Tullett Prebon fined £15.4m for serious risk failings

Tullett Prebon has been handed a £15.4m fine for failing to conduct its business with due skill, care and diligence, failing to have adequate risk management systems and for failing to be open and cooperative with the city watchdog, it has said, in serious failings that "undermine the proper function of wholesale markets".

From 2008 and 2010, the inter-dealer broker's rates division was found to have had ineffective controls around broker conduct, with "lavish entertainment and a lack of effective controls allowed improper trading to take place, including wash trades". This, the FCA said, generated unwarranted and unusually high amounts of brokerage for the firm. It also carried out ‘name passing’ broking which comprised a significant part of Tullett Prebon’s overall business, employing many brokers and generating significant revenues for the firm.

Executive director of enforcement and market oversight at the FCA, Mark Steward said the market is not a "private game of self-enrichment", rather a market that performs important public functions.

"These trades did not mislead the market, nor amount to market abuse, the wash trades were entirely improper, undermining the proper function of the market. Senior management and compliance were cocooned from seeing the misconduct, and systems and controls failed to probe broker conduct, even when warning signs were visible," he said.

"The case against Tullett Prebon was a long and complex one. The firm’s failure to be open with the FCA about the existence of key evidence reflected a high degree of culpable incompetence and prejudiced the FCA enquiries.’"

The watchdog said obvious red flags of broker misconduct and opportunities to probe were missed by senior management. "For example, when the firm made inquiries of one broker about the basis for inordinately high brokerage on one trade the broker responsible said 'you don’t want to know' and no steps were taken to identify the reasons, let alone whether they were appropriate," it stated.

The Principle 11 breach occurred between 2011 and 2014 and related to the FCA’s request in 2011 for broker audio tapes. Although Tullett Prebon had the majority of the audio that the FCA required, they failed to produce the audio to the FCA until 2014. The broker also initially provided an incorrect account as to how the audio had been discovered.

Despite the seriousness of the matter, the broker was given a 30% discount under the FCA’s settlement discount scheme, without which the fine would have been £22m.

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