FSA – Top 12 fines of 2012

03 Jan 2013

The FSA issued a total of £311.6m in fines against over 50 firms over the last year, a massive 371 per cent increase on the £66.1m in fines issued in 2011. The fines total was inflated in 2012 due to the significant penalties against UBS and Barclays for manipulating Libor. In the wake of the Libor rigging scandal, chancellor George Osborne ordered all FSA fines to be directed to the public purse instead of reducing industry fees.

Here we look at the biggest FSA fines and the reasons behind them.

12. Ravi Shankar Sinha £2.9m

In January 2012, the FSA banned and fined former JC Flowers UK chief executive Ravi Shankar Sinha £2.9m for fraudulently obtaining £1.4m through a fictitious invoicing scheme.

The fine was made up of reclaiming the £1.4m Sinha made in profits from the scheme, plus a £1.5m punitive element. Between February and October 2009 Sinha issued invoices to a company, in which the JCF funds had invested, for fees payable to himself to which he was not entitled.

In order to secure payment of the invoices, Sinha deliberately misled the company’s chief executive by claiming the payments had been authorised and approved by JC Flowers UK, when no such authorisation or approval had been sought or given. Sinha also dishonestly hid the payments he was receiving from JC Flowers UK.

11. Mitsui Sumitomo Insurance Company Europe £3.3m

In May, the FSA fined the London-based subsidiary of a Japanese insurance firm £3.3m for serious corporate governance failings, and fined and banned its former executive chairman.

In April 2009 Yohichi Kumagai was seconded from the Japanese parent company and appointed as executive chairman of MSIEu. Typically they had only limited experience of non-Japanese insurance business and UK regulatory obligations.

Shortly after his appointment the FSA wrote to Kumagai and MSIEu stating expansion into European markets would need careful and focused oversight from an appropriately skilled and experienced board. The regulator also said the firm’s systems and controls would also have to be improved to identify and address the risks posed by their new area of business.

The FSA says despite its clear guidance on the ineffective structure of the board, Kumagai failed to ensure key posts at MSIEu were staffed adequately. He failed to hire a chief underwriting officer, which then made it more difficult to control the expansion of the business. Kumagai also did not ensure the effective and timely implementation of a new IT administration system across the firm’s branch offices which led to shortcomings in the management information available to the board.

10. Martin Currie £3.5m

The FSA fined Martin Currie Investment Management and Martin Currie Inc £3.5m in May for failing to manage a conflict of interest between two of its clients.

The asset manager was also fined £5.15m by the Securities and Exchanges Commission in the US, bringing the total fine to £8.65m. The conflict of interest arose when Martin Currie caused one client to enter into an ill-advised transaction which rescued another client from serious liquidity concerns.

9. David Einhorn £3.63m

US hedge fund president David Einhorn was fined for market abuse after preventing losses at the firm through insider information.

The FSA deemed this was a serious case of market abuse by Einhorn and fell below the standards the FSA expects, particularly due to Einhorn’s prominent position as president of Greenlight Capital and given his experience in the market.

The fine came despite the regulator saying it accepts that Einhorn’s trading was not deliberate because he did not believe that it was inside information, however it says this was not a reasonable belief.

8.Greenlight Capital £3.65m

In February, the FSA fined US hedge fund Greenlight Capital £3.65m for engaging in market abuse.

On June 9, 2009, a corporate broker acting on behalf of Punch Taverns told Greenlight owner David Einhorn during a telephone conference that Punch was at an advanced stage of the process towards a significant equity fundraising.

The FSA says this was inside information and Einhorn should have appreciated this.

Over the next four days Greenlight sold 11,656,000 Punch shares, thereby reducing its holding in Punch from 13.3 per cent to 8.89 per cent. On June 15, 2009, Punch announced a fundraising of £375m. Following the announcement the price of Punch shares fell by 29.9 per cent.

Greenlight’s trading avoided losses of approximately £5.8m for the funds under Greenlight’s management.

7. Bank of Scotland £4.2m

In October, the FSA fined Bank of Scotland £4.2m for system failures which meant it held inaccurate mortgage records for 250,000 of its customers.

The issue emerged when Bank of Scotland put in place a redress programme for Halifax customers who had received potentially confusing information about changes to their standard variable rate.

In October 2008, Halifax raised its SVR cap from 2 per cent to 3 per cent above Bank of England base rate but failed to inform all affected borrowers. In February 2011 Lloyds Banking Group, which owns the Halifax and Bank of Scotland brands, agreed with the FSA to carry out a past business review and pay redress where necessary. It was estimated that redress would be up to £500m.

Due to a failure to update the mortgage information held on different systems, a number of Bank of Scotland customers were wrongly excluded from the redress programme. Bank of Scotland also mistakenly made goodwill payments totalling £20.4m to 22,700 customers.

The fine was the second multi-million pound issued to Bank of Scotland in as many years by the regulator. In May 2011, Bank of Scotland was fined £3.5m for the mishandling of complaints about retail investment products.

6. Coutts & Company £8.8m

The FSA fined Coutts & Co in March £8.8m over “serious and systemic” failures in the bank’s anti-money laundering systems and controls. The failings related to high risk customers and were allowed to persist for almost three years. Following an FSA visit in October 2010, the regulator identified deficiencies in nearly three quarter of files reviewed relating to politically exposed persons and high risk customers. Failures included gathering sufficient information to establish the source of wealth, and failing to scrutinise transactions appropriately.

Coutts was fined £6.3m last year over failings in the way its sold the AIG enhanced variable rate fund.

5. BlackRock Investment Management (UK) £9.5m

BlackRock was fined in September for failing to adequately protect client money between October 2006 and March 2010. Following BlackRock’s acquisition of Merrill Lynch Investment Managers, BlackRock failed to put in place the necessary trust letters which ensure client money is ringfenced from company assets in the event of the firm’s insolvency. The average daily balance affected by this error was around £1.4bn.

4. Card Protection Plan £10.5m

The regulator fined CPP in November for “widespread” misselling of credit card insurance. CPP emphasised customers would benefit from up to £100,000 worth of insurance cover, but the policies sold were unnecessary as customers were already covered by their bank. CPP sold 4.4 million policies, generating £354.5m in gross profit. The company agreed to pay estimated redress of £14.5m in addition to the £10.5m fine.

3. UBS £29.7m

UBS was hit with a £29.7m fine in November for failing to prevent unauthorised trading which caused losses of $2.3bn. The fine followed the conviction of UBS trader Kweku Adoboli, who was found guilty of two counts of fraud by abuse of position and jailed for seven years. The FSA criticised UBS for failing to focus enough on the key risks in the global synthetic equities department in UBS’s London office, focusing on efficiency rather than risk control, and for a lack of front office supervision.

2. Barclays £59.5m

The FSA levied a £59.5m fine against Barclays in June for manipulating Libor and Euribor. The bank was also fined £128m by the US Commodity Futures Trading Commission and £102.6m by the US Department of Justice. The Libor rigging scandal sparked the resignation of Barclays chief executive Bob Diamond, chairman Marcus Agius and chief operating officer Jerry del Missier. The Treasury has promised to reform the way Libor is set based on a review by Financial Conduct Authority chief executive designate Martin Wheatley.

1. UBS £160m

Less than a month after UBS was fined over its failure to prevent rogue trader Kweku Adoboli from generating losses of $2.3bn, the bank was fined £160m for its role in fixing Libor and Euribor. The fine represents the largest penalty ever imposed by the FSA. UBS was also fined £40m from the Swiss Financial Market Supervisory Authority and £740m by two US regulators. Corrupt brokerage payments were made to reward brokers for their efforts to manipulate the Libor submission of panel banks, who colluded with individuals at other panel banks to get them to make Libor submissions that benefited UBS’ trading positions.

The FSA said misconduct was “extensive and widespread”, with at least 2,000 documented requests for inappropriate submissions and an “unquantifiable” number of oral requests. Manipulation was also discussed in internal open chat forums and group emails.

http://www.moneymarketing.co.uk/regulation/fsa-top-12-fines-of-2012/1063674.article