The FCA has fined Martin Brokers (UK) Limited (Martins) £630,000. Martins was found to be in breach of Principles 3 and 5 in connection with misconduct relating to the London Interbank Offered Rate (LIBOR).
Martins is a voice broker, acting for institutional clients transacting in the wholesale financial markets. During the relevant period (from 1 January 2007 to 31 December 2010) Martins’ main role was to bring together counterparties to execute trades in return for commissions and where necessary, to provide information to clients. The information Martins provided to its clients included advice as to where it believed the published LIBOR rates would be set on particular days.
Brokers at Martins acted improperly and breached Principle 5 by failing to observe proper standards of market conduct. Its brokers colluded with “Trader A” from Trader A’s bank as part of a coordinated attempt to influence JPY LIBOR submissions made by Panel Banks, in an attempt to manipulate the final published JPY LIBOR rate. Martins assisted Trader A because he was a significant client. Martins provided misleading assessments of the correct level of JPY LIBOR (known as “Run-Throughs” and which were purportedly based on knowledge gained from transactions).
Martins also created false orders with the aim of influencing Panel Banks’ views of the cash market so that they would make JPY LIBOR submissions at levels that benefited Trader A. This involved calling out prices to suggest a potential trade when there was none, when clients could overhear, in order to influence their views of the cash market and impact the JPY LIBOR rate.
Trader A’s bank, also entered into “wash trades” (risk free trades that cancelled each other out which had no legitimate purpose) with Martins, in order to facilitate corrupt payments to brokers as a reward for their attempts to influence the JPY LIBOR submissions of Panel Banks. The FCA said that the breaches of Principle 5 were “extremely serious”.
Martins also breached Principle 3 by failing to take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management controls or effective controls in place to monitor and oversee its broking activity and address the risk of collusion between brokers and their clients. The FCA also said that Martins had no effective compliance function, minimal policies on behaviour, provided limited training and failed to conduct any transaction monitoring. The FCA described the lack of adequate systems, controls, supervision and monitoring as “serious and widespread misconduct”.
A number of the brokers involved in the misconduct were managers. There was also inadequate supervision by managers. The FCA commented that the culture of Martins’ business “gave undue weight to revenue generation at the expense of promoting a culture of regulatory compliance”.
In determining the penalty, the FCA took into account that the breaches were extremely serious and occurred over the course of several years. Martins could have caused serious harm to other market participants. The FCA did not conclude that Martins itself had engaged in deliberate misconduct but said that the actions of a number of brokers were deliberate and Martins was reckless in its oversight. The FCA took into account that Martins has made compliance improvements since the relevant period and that there have been staff and management changes.
The FCA would have imposed a fine of £3.6m (subject to discount) but, given Martins’ financial circumstances and in particular the fact that it would be unable to pay such a penalty together with other regulatory liabilities in relation to LIBOR, the FCA took the unusual step of reducing the fine by 75% to £900,000 before applying a 30% Stage 1 settlement discount. Martins also agreed to settle an action brought by the US Commodity Futures Trading Commission, which imposed a financial penalty of $1.2m.
View Final notice: Martin Brokers (UK) Ltd, 15 May 2014