CFTC LAW | Forex, Futures and Derivatives Regulatory News » U.K. FSA

FSA sanctions London metals trader

Elan Mendel — Wed, 21 Sep 2011 20:08:56 +0000

The U.K. Financial Services Authority (“FSA”) issued a release today publicly censuring London metals trader Jason Geddis. In November of 2008, while employed at Dresdner Kleinwort Limited, Geddis built up a very large position in short term Lead contracts, enabling him to drive up prices to spectacular heights. Though Geddis’ behavior constituted market manipulation, his subsequent contrition has convinced the FSA to let him off with a slap on the wrist.

According to the FSA notice, on November 21, 2008, Geddis began to build up a significant number of Lead contracts. He took these actions in pursuit of a legitimate trading strategy–sifting through the contracts to find something to sell over-the-counter to clients for a premium. However, shortly before the end of the “ring” (open outcry) session, Geddis crossed the line from strategy into manipulation, driving the contract price up to an unprecedented $300.

However, once the session ended, London Metals Exchange (“LME”) authorities intervened to adjust trading levels, and ordered Dresdner Kleinwort to pay compensation to other market participants, as well as a fine to the LME. Geddis himself did not profit from the manipulative trades, and sought assistance when he realized what he has done.

The FSA has concluded that “Mr. Geddis’s ramping up of the price was the result of him getting caught up in the excitement of trading,” and is limiting his punishment to public censure.

CFTC LAW | Forex, Futures and Derivatives Regulatory News - Forex, Futures, and Commodities News and Analysis. Press release, rule summaries, and enforcement actions from the CFTC, NFA, SEC, FSA, and other agencies from around the world.

Former Citigroup VP caught in palladium and platinum trading fraud

Elan Mendel — Tue, 09 Aug 2011 15:59:04 +0000

Former Citigroup VP caught in palladium and platinum trading fraud

The CFTC has secured a default judgement order against Otmane El Rhazi requiring him to pay $1.49 million in restitution and civil monetary penalties. El Rhazi, a former futures and option trader and Vice President of Citigroup Global Markets Ltd in the United Kingdom, was accused of non-competitive trading, misappropriation, and fraud in April of this year by the CFTC.

A federal judge in New York has found that, beginning in November 2010, El Rhazi conducted a series of non-competitive palladium and platinum futures trades on the Globex trading platform at the New York Mercantile Exchange. These trades were made between a Citibank, N.A. proprietary account and personal account, and allowed him to accrue money at the expense of the Citibank account. He set up the trades so that there was no net change in the open positions of either account, while pocketing $373,860. This was accomplished by entering one of the trades at an off-market price when the market was at a low volume outside of pit trading hours, and sticking to illiquid contracts like palladium and platinum.

After proper service was effected on El Rhazi in April he failed to answer or defend against the action, and a default judgement has therefore been issued. In addition to restitution and civil monetary penalties, El Rhazi is subject to permanent trading and registration bans.

photo credit: nosha

Retail forex non-segregation to be eliminated in the UK

Elan Mendel — Fri, 05 Aug 2011 22:06:27 +0000

Retail forex non-segregation to be eliminated in the UK

The UK Financial Services Authority has published a proposed rule that would put an end to Title Transfer Collateral Arrangements (“TTCA”) used in foreign exchange (“forex”) trading with retail clients. In December 2010, the FSA introduced a prohibition on TTCAs used in spread bets and contracts for difference (“CFDs”). The proposed rule extends that prohibition to rolling spot forex contracts.

TTCAs are agreements under which a client allows assets placed with a firm to be treated as collateral for any current or future obligations, essentially transferring ownership unconditionally to the firm. They are not subject to the FSA’s usual client money protections, including Client Assets Sourcebook (“CASS”) segregation requirements.

The proposed rule requires that all money and assets from retail clients be treated as client money and therefore be subject to segregation requirements. This gives retail clients a proprietary claim to their money and assets in case of a firm failure.

The FSA will be accepting comments until August 29th, and the rule is expected to come into effect in October of this year. The Authority has also not ruled out the option of extending TTCA prohibitions to other investment types.

Forex broker iForex suspended and fined by Hungarian regulator

Elan Mendel — Wed, 27 Jul 2011 20:44:00 +0000

Forex broker iForex suspended and fined by Hungarian regulator

iForex, a online foreign exchange (“forex”) broker, has been fined and had its operating license suspended by the Hungarian Financial Supervisory Authority (“HFSA”). The Authority claims that it uncovered violations of consumer-protection rules, including instances of forex fraud and “unsafe trading” practices.

According to a rough translation of the Hungarian press release, iForex was found to give inadequate risk disclosures and be under-capitalized. The HFSA has levied a $100,000 fine for the perceived misconduct by iForex. The firm will remain suspended for 6 months, and in that time it cannot solicit or accept new forex customers and existing customers cannot trade new positions, though current positions will be unaffected. After 6 months, iForex may have its license reinstated if it carries out monthly audits and submits its data to the HFSA.

iForex was also registered with the UK’s Financial Services Authority (“FSA”). According to the FSA Register, the firm is no longer registered, but has no disciplinary actions against it.

FSA wins judgment against exploitative land bank

Felix Shipkevich — Thu, 30 Jun 2011 19:15:19 +0000

FSA wins judgment against exploitative land bank

The U.K. Financial Services Authority (“FSA”) announced today that it has won summary judgment against Stephen Watkins and his firm, Consolidated Land UK. Watkins has been ordered to pay £920,000 back to his victims, and is banned from selling land in the UK.

Through his company, Consolidated Lank UK, Watkins sold plots of land worth over £11 million in total, making himself a substantial profit. Almost all of this land was subject to planning restrictions. Watkins told customers that he would help them to sell the land for a profit (presumably by getting the restrictions lifted). However, Watkins and his firm had no intention of helping the new landowners. Many of them invested their life savings in that land, and have sustained significant losses.

Though the FSA does not typically regulate land sales, Consolidated Land UK operated like a land bank, which is subject to regulation. Not only was Watkins operating his firm without properly registering, he fraudulently solicited and mislead investors. “Anybody investing in land should always have it independently valued to check its worth. Furthermore, if you are ever sold land as an investment, and on the basis that someone else will manage it for you as part of a wider site, you should seek the advice of an independent financial adviser authorised by the FSA,” said FSA enforcement director Tracey McDermott.

UK FSA unveils FCA’s approach to fighting financial crime

Elan Mendel — Wed, 22 Jun 2011 17:11:17 +0000

UK FSA unveils FCA’s approach to fighting financial crime

At a Financial Crime Conference in London today, the acting director of the Financial Services Authority’s Enforcement and Financial Crime Division, Tracey McDermott, outlined the crime-fighting strategy that will be used by the Financial Conduct Authority once it takes over from the FSA.

“We expect there to be a lot of continuity in our work to tackle financial crime. The FCA will do many of the jobs currently done by the FSA,” said McDermott. Like the FSA, the FCA will strive to keep criminals out of the industry, to keep market participants forewarned and forearmed, and to educate the public about finance industry predators.

McDermott also introduced three new papers intended to clarify some of the new agency’s policies and circulate new reports. The first is “Financial Crime: A guide for firms,” which, as the title suggests, is an interpretive guide to useful crime control measures meant for financial firms. The second is a study of fraud detection and prevention among mortgage lenders. The third is a review of bank’s control over high-risk business situations. McDermott said that both reports were “the product of a style of intensive, intrusive supervision that will be carried into the FCA.”

The FCA has its sights set on cracking down on “boiler room” scams, fraudulent investment schemes, and market abuse cases.

UK FSA fines and bans independent trader for market abuse

Elan Mendel — Mon, 20 Jun 2011 16:04:05 +0000

UK FSA fines and bans independent trader for market abuse

The UK Financial Services authority, or FSA, announced last week that it has fined self-employed trader Barnett Michael Alexander £700,000 for committing market abuse, and has ordered him to pay £322,818 in restitution to firms who were harmed by his actions. He is also banned from performing any FSA-regulated activity, and must hand over an additional £306,312 now held in his trading accounts to the adversely affected firms.

According to the FSA, from the January 2009 to May 2010, Alexander was operating as an independent trader, dealing in shares and retail derivatives on the London Stock Exchange (LSE) from home. His manipulation scheme consisted of entering multiple small buy and sell orders on shares. Contracts for differences, or CFDs, and spread bets automatically track the price of shares, so Alexander’s small orders began to result in large differences. He made £629,130 trading CFDs and spread bets at prices he had created. Furthermore, Alexander was able to shield his behavior from suspicion by using client names to conduct his business.

However, in December 2009 a retail broker noticed that something was awry, and ordered an investigation. When they realized what Alexander was up to, they notified the FSA. In May 2010 the FSA obtained an injunction freezing £1 million in his assets and further restraining him from continued market abuse. Said the FSA’s acting director of enforcement and financial crime, Tracey McDermott: “The FSA views market manipulation extremely seriously. Alexander’s behaviour was deliberate and repeated over a significant period of time. He sought to conceal his trading and made substantial profits at the expense of the firms which allowed him to trade with them. The court action shows the FSA’s determination to use all our powers to prevent market abuse and to pursue those who commit it.”

Though formerly a financial services sector employee, Alexander was self-employed at the time. This, in addition to his full confession, lead the FSA to deal leniently with the defendant, limiting his ban on regulated activity to five years. Furthermore, his fine might otherwise have been as high as £1,000,000.

FSA finalizes consumer complaint rules

Elan Mendel — Thu, 02 Jun 2011 22:31:27 +0000

FSA finalizes consumer complaint rules

Late last week the UK Financial Services Authority (FSA) confirmed a new consumer-complaint-handling rule. These changes come as part of a industry-wide effort to raise consumer relations standards. The rule includes provisions to:

Abolish the “two-stage” complaints-handling rule so that companies respond promptly to complaints;
Require firms to identify a senior employee responsible for handling complaints;
Help firms understand how to meet root cause analysis requirements and on ombudsman decisions.

The FSA’s director of conduct policy explained the logic behind the change: ”We would rather customers were not put in a position where they had to complain, but when they do we want them to be treated fairly by their firm, with their complaint resolved promptly and being provided with redress when needed…[W]e have found major failures with the way firms handle customer complaints and have since taken enforcement action against two firms as a result of poor complaints practices.”

The FSA made complaints a central part of its approach to regulating customer relations in 2009, when it published aggregate complaint statistics for FSA regulated-companies. Last September, it also published firm-specific data, so that consumers could judge individual firm-responsiveness for themselves. (In case you are interested, Barclay’s registered the most complaints, followed by Santender, Lloyd’s, and Bank of Scotland.) Last week, Bank of Scotland was hit with a £3.5 million fine for problems handling complains about its investment products. This was the second complaint-related fine the FSA has issued. Ideally, when firms know that they are being watched, they will treat customers better before a complaint is even filed.

FSA says PRA to use “significantly different” supervisory style for bank regulation

Felix Shipkevich — Mon, 23 May 2011 22:44:36 +0000

FSA says PRA to use “significantly different” supervisory style for bank regulation

Yesterday, the UK Financial Services Authority (FSA) and the Bank of England announced they have jointly published a paper entitled: “The Bank of England, Prudential Regulation Authority: Our approach to banking supervision.” The paper considers the future of the Prudential Regulation Authority (PRA), especially in connection with its approach to banks, building societies, investment firms, and credit unions. The PRA is a proposed regulatory body intended to partially replace the FSA.

Hector Sants, FSA and PRA executive, says that the PRA “will lead to a significantly different model of supervision to that which was in use pre-2007.” When crafting the organization’s policies and procedures, regulators “incorporated both the lessons learned from the last financial crisis and those from firm failures of the past. The new regulatory model will be based on forward looking judgments and will be underpinned by the fact that the PRA has a single objective to promote the stability of the UK financial system and in consequence will be a very focused organization.”

Andrew Bailey, FSA director of UK banks and PRA executive, concurred: “Maintaining financial stability is an objective in public policy which we should all value highly…the PRA will use a new framework to asses risks to financial stability.” The paper, to be presented at a later date, covers the PRAs scope and underlying principles, risk assessment framework, and supervisory approach.

The PRA is one of three regulatory bodies established by the UK in July of 2010. The PRA, along with the Financial Policy Committee of the Bank of England and the Financial Conduct Authority will fill the vacuum left by the FSA when it is ultimately disbanded. The PRA itself will supervise over 2,000 firms, of which around half will be deposit-takers. Of those deposit-takers, 157 will be UK-incorporated banks, 48 will be UK building societies, 652 will be UK credit unions, and 162 will be branches of overseas banks.

FSA fines N&P £1.4 million

Elan Mendel — Wed, 20 Apr 2011 16:24:53 +0000

FSA fines N&P £1.4 million

The Financial Services Authority (FSA) has fined Norwich and Peterborough Building Society (N&P) £1.4 million for failing to give its customers suitable advice in relation to the sale of Keydata products. N&P will make payments to all customers to ensure they do not lose out as a result of their investments. These payments will amount to approximately £51 million.

Over a three-year period, N&P advised 3,200 clients to invest in Keydata’s life settlement products. N&P failed to properly to assess the financial circumstances of many of its customers, showing them as having a higher tolerance of risk than was appropriate. This led to “unsuitable sales.” Many of these customers were approaching or already in retirement, and could not afford to lose their money. N&P co-operated with the FSA’s investigation and agreed to settle at an early stage.