Three broker firms fined £4.7 million for MAR non-compliance

On December 7, 2022, the UK Financial Conduct Authority announced a settlement with BGC Brokers LP, GFI Brokers Limited and GFI Securities Limited, whereby the companies agreed to pay a £4,775,200 penalty for failing to implement the trade surveillance requirements of the Market Abuse Regulation.

 

Although they are separate legal entities, BGC Brokers LP, GFI Brokers Limited and GFI Securities Limited share the same compliance department:  BGC Brokers LP is the UK subsidiary of BGC Inc., which owns GFI.  They are inter-dealer brokers that specialize in exchange-listed and over-the-counter financial and derivative products.

 

According to the FCA, the three BGC and GFI entities used deficient communications surveillance processes between July 2016 and January 2018, and the companies’ systems for monitoring market abuse did not adequately cover the classes of assets subject to the MAR, thereby increasing the risk that insider dealing and market manipulation could go undetected.  For example, GFI’s automated surveillance system covered fixed income trading, but not equity derivatives, futures and options or commodities.  Likewise, despite that 80% of BGC and GFI’s business was conducted through voice brokerage, the communications surveillance performed by the companies was limited to samples alone – and no such monitoring was carried out by GCG during the relevant period.  Neither company monitored adequately for all six risk behaviors identified by MAR – unlawful disclosure of inside information, dissemination, misleading behavior and distortion, insider dealing, manipulating transactions, and manipulating devices – and GFI’s systems were deficient with respect to each of the listed risk behaviors.  As noted by the FCA, BGC and GFI were aware of the deficiencies in their systems, and yet did not put measures in place to compensate for the systems’ limitations.

 

The FCA found that these failings constituted a breach of Article 16(2) of MAR and Principle 3 of the FCA’s Principles for Business, which require firms to take reasonable care to organize and control their affairs responsibly and effectively, and to put in place adequate risk management systems.  The FCA determined the seriousness of the breach to be level 3 as set forth in the FCA’s Decision Procedure and Penalties manual, and that no disgorgement would be required:  although the breach revealed serious and systemic weaknesses in the firm’s market abuse surveillance systems, the companies did not profit directly from it, and the FCA considered the breach to be negligent rather than deliberate or reckless.  Since the parties reached an agreement at Stage 1 of the FCA’s investigation, a 30% discount was applied to the settlement amount as calculated, taking into account both mitigating and aggravating factors.  The total penalty amount was divided between the parties, with £2,413,823 attributable to BGC Brokers LP, £1,189,470 to GFI Securities Limited, and £1,172,002 to GFI Brokers Limited. 

 

FCA press release | Final Notice for BGC/GFI 

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