London-based brokerage firm Sigma Broking was fined 531,000 pounds (U.S. $589,000) for failing to report certain transactions to the U.K. Financial Conduct Authority (FCA).
Three of Sigma’s directors were fined an additional total of more than £200,000 (U.S. $222,000).
The FCA said from 2014-16, Sigma did not report, or failed to report accurately, 56,000 contracts for difference (CFD) transactions as required. Sigma also failed to report 97 suspicious transactions, the FCA said Thursday.
Former Sigma Chief Executive and Director Simon Tyson was prohibited from holding significant management functions in firms regulated by the FCA and fined £67,900 (U.S. $75,000). Former Director Stephen Tomlin was similarly banned and fined £69,600 (U.S. $77,000).
Matthew Kent, a current director, was fined £83,600 (U.S. $93,000).
“Firms must accurately report their transactions and bring any suspicious activity to our attention. Sigma failed to do this, which left potential market abuse undetected,” said Mark Steward, the FCA’s executive director of enforcement and market oversight, in a press release. “… These bans and the scale of the fines we have imposed demonstrate our determination to ensure firms—and those who lead them—meet the reporting standards we expect.”
Compliance considerations: In its final notice for Sigma, the FCA said the firm failed to perform an adequate risk assessment or engage in any meaningful preparations to ensure compliance with regulatory standards on several new lines of business it began offering in 2014. Those new business lines included “high-risk, complex financial products,” like CFDs and spread bets.
The firm even established a CFD desk to provide these services. The FCA said these kinds of products are “attractive to those seeking to commit market abuse, including insider trading.”
Sigma’s board failed to “establish, oversee, and resource an effective compliance function and failed to identify and address serious and systemic failures in relation to Sigma’s market abuse systems and controls and transaction reporting obligations, in respect of the CFD desk,” the FCA said. The compliance department did not have clear reporting lines, did not divide responsibilities among qualified staff, and failed to have adequate policies and procedures in place related to the conduct of the CFD desk and its brokers.
The source of the alleged reporting problem centered on the way the firm recorded transactions. Sigma conducted two trades for every CFD or spread-bet transaction but only reported the company-side transaction to the FCA and not the client side.
The FCA also criticized the company’s board for not performing its governance role effectively, failing to hold regular board meetings, and not distributing adequate management information to directors. Sigma lacked adequate, formal systems and controls to enable its board, in a structured fashion, to review the business activities of the CFD desk, according to the regulator.
“Many of these failings originated in the wholly inadequate governance and oversight provided by Sigma’s governing body, namely its board comprising of its three directors,” the final notice said.
Tyson, as the CEO, failed to take reasonable care to clearly assign responsibilities for directors to monitor and control the business activities of the CFD desk and to establish a system of controls that were appropriate to Sigma’s business, the FCA said. Tomlin and Kent were also assigned blame for Sigma’s governance failures; Tomlin specifically was responsible for compliance oversight at the firm.
Sigma did not respond to a request for comment.