The UK financial watchdog has fined Interactive Brokers (UK) Ltd, the British arm of US brokerage Interactive Brokers (IB), more than USD 1.4 million for failing to report several suspicious transactions, a hefty penalty that is designed to send a message of deterrence to the City’s financial sector.
FCA discovered that IBUK had failed from February 2014 to February 2015 to ensure that there were proper post-trade systems and controls in place to prevent market abuse being detected or occurring.
These failings, which amounted to a serious and systemic weaknesses within IBUK’s procedures, showed the spread betting firm outsourcing its post-trade monitoring to a team based at another company within the Interactive Brokers Group in the US.
The Financial Conduct Authority explained in an announcement on Thursday that Interactive Brokers’ systems lacked a formal risk management framework for market abuse and proper post-trade surveillance systems. Furthermore, the British arm failed to adequately oversee the US team’s reviews, or test their operation, to ensure potential market abuse by its clients would be captured.
The FCA considered these failings to be particularly serious because of the range of services performed by IBUK, which includes contracts for difference (CFDs), meant the firm was exposed to a broad range of market abuse risks.
The watchdog didn’t mention direct evidence of any specific damage to the market as a result of the brokerage’s deficient compliance oversight, but said it has identified three occasions when IBUK failed to report suspicious transactions.
In so doing, IBUK could have allowed crimes such as insider trading or other forms of market abuse to have gone on unnoticed.
Mark Steward, Director of Enforcement and Market Oversight at the FCA, commented: ”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.”
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