The Financial Conduct Authority (FCA) has imposed a financial penalty of £284,432,000 (€400 million) on Barclays Bank Plc (Barclays) for failing to control business practices in its foreign exchange (FX) business in London. This is the largest financial penalty ever imposed by the FCA, or its predecessor the Financial Services Authority (FSA).

Barclays’ failure to adequately control its FX business is particularly serious in light of its potential impact on the systemically important spot FX market. The failings occurred throughout Barclays’ London voice trading FX business, extending beyond G10 spot FX trading into EM spot FX trading, options and sales, undermining confidence in the UK financial system and putting its integrity at risk.

Georgina Philippou, the FCA’s acting director of enforcement and market oversight said: “This is another example of a firm allowing unacceptable practices to flourish on the trading floor. Instead of addressing the obvious risks associated with its business Barclays allowed a culture to develop which put the firm’s interests ahead of those of its clients and which undermined the reputation and integrity of the UK financial system.  Firms should scrutinise their own systems and cultures to ensure that they make good on their promises to deliver change.”

Between 1 January 2008 and 15 October 2013, Barclays’ systems and controls over its FX business were inadequate. These behaviours included inappropriately sharing information about clients’ activities and attempting to manipulate spot FX currency rates, including in collusion with traders at other firms, in a way that could disadvantage those clients and the market.

Barclays and other firms are already participating in an industry-wide remediation programme to ensure that they address the root causes of the failings in their FX businesses and that they drive up standards.

The Financial Conduct Authority (FCA) has handed Deutsche Bank AG a £227 million (€315 million) fine, its largest ever for LIBOR and EURIBOR-related (collectively known as IBOR) misconduct. The fine is so large because Deutsche Bank also misled the regulator, which could have hampered its investigation.

Georgina Philippou, acting Director of Enforcement and Market Oversight, said: “This case stands out for the seriousness and duration of the breaches by Deutsche Bank – something reflected in the size of today’s fine. One division at Deutsche Bank had a culture of generating profits without proper regard to the integrity of the market. This wasn’t limited to a few individuals but, on certain desks, it appeared deeply ingrained.

“Deutsche Bank’s failings were compounded by them repeatedly misleading us. The bank took far too long to produce vital documents and it moved far too slowly to fix relevant systems and controls.

“This case shows how seriously we view a failure to cooperate with our investigations and our determination to take action against firms where we see wrongdoing.”

Between January 2005 and December 2010, trading desks at Deutsche Bank manipulated its IBOR submissions across all major currencies. This misconduct involved at least 29 Deutsche Bank individuals including managers, traders and submitters, primarily based in London but also in Frankfurt, Tokyo and New York.

The Financial Conduct Authority (FCA) has fined The Bank of New York Mellon London Branch and The Bank of New York Mellon International Limited £126 million (€175 million) for failing to comply with the FCA Client Assets Sourcebook (Custody Rules, or CASS), which applies to safe custody assets and to client money.

Georgina Philippou, acting director of enforcement and market oversight at the FCA said: “Our Custody Rules are in place to ensure that clients are protected in the event of insolvency. The Firms’ failure to comply with our rules including their failure to adequately record, reconcile and protect safe custody assets was particularly serious given the systemically important nature of the Firms and the fact that safeguarding assets is core to their business. Had the Firms become insolvent, the total value of safe custody assets at risk would have been significant. This is compounded by the fact that the breaches took place at a time when there was considerable stress in the market.”

The failings occurred between 1 November 2007 and 12 August 2013

The Bank of New York Mellon Group is the world’s largest global custody bank by safe custody assets. The Bank of New York Mellon London Branch and The Bank of New York Mellon International Limited are the third and eighth largest custody banks in the UK respectively and provide custody services jointly to 6,089 UK-based clients. During the period of their breaches, the safe custody asset balances they held peaked at approximately £1.3 trillion (€1.8 trillion) and £236 billion (€328 billion) respectively.

The FCA also found a number of other failings by the firms including:

• failing to take the necessary steps to prevent the commingling of safe custody assets with firm assets from 13 proprietary accounts;
• on occasion using safe custody assets held in omnibus accounts to settle other clients’ transactions without the express prior consent of all clients whose assets were held in those accounts; and
• failing to implement CASS-specific governance arrangements that were sufficient given the nature of their business and their failure to identify and remedy the failings identified.
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The Financial Conduct Authority has published its Business Plan for 2015/16.

The 2015/16 Business Plan will look at sales practices of pension providers and how firms are helping consumers make the right pension choice with the new pension reforms. It will also be considering the mortgage market and any barriers to competition.

In 2015/16 the FCA will also implement and review the consumer credit regime, conduct a wholesale market study into competition in investment and corporate banking, monitor developments in technology, contribute to international benchmark reform, and work with firms preparing for the implementation of MiFID II and the Market Abuse Regulation updates.

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The FCA has also announced it will launch a market study on asset management that will examine charges paid by investors and what drives those charges.

This year’s Business Plan also included the FCA’s Risk Outlook, which sets out the top seven high-level risks the financial services sector should consider in the coming years.

The FCA will continue to look at: technology developments, culture and control, the impact of large back-books, consumer outcomes for pensions and retirement income products, poor culture and practice in consumer credit affordability assessments and the impact of the Consumer Rights Act coming into force in the autumn.

Commenting on the Business Plan, Martin Wheatley, Chief Executive of the FCA, said: "The Business Plan is set against the backdrop of the most fundamental changes to pension policy we have seen in over a generation. Therefore we will be looking at how the market is working and in particular, how the industry is adapting to this considerable change and what it means for consumers. This is exactly the sort of work that is expected of the FCA, and I believe is a fundamental benefit to consumers and industry."

The Financial Conduct Authority (FCA) has fined Aviva Investors Global Services Limited (Aviva Investors) £17,607,000 (€24 million) for systems and controls failings that meant it failed to manage conflicts of interest fairly. These weaknesses led to compensation of £132 million (€180 million) being paid to ensure that none of the funds Aviva Investors managed was adversely impacted.

“Ensuring that conflicts of interest are properly managed is central to the relationship of trust that must exist between asset managers and their customers. It is also a fundamental regulatory requirement. This case serves as an important reminder to firms of the importance of managing conflicts of interest effectively by implementing a robust control environment with effective systems to manage the risks. Not doing so risks customers’ interests being overlooked in favour of commercial or personal interests,” said Georgina Philippou, Acting Director of Enforcement and Market Oversight at the FCA.

“While Aviva Investors’ failings were serious, the FCA has recognised that its actions since reporting its failings were exceptional. The level of co-operation during the investigation and commitment to ensuring no customers were adversely impacted meant it qualified for a substantial reduction in the penalty.”

From 20 August 2005 to 30 June 2013, Aviva Investors employed a side-by-side management strategy on certain desks within its Fixed Income area whereby funds that paid differing levels of performance fees were managed by the same desk.

A proportion of these performance fees were paid to traders in Aviva Investors Fixed Income area who managed funds on a side-by-side basis. This type of incentive structure created conflicts of interest as these traders had an incentive to favour one fund over another. This risk was particularly acute on desks where funds traded in the same instruments.

Aviva Investors agreed to settle at an early stage of the FCA’s investigation and therefore qualified for a 30% (Stage 1) discount under the FCA's executive settlement procedure. Were it not for this discount, the FCA would have imposed a financial penalty of £25.2 million (€34.2 million) on Aviva Investors.

Non-Executive Directors (NEDs) with specific responsibilities, such as Chairman, will come under the new Senior Managers Regime (SMR), the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) have confirmed.

Following a detailed consultation across industry and with stakeholders it was also decided the regime would not apply to those NEDs who do not perform delegated responsibilities.

Martin Wheatley, Chief Executive of the FCA, explained: “Our approach is driven by wanting to ensure firms are managed in a way that reflects good governance and promotes the right culture and behaviours. Having a narrow SMR will also allow the FCA to focus regulatory resources on those responsible for key business areas and board committees. We want those senior individuals to be held accountable for the decisions they make and oversee. This is what people inside and outside the banking sector expect.

“NEDs play a vital role in providing challenge to and an independent oversight of the executive directors. Including all NEDs in the new regime would risk the unintended consequence of changing the whole nature of this vital role.”

The NED roles that will be in scope of the SMR are:

• Chairman;
• Senior Independent Director;
• and the Chairs of the Risk, Audit, Remuneration and Nominations Committees.
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The individuals performing these roles will be subject to all aspects of the Senior Managers Regime, including regulatory pre-approval, the FCA's and PRA's new conduct rules and the presumption of responsibility. Those NEDs who fall outside of the SMR will no longer be subject to regulatory pre-approval, will not be subject to the conduct rules nor the presumption of responsibility.

The Financial Conduct Authority (FCA) has announced it will regulate seven additional major UK-based financial benchmarks in the fixed income, commodity and currency markets from 1 April 2015. This extends the FCA’s initial regulation of LIBOR (the London Interbank Offered Rate), as introduced by HM Treasury in 2013.

Martin Wheatley, Chief Executive of the FCA, said: “I am determined to ensure that markets work well and preserve the UK’s reputation as a centre of excellence for financial services – this announcement is a vital step in achieving this. This builds on our work to strengthen LIBOR, and drive up standards on benchmarks across the board.”

The move extends the FCA’s approach to regulating LIBOR to the firms that administer, and where appropriate, contribute data or information to the following benchmarks:

• SONIA (Sterling Overnight Index Average) and RONIA (Repurchase Overnight Index Average), which both serve as reference rates for overnight index swaps
• WM/Reuters London 4pm Closing Spot Rate, which is the dominant global foreign exchange benchmark
• ISDAFIX, which is the principal global benchmark for swap rates and spreads for interest rate swap transactions
• London Gold Fixing and the LMBA Silver Price, which determine the price of gold and silver in the London market
• ICE Brent Index, traded on the ICE Futures Europe (IFEU) exchange, which acts as the crude oil futures market’s principal financial benchmark.

Benchmark administrators and firms that contribute to benchmarks will be FCA-authorised. Key requirements include identifying potentially manipulative behaviour, controlling conflicts of interest and implementing robust governance and oversight arrangements.

The consultation closes on 30 January 2015, the FCA expect to publish final rules during the first quarter of 2015.