FCA: Martin Brokers (UK) Limited was fined for significant failings in relation to LIBOR
The Financial Conduct Authority (FCA), the British regulatory authority, has fined Martin Brokers (UK) Ltd (Martins) £630,000 for misconduct relating to the London Interbank Offered Rate (LIBOR). Martins would have been fined £3,600,000 but for the fact that the firm was able to show that it could not pay a penalty of this amount in addition to the other regulatory fines that Martins faces in relation to LIBOR.
Martins is the second inter-dealer broker and the sixth firm overall, to be fined by the FCA for LIBOR-related failures.
Tracey McDermott, director of enforcement and financial crime, said:
“Interdealer brokers are expected to act as trusted intermediaries and are key conduits of market information. Martins abused this position of trust by providing false information to Panel Banks, with no regard for the integrity of the market. This is unacceptable behaviour from any market participant.”
“The culture at Martins was that profit came first. Compliance was seen as a hindrance and the firm lacked the means to detect the “wash trades”. In this environment, broker misconduct was almost inevitable. Similar cultural failings at other firms have caused havoc in the financial services industry. As we have said before, firms need to take their responsibilities to uphold market integrity seriously. If firms fail to heed these warnings then we will take action against them.”
Between January 2007 and December 2010, Martins colluded with a trader at UBS to manipulate the (Japanese Yen) JPY LIBOR rates for his benefit. The misconduct involved Martins deliberately disseminating incorrect or misleading LIBOR submission levels by:
- communicating skewed suggestions to some Panel Banks as to where they believed the published JPY LIBOR rate would set for a particular day (known as “run-throughs”);
- creating false (or “spoof”) orders, with the aim of influencing Panel Banks’ views of the cash market so that they would make JPY LIBOR submissions at levels that benefitted the UBS trader; and
- requesting certain Panel Banks to make specific JPY LIBOR submissions.
The UBS trader made corrupt brokerage payments to reward Martins for their efforts to manipulate the LIBOR submissions of panel banks through the use of fake trades known as “wash trades”.
Martins’ misconduct involved several brokers and occurred over a number of years. Two brokers (including one manager) were central to the collusion, although at least three other individuals (including two managers) spanning two desks played a role.
Martins’ risk management systems and controls were inadequate to monitor and oversee its broking activity. There was no effective oversight of the brokers involved, which meant that they were able to freely engage in misconduct.
The brokers’ misconduct was exacerbated by a poor compliance culture within Martins which was a result of its heavy focus on revenue at the expense of regulatory requirements.
Martins’ inadequate systems, controls, supervision and monitoring meant that the brokers’ misconduct continued for several years. For similar reasons, the “wash trades” which were exceptionally large, were not identified as suspicious.
Martins agreed to settle at an early stage of the investigation and therefore qualified for a 30% discount under the FCA’s settlement discount scheme. Without the discount, the fine would have been £900,000.
This was a significant cross-border investigation and, in particular, the FCA would like to thank the US Commodity Futures Trading Commission (CFTC) for their cooperation. Martins also agreed to settle an action brought by the CFTC, who imposed a financial penalty of $1.2 million.
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