Compliance Updater - December 2023
A summary of key compliance stories from around the globe in December.
- Insider dealing trial starts against former Goldman Sachs analyst.
- Pictet agrees $123m settlement after helping clients evade US tax.
- Small businesses file ‘super complaint’ with the UK’s FCA over bank practices.
- FCA ready to “intervene” over interest on cash held on investment platforms.
- SEC will require more central clearing for US Treasuries.
- Wirecard’s former CFO charged with fraud in Germany.
- Woodford investors vote overwhelmingly for FCA-backed redress scheme.
- Law firm highlights Coutts’ communication issues over account closures.
- Switzerland’s FINMA calls for more powers after Credit Suisse collapse.
- No action from the FCA over Odey Asset Management.
- New financial services deal agreed between UK and Switzerland.
- H20 facing lawsuit over illiquid asset losses.
- UK Payment Systems Regulator announces compensation for APP fraud victims.
A trial in London started with the UK’s Financial Conduct Authority (FCA) alleging that a former Goldman Sachs analyst and his brother committed insider dealing. Mohammed Zina worked in Goldman’s conflict resolution group and used three accounts, one in his brother’s name and two in the name of his sister, to trade based on inside information gained at work. Mr Zina and his brother are facing six counts of insider dealing, and three counts of fraud related to loans from Tesco Bank used to fund the trading.
Pictet, the Swiss private bank, admitted helping clients illegally hide more than $5.6bn of assets from US tax in secret accounts from 2008 to 2014. Pictet entered into a deferred prosecution agreement and will pay almost $123m in restitution, disgorgement of profits and a financial penalty. The tax evasion saw the bank use pseudonyms, anonymous numbered accounts, and sham corporate entities to conceal detection.
The Federation of Small Businesses filed a super complaint with the FCA focused on banks’ “excessive” demands for personal guarantees on business loans. A super complaint is a fast-track procedure that allows designated consumer organisations to raise issues they believe to be significantly damaging. The FCA has ninety days to respond.
An FCA survey of 42 investment platforms and self-invested pension providers found the majority retained some of the interest earned on customer balances. Citing the consumer duty and questioning the potential for this to be unfair and miscommunicated, the FCA set a deadline of 29 February 2024 for companies to ensure that their processes were fair. Otherwise, the regulator stands ready to “intervene”.
The US Securities and Exchange Commission (SEC) voted to require more trades in US Treasuries to be centrally cleared. Current estimates are that around 13% of Treasuries trades are fully centrally cleared. The new regulations will come into effect on 31 March 2025 and should deter highly leveraged bets on Treasuries by hedge funds as it would mean collateral will be required to back the positions.
Adding to the ongoing trials against Wirecard’s former CEO, Markus Braun, and two other executives, the collapsed payment company’s former CFO, Burkhard Ley, was charged with fraud, breach of trust, accounting, and market manipulation. The allegations against all four relate to €1.9bn of cash linked to outsourced Asian entities that did not exist.
A scheme of arrangement in relation to the collapsed Woodford Equity Income Fund that was supported by the FCA was approved by 94% of those that voted. The scheme should see around £230m returned to investors, which represents approximately 77% of the value of the fund at its suspension four and a half years ago.
Law firm Travers Smith found that NatWest’s private bank subsidiary, Coutts, needed to improve its communications in relation to account closures. The review, a result of the Nigel Farage de-banking scandal that saw NatWest CEO, Dame Alison Rose, lose her job, found no evidence of discrimination due to political views, but a failure to properly explain why accounts would be closed. The latter potentially breached the FCA’s requirements to treat customers fairly.
The Swiss financial market supervisory authority (FINMA) called for more powers to oversee banks. In a report on the failure of Credit Suisse, it said that to improve its oversight, it would need the powers to fine companies. It also called for the introduction of a senior managers’ regime to increase personal accountability.
Hedge fund Odey Asset Management said that the FCA had closed its investigation into allegations of sexual misconduct by its founder, and would be taking no action. Odey Asset Management announced its closure in October 2023, some five months after allegations of sexual assault and harassment against Crispin Odey, the firm’s founder.
A mutual recognition deal was signed between the UK and Switzerland on financial services laws and regulations. The UK government hailed the deal as an important boost to an “already thriving financial services relationship” that will make it easier for financial firms and wealthy individuals in the two markets to do business with each other.
H20 Asset Management is facing a lawsuit in Paris from a group of investors alleging €700m of losses due to investments in illiquid assets. H20 has already been fined €75m by French regulator Autorité des Marchés Financiers (AMF) over serious breaches related to illiquid investments. The lawsuit also makes claims against former owner of H20, Natixis Investment Managers, the auditor of its funds (KPMG) and fund custodian CACEIS.
The UK’s Payment Systems Regulator announced a new requirement for compensation for victims of authorised push payment (APP) fraud up to a maximum of £415,000 from October 2024. At present, major payment services providers voluntarily reimburse APP scam victims.