Sentencing FSA Tribunal
Date:21 September 2006
Offence Description:The Financial Services Authority has today fined Langtons (IFA) Limited £63,000 for failing to properly apportion roles and responsibilities to its senior management and for not having systems in place to ensure that its advisers were trained and competent. Between January 2003 and November 2005, Langtons failed to allocate responsibilities among its senior management effectively. The resulting confusion over senior management roles meant that its systems and controls were inadequate and its business was not compliant. Consequently, Langtons did not have in place key safeguards to ensure its customers were protected. Langtons failed to determine the training needs of its investment advisers. Furthermore when training was undertaken it was not properly evaluated or recorded. Langtons did not assess the continuing competence of its advisers or ensure that those under supervision were being adequately monitored. The failings also meant that Langtons' complaints handling procedures were inadequate and it failed to ensure complaints were dealt with independently. Additionally, the approval of its financial promotions was not carried out by a person with appropriate expertise to ensure that they were clear, fair and not misleading.
Aggravating features: Langtons' failings were discovered during an FSA visit to the firm rather than through its own systems and controls.
Mitigation : As a result of these failings, customers were potentially put at risk.
Engaged an independent consultant to review its compliance arrangements and its financial promotions procedures.
By agreeing to settle at an early stage of the investigation Langtons also qualified for a 30% discount, without which the fine would have been £90,000.
Case: FSA v Courtover Investment Management Ltd
Date:10th May 2005
Statute: s21 FSMA 2000. Restrictions on communication of financial promotions in the course of business
Summary: The Financial Services Authority (FSA) has fined Courtover Investment Management Ltd for approving a misleading financial promotion for the issue of unlisted shares in a separate property investment company, Overseas Property Investments plc. As is required by FSA rules, Overseas Property Investments plc (which is neither regulated by the FSA nor required to be so) sought approval of the promotion from a regulated firm, in this case Courtover Investment Management Ltd, before issuing it.
The promotion, headlined 'Invest abroad and receive a 20% return', was for an issue of unlisted, non-voting shares in the property investment company and was published in a free supplement to a national newspaper over three weekends in March 2004 as well as several trade titles, exposing it to more than 200,000 readers. It failed to disclose the significant risks and drawbacks associated with investing in the shares, and contained a misleading statement that implied the offer had in some way been approved under the Financial Services and Markets Act (2000). This could have misled consumers into thinking that the shares had been endorsed by the FSA and were therefore a safe investment.
The FSA's Financial Promotions Department, which monitors the media to detect promotions that breach FSA rules, spotted the advertisement and took prompt action to have it withdrawn.
The promotion was for a high risk, unlisted security with a minimum contribution of £20,000 and contained inaccurate and misleading information. This made the case particularly serious as consumers may have reached an unrealistically optimistic view about the shares without fully understanding the significant risk involved.
"The breaches of the rules arose from the fact Courtover failed to implement adequate procedures, systems, and controls for the approval of compliant promotions despite the considerable work the FSA has done with the industry to highlight the importance we place on this area
Aggravating features: Exposure to 200,000 potential investors.
Mitigating features:
High level of cooperation and action taken to remedy the breaches including
Withdrawl of approval for the scheme and indication that the company is no longer approving financial promotions.
Date: 30th December 2004
Summary: The Financial Services Authority (FSA) has fined Cantor Index Limited £70,000 for running a misleading campaign promoting spread betting.
Failure to include a warning notice about the risks of spread betting.
The company's senior management failed to ensure there were adequate systems and controls in place to ensure that its financial promotions were systematically monitored.
This failure resulted in the misleading advertising campaign entitled 'Free Xda' for Cantor Mobile, the firm's new spread betting device. The promotional material, which included flyers handed out at London stations, posters and advertisements on television and in the popular press, did not contain adequate warnings about the risks of spread betting and consequently put a large number of potential customers at risk.
A key risk of spread betting is that if a spread bet position moves against the customer they can lose far more than their initial deposit. Although the firm's terms and conditions contained risk warnings which the customer had to agree to before they could spread bet, the risk warnings were not sufficiently prominent and the FSA found that Cantor Index could not assume investors had read and understood them.
The FSA also found that the structure of the offer of a "free" combined handheld computer and mobile telephone known as an "Xda", incentivised consumers to spread bet. Additionally, it was promoted in a way that attracted the attention of relatively less experienced investors, and the firm did not consider the greater potential risk posed or take appropriate additional steps to ensure that those investors understood the risks associated with spread betting. Within a few days of the campaign's launch, the FSA's Financial Promotions Monitoring Team wrote to Cantor Index asking the firm to amend its promotional material.
Aggravating features: High risk nature of the investment
Mitigation
no customer suffered any loss
remedial action taken by Cantor Index including contact with all account holders.
good record of previous compliance.
Case: FSA v Pace Micro Technology PLC
Date: 27.1.05
Statute: Under section 91(1) of the Financial Services and Markets Act 2000 if the FSA considers that an issuer of listed securities has contravened the Listing Rules, it may impose a penalty of such amount as it considers appropriate.
Summary: The Financial Services Authority (FSA) fined Pace Micro Technology plc (Pace) £450,000 for breaches of the Listing Rules in January and February 2002.
The FSA has found that Pace breached the Listing Rules because it failed to ensure its Interim Results Announcement on 8 January 2002 included all relevant information, when it did not reveal that its trade credit insurance, in respect of one of its largest customers, had been withdrawn.
It also failed to update the market without delay of a change in its expectation as to its future revenue performance which had occurred on 4 February 2002. When Pace did alert the market as to its financial position on 5 March 2002, its share price fell 67% by close of trading.
"The effect of Pace's omission from its Interim Announcement on 8 January 2002 was further compounded by the delay in announcing its changed expectation as to its financial performance until 5 March 2002. These were clear breaches of the Listing Rules.
Background:
Pace is involved in the manufacture, development and distribution of digital television set top boxes. Pace's primary customer base, during this period, was composed of a small number of large European and US companies. One of its largest customers in late 2001 was NTL Group Limited (NTL), a subsidiary of the US-based NTL Inc which was suffering well publicised financial difficulties.
NTL, during the first half of Pace's financial year 2001/2002, accounted for 42% of Pace's turnover by volume and 48% by revenue. Pace had made known to the market, in previous Annual Reports, that it maintained a policy of trade credit insurance in respect of its larger customers.
Interim Results Announcement of 8 January 2002
In October 2001, NTL placed orders for 450,000 set top boxes, to be delivered in January, February and March 2002, on which Pace's forecasted revenues for the financial year ending 1 June 2002 were dependent. In early December 2001, the size of the order was reduced to 300,000 boxes and the parties continued to discuss payment and delivery terms.
On 19 December 2001, Pace's trade credit insurer, NCM, informed Pace that it was withdrawing insurance cover in respect of all of Pace's future shipments to NTL including the October 2001 order. This withdrawal meant that future payments owed by NTL were no longer guaranteed. The matter was not drawn to the attention of the company's corporate brokers and the withdrawal of insurance cover was not mentioned in the Interim Results statement published on 8 January 2002. Pace's Interim Results Announcement on 8 January 2002 showed that the expected turnover for the year ending 1 June 2002 would be broadly similar to the previous year's turnover of 524 million. Key to the realisation of the forecast figure was the receipt of the revenue from NTL's purchase of the 300,000 boxes.
Trading Statement of 5 March 2002
On 4 February 2002, Pace changed its expectation of its revenue for its financial year ending 1 June 2002, to 455 million, which was 12.5% less than the market consensus of 520 million. This information was not announced to the market. On 4 March 2002 Pace commenced a review of its performance which indicated that there had been a marked deterioration in its forecasted revenue for the financial year ending 1 June 2002 from 455 million on 4 February to 350 million. This further change in expectation represented a decrease of approximately 30% from the forecast of 524 million implied by the Interim Results of 8 January 2002.
Pace issued a Trading Statement on 5 March 2002 setting out its change in expectation. Following the announcement, Pace's share price fell nearly 67% from 3 to 1 at the close of trading.
The FSA has taken action for Listing Rules breaches in the following cases since 1 December 2001 - Marconi, SFI, Sportsworld, Universal Salvage and Shell.
Aggravating features: Clear breaches of the rules designed to protect investors in the market
Case: FSA v Deutsche Bank AG and Maslen.
Date:11.6.06
Principles:
Principle 2 A firm must conduct its business with due skill, care and dilligence
Principle 5 A firm must observe proper standards of market conduct.
Summary: The Financial Services Authority (FSA) has imposed a penalty of £6,363,643 on Deutsche Bank AG (Deutsche).
These breaches arose from two separate transactions conducted by Deutsche during March 2004. The first was in relation to a book build in Scania AB (Scania) B shares, while the second involved the stabilisation of Cytos Biotechnology AG (Cytos) shares.
The FSA has also imposed a financial penalty of £350,000 on Mr David Maslen, Deutsche's former Head of European Cash Trading, for being knowingly concerned in the failure to observe proper standards of market conduct in the Scania transaction.