London-based prime broker Linear Investments has lost a dispute over a £409,300 fine imposed by the Financial Conduct Authority (FCA).
The Upper Tribunal, which reviewed the case to determine if the FCA should uphold the financial penalty, stated in its judgement that the fine should be imposed for the broker’s failures to oversee its systems for detecting and reporting market abuse between January 2013 and August 2015.
Linear Investments became aware of the need to have its own surveillance system in November 2014 as its trading volumes increased, but it was not until August 2015 that Linear had the effective systems in place. Prior to August 2015, Linear had manual oversight of trading activity conducted through its Direct Market Access (DMA) provider.
“Linear maintains that no instances of market abuse had either gone undetected or unreported but accepted that the manual oversight system Linear had operated was insufficient for the volume of trading,” the firm said in response to the FCA’s decision notice last year.
The prime broker launched its appeal against the fine, arguing that the FCA’s enforcement decision “substantially overstates the seriousness of the case, resulting in a financial penalty far in excess of what the rules envisage”. However, the Upper Tribunal ruled that there was no sufficient evidence or grounds for Linear Investment’s argument.
“On the one hand this was a failure in an important area; on the other, there was no proven impact and the breach was not deliberate or reckless,” the Upper Tribunal stated. “The negligence was of a serious kind and in relation to a serious matter. It was a key failing in the [Linear Investments’] business model.”
This is the first case to be completed under a new process introduced for contested penalties imposed by the FCA, which allows firms under investigation to agree to certain elements of the case and contest others. Firms are still eligible for a 30% discount on imposed penalties, meaning Linear’s fine would have been £584,700 had it not agreed facts and liability laid out by the UK financial regulator.