The FCA has published only its second Warning Notice Statement to a firm, and the first to name the firm in question.
The Statement says that the Financial Conduct Authority (FCA) proposes to take action against Interactive Brokers (UK) Ltd (IBUK) in respect of alleged breaches of Principle 3 for Businesses (skill, care and diligence) in relation to the identification and reporting of possible market abuse by IBUK’s customers. The FCA alleges that this resulted in IBUK failing to notify the FCA of suspected market abuse under the applicable Suspicious Transaction Reporting rule in the FCA Handbook. The Statement goes on to say that “The FCA does not consider that IBUK’s senior management or other staff were aware its systems and controls fell short of required standards until an FCA visit to IBUK in December 2014”.
A warning notice comes at a relatively early stage in the FCA’s enforcement process. Following the end of an Enforcement Division investigation, and assuming there is no settlement with the firm or individual in question, the Enforcement Case Team invites the FCA’s Regulatory Decisions Committee (RDC) to issue a warning notice. If the RDC agrees that this is the right course, a warning notice is issued which sets out the disciplinary action the FCA proposes to take. But at this stage the party in question has not yet made representations to the RDC, as it is entitled to do, and so a Warning Notice Statement contains a notice in bold stating that it is “not the final decision of the FCA”.
Why, then, does the FCA publish statements about merely proposed disciplinary action?
The point at which the FCA may publicise disciplinary action has been progressively brought forward in time over the last few years. Originally the FCA was only permitted to publish a final notice at the conclusion of regulatory action. That could be several years after the events in question if the party in question took the case to the Upper Tribunal. After some lobbying on the part of the Financial Services Authority (FSA), Parliament amended the Financial Services and Markets Act 2000 (FSMA) in 2010 to permit the FSA to publish decision notices as well as final notices. Decision notices are issued at the end of the FCA’s enforcement process, following representations to the RDC by the party concerned, but before that party is able to refer the matter to the Upper Tribunal for a fresh determination. In 2012 FSMA was amended again to permit the FSA to publish “such information about the matter to which [a warning notice] relates as it considers appropriate” - but not the warning notice itself.
The reason for these statutory changes was to enable the FSA to publicise regulatory findings earlier in the enforcement process than was previously the case. This enables the FCA, for example, to identify types of behaviour which it considers unacceptable at an earlier stage, even though the enforcement process is not concluded.
Given the warning notice represents a proposed action rather than a regulatory decision, there are some safeguards. The FCA cannot publish information if to do so would, in its opinion, be unfair to the person concerned, prejudicial to the interests of consumers, or detrimental to the stability of the UK financial system. The FCA must also apply the criteria set out in chapter 6.2 of its Enforcement Guide and consult the person concerned before publication of the statement, a process undertaken by the RDC.
Warning Notice Statements published by the FCA can be found on the FCA’s website here.
This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.