The wealth management and corporate brokerage has fallen afoul of UK rules on market abuse.

The Financial Conduct Authority, the UK regulator, has fined WH Ireland, the wealth management and corporate brokerage firm, a total of £1.2 million (around $1.7 million) for failing to have controls in place to prevent market abuse.

The London-listed firm is also restricted for 72 days from taking on new clients in its corporate broking division, the watchdog said today.

In its own statement today, WH Ireland said it has made “wholesale changes” to its systems and had “taken the issue very seriously from the outset”.

Between 1 January and 19 June 2013, WHI “failed to ensure it had the proper systems and controls in place to prevent market abuse being detected or occurring,” the FCA said in a statement.

Elly Proudlock, counsel in WilmerHale’s UK Investigations and Criminal Litigation team, said of the FCA fine: “This is only the third time that the FCA has used its restriction and suspension powers in an enforcement context.  Whilst sanctions of this nature may not grab the headlines like huge fines, they are clearly capable of having a significant impact on a firm’s business.  This may be a sign that, since the FCA is unable to compete with fines levied by its US counterparts, it is beginning to think more creatively about deterrence measures.” 

The failings included deficient controls to ensure inside information did not leak from the private to the public side of its business or in ensuring disclosure to external parties was conducted in a controlled manner with proper safeguards in place. Other failings included inadequate personal account dealing rules for employees; failures to maintain an effective written conflicts of interest policy and inadequate recording of the kinds of service or activity carried out by WHI; and deficient compliance oversight, the FCA said.

The failings are serious because WHI’s range of services offered during the period in question meant the firm was exposed to a broad variety of market abuse risks. Further, the FCA said the firm regularly received inside information, creating scope for an adverse market effect if that information had been misused.
 
The failings were identified by a “skilled person” appointed by the FCA in a report of August 2013. In July 2014, WHI commissioned a follow-up report to look at the extent to which it had complied with the skilled person’s recommendations. This second report showed that there were some recommendations which had not been implemented adequately within the time set by the skilled person.

At the time the failings took place, WHI had around 9,000 private wealth clients with approximately £2.5 billion of assets under management. These clients may have bought and sold financial instruments or may have been advised to do so by the firm without the necessary protections in place. WHI also had 87 corporate broking clients. Due to the lack of proper systems and controls in place the firm could not protect against the risk of market abuse in respect of the information provided by these clients, the FCA said.

WHI received a 20 per cent "stage two" settlement discount, without which the fine would have been £1.5 million and the restriction would have been 90 days.

“As the FCA has noted we have made, and continue to make, wholesale changes to our management team and our systems and controls. We regret that we fell short of the FCA's expectations but since the beginning of my tenure in early 2013, significant changes have been made at the company and new specific oversight functions have been created. This cultural change will continue to lead to the improvement in the regulatory oversight across the company,” said Richard Killingbeck, WHI’s chief executive.

“Looking forward, we, the management team can now focus our efforts on developing both our wealth management and corporate broking divisions, and continue to provide a high level of service for clients, alongside driving revenues and creating long term value for our shareholders. We are pleased that this matter has been fully resolved with the FCA,” he added.