verify knowledge.

Take a look at a recent article from our staying on track section of the e-journal that focuses on keeping you up to date with changes in Markets, Product, Legislation and Regulation. The article provided below is taking a look at the lesson we can learn from the fines and prohibitions handed out by the regulator over the previous year.

Staying On Track

Keeping on track image

 2017 Fines and Prohibitions – What are the lessons learnt?

Since its inception, the FCA has remained committed to its statutory objective of ‘ensuring the relevant markets function well’. There are three operational objectives that underpin this –

  • Consumer protection
  • Market integrity
  • Competition

These operational objectives are reiterated at every available opportunity in speeches, guidance, policy and consultation documents.

Until the implementation of the extended Senior Managers Regime, across those firms which were not affected by the first tranche of the Individual Accountability Framework, the Regulators still have two regimes to supervise but the underlying Principles for Businesses remain across all regulated firms:

1. Integrity A firm must conduct its business with integrity.
2. Skill, care and diligence A firm must conduct its business with due skill, care and diligence.
3. Management and control A firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems.
4. Financial prudence A firm must maintain adequate financial resources.
5. Market conduct firm must observe proper standards of market conduct.
6. Customers’ interests firm must pay due regard to the interests of its customers and treat them fairly.
7. Communications with clients A firm must pay due regard to the information needs of its clients, and communicate information to them in a way which is clear, fair and not misleading.
8. Conflicts of interest A firm must manage conflicts of interest fairly, both between itself and its customers and between a customer and another client.
9 . Customers: relationships of trust firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely upon its judgment.
10. Clients’ assets firm must arrange adequate protection for clients’ assets when it is responsible for them.
11. Relations with regulators A firm must deal with its regulators in an open and cooperative way, and must disclose to the FCA appropriately anything relating to the firm of which that regulator would reasonably expect notice.


The regulator expects a firm to conduct their business aligned to these 11 Principles for Business.


FCA Fines

Of the £229m worth of fines, we saw the return of larger fines for firms and citing breaches of Principles for Businesses, used as part of their notification to the wider world – a clear warning not to repeat the same mistakes in your own firm.  In order of size these were:

Deutsche Bank in January 2017 (£163m) for breaches of PRIN 3 and SYSC

For failing to maintain an adequate anti-money laundering (AML) control framework during the period 1 January 2012 to 31 December 2015. This is the largest financial penalty for AML control failings ever imposed by the FCA, or its predecessor the Financial Services Authority (FSA).  The FCA found significant deficiencies throughout Deutsche Bank’s AML control framework:

  • Performed inadequate customer due diligence
  • Failed to ensure that its front office took responsibility for the CB&S division’s Know Your Customer obligations
  • Used flawed customer and country risk rating methodologies
  • Had deficient AML policies and procedures
  • Had an inadequate AML IT infrastructure
  • Lacked automated AML systems for detecting suspicious trades
  • Failed to provide adequate oversight of trades booked in the UK by traders in non-UK jurisdictions

This fine in particular, has forced firms to refocus their own efforts to combat financial crime as any or all of the above could fail if not regularly checked for reliability and effectiveness.

Merrill Lynch International in October 2017 (£34.5m) for breaches of Article 9 of EMIR and PRIN 3

For failing to report 68.5 million exchange traded derivative transactions between 12 February 2014 and 6 February 2016.  Interesting, as this was the first enforcement action against a firm for failing to report details of trading in exchange traded derivatives, under the European Markets Infrastructure Regulation (EMIR), and reflects the importance the FCA place on this type of reporting.  Under MiFID II, of course, this type of firm failure will come under even more scrutiny as the obligations for transaction reporting are more arduous with significantly more data required for every reportable trade.

Rio Tinto Plc in October 2017 (£27.3m) for breaches of the Disclosure and Transparency Rules

Marshmellow manFor failing to comply with the International Accounting Standards and report an impairment to the Market.  Whilst this is not a breach of Principles, we shouldn’t forget that the FCA is also the UK Listing Authority and this demonstrates its ability to reach beyond Financial Services firms in order to ensure that markets function fairly and effectively.  In this instance Rio Tinto had failed to carry out tests and impact losses when valuing a mining asset, which led to inaccurate and misleading information within its half year reporting in 2012.

Mark Steward, Executive Director of Enforcement and Market Oversight, said:

‘The UK listing regime requires listed companies to adhere to high standards of disclosure and transparency. Rio Tinto should have been aware of its obligation to carry out the impairment test and the resulting material impairment should have been reported to the market at its half year results in 2012. Reflecting the size of the company, this is the largest fine imposed to date by the FCA for a breach of rules relating to a firm’s official listing and demonstrates how vitally important high standards of disclosure and transparency are to ensuring our markets function fairly and effectively.’

Also acknowledged in the press release, was the assistance and collaboration of the U.S. Securities and Exchange Commission and the Australian Securities & Investments Commission in this matter. This again highlights the reach of the FCA to go beyond UK boundaries in its power to investigate.

BlueFin Insurance Services in December 2017 (£4m) for breaches of PRIN 3 and PRIN 7

For having inadequate systems and controls and failing to provide information to its customers about Bluefin’s independence in a way that was clear, fair and not misleading between March 2011 and December 2014.  At that time Bluefin, a large insurance broker, was wholly owned by the insurer AXA UK Plc, but held itself out to be ‘truly independent’ in the advice it provided and the insurers it recommended to customers.  Bluefin’s independence was compromised by its culture which promoted business strategies, including a policy which focused on increasing the business placed with its parent company, over treating customers fairly.

PRIN 7 of course is “A firm must pay due regard to the information needs of its clients, and communicate information to them in a way which is clear, fair and not misleading.”

This fine also has lessons for a number of firms who are covered by the Retail Distribution Review, which expects firms to clearly explain to the customers if they are “restricted”.  The issues at Bluefin were uncovered as part of a file review undertaken by the regulator in 2013 and upon further investigation the FCA found that training on conflicts was at too high a level and not specific to the firm.

What would happen if the regulator conducted a review of your files to check for clarity of messaging to clients?

What training have your staff had to make sure this is specific to your organisation?

Lessons learnt from firm fines in 2017

With the exception of the Rio Tinto fine, the others all cite PRIN 3.

“A firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems”

We all have policies and procedures within our firms, but their effectiveness is not normally tested until they are needed.  Firms need to place more importance on:

  • Ensuring policies are up to date and are congruent throughout
  • Checking policies are being adhered to and are fully understood by those operating the policies.

Stress testing needs to take place regularly to make sure they are still fit for purpose, as things frequently change, with regulation often being the primary driver of that change.

Remaining fines in 2017

There were 9 remaining fines in 2017 all of which included a monetary fine for individuals.  The summary (with individual names removed), with the headline reason are detailed here;

Month Individual Fine Reasoning
March £37,198 For breaches of APER 2 related to wholesale conduct in investment banking sector.
April £11,900 For breaches of s.118(7) Financial Services and Markets Act 2000 and FIT related to market abuse, a lack of fitness/propriety and client money/assets in the trading firm sector.
April £105,000 For breaches of s.118(7) Financial Services and Markets Act 2000 and FIT related to market abuse, a lack of fitness/propriety and client money/assets in the trading firm sector.
July £75,000 For breaches of APER 6 related to a lack of fitness/propriety in the pensions sector.
September £86,691 For breaches of APER 6 and FIT related to appointed representatives/ networks, culture/governance, lack of fitness/propriety and unfair treatment of customers in the Investment Adviser sector.
October £10,000 For breaches of APER 2 and APER 7 related to unfair treatment of customers, Complaints-handling and lack of fitness/propriety in the investment adviser and sector. Imposed a fine, withdrawal and prohibition.
October £50,000 For breaches of APER 4 and FIT related to a lack of fitness/propriety and failing to be open and co-operative in the investment adviser sector. Imposed a prohibition, withdrawal and fine.
November £60,090 For breaches of section 118 FSMA related to market abuse in the trading firm sector. Imposed a financial penalty.
December £70,000 For breaches of the Market Abuse Regulation related to market abuse in the issuer sector. Imposed a fine.


Remember the Statements of Principle for Approved Persons Regime has now been replaced for many by new Code of Conduct (COCON rules) but what remains central to behaviour of individuals is their ability to demonstrate they are fit and proper.  The focus on firms is to test this regularly, and not assume it.

So, what is FIT (Fitness and Propriety)?

Formed of three main areas, it should be core to any firms Training and Competence regime for all staff.  Any evidence or action to the contrary will bring into question the appropriateness of that individual’s ability to continue to perform their role.  It is clear that the FCA will not tolerate evidence of wrongdoing when it is discovered.

FIT cycle

In summary

It is abundantly clear that the FCA continues to focus on bringing firms and individuals to account, and will continue to do so.  Lessons learnt from previous enforcement notices should be taken on board – a focus on ensuring a fair outcome for consumers will go a long way to achieving this.  Implementing robust controls and processes, along with managing conduct risk, and monitoring individuals’ behaviour.

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Stuart Bull

Marketing Manager

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