FCA Fines Tullett Prebon £15.4m for Lavish Entertainment and Wash Trades
30 October 2019: The UK’s Financial Conduct Authority (FCA) has issued inter-dealer broker, Tullett Prebon with a fine of £15.4m after it failed to implement effective controls and provided “lavish entertainment” in return for unusually large brokerage fees.
An investigation by FCA found that, between 2008 and 2010, the company failed to put into effect sufficient controls to monitor and manage broker conduct. They further uncovered instances of corporate entertainment, which took the form of brokers being encouraged to entertain traders through dinners, drinks, golf days and other trips to places such as Monte Carlo and Ibiza. Bonuses at the firm were calculated on the amount of brokerage an individual personally generated, therefore the entertainment was often laid on with a view to obtaining bigger bonuses.
The firm relied on strong relationships between brokers and traders to grow its name-passing business within its Rates Division. Traders used wash trades to boost brokerage for the firm. While the FCA did not find that these trades amounted to market manipulation, they had no legitimate commercial purpose other than to generate brokerage.
FCA concluded that the improper broker conduct constituted a market risk. Moreover, it held that senior managers had failed to act with due skill, care and attention in their efforts to handle the broker’s bad practice. In one instance, on noticing a particularly high brokerage on a trade, a senior manager asked the broker whether there had been an error. The broker responded that there had not been an error and said “you don’t want to know”. The manager did not investigate further. The FCA’s final notice highlighted that, while adequate systems and controls were available at the firm, they were not utilised effectively.
