Compliance Updater - November 2023
A summary of key compliance stories from around the globe in November.
- Odey Asset Management to close after sexual assault allegations against founder.
- Former FCA chair warns over plans to regulate crypto.
- US toughens sanctions on Russia via third country facilitators.
- Sam Bankman-Fried convicted of fraud and money laundering in NY court.
- Dame Alison Rose does not qualify as a “good” leaver from NatWest.
- Cyber-attack disrupts US Treasuries market.
- Analyst lawsuit on bankers’ working hours in the US.
- NMC Health committed market abuse and faces FCA censure.
- Lloyds of London brokers settle with DoJ over Ecuadorian bribes.
- Binance and its CEO plead guilty to US criminal charges re AML failings.
- Competitiveness and growth objective highlighted by City minister.
- FCA releases policy statement on sustainability disclosure and investment labels.
- FCA proposes additional capital to be set aside by investment advisors for potential future redress.
Odey Asset Management, including group companies Brook Asset Management and Odey Wealth, is to close after the crisis created by sexual assault and harassment allegations against its founder Crispin Odey. Mr Odey is facing allegations from a total of 20 women, and a lawsuit from two of his alleged victims for personal injury and psychological harm.
Former chair of the UK’s Financial Conduct Authority (FCA), Charles Randell, is concerned that the regulator’s plans in relation to crypto run the risk of substantial consumer harm. Referring to the plans to regulate in a similar way to conventional investments, Mr Randell expressed concerns that benefits, in terms of jobs and taxes, were being considered and risks of harm largely ignored.
The US toughened sanctions against Russia by listing more than 200 new names facing financial and travel restrictions. The companies and individuals were predominantly in Turkey, China, and the UAE. The sanctions relate to their use as third-country facilitators, re-routing the supply of military equipment to Russia.
The founder of the FTX crypto exchange and once-celebrated crypto billionaire, Sam Bankman-Fried, was convicted of fraud and money laundering in a court in New York. The jury concluded that Bankman-Fried authorised his Alameda trading firm to use FTX clients’ money to pay off billions of dollars of loans. Bankman-Fried is now likely to face a lengthy jail term.
The board of NatWest decided that its former CEO, Dame Alison Rose, does not qualify as a “good” leaver despite concluding that she was not guilty of misconduct over the Nigel Farage debanking scandal. Dame Alison left by mutual consent and failing to qualify as a “good” leaver means she will forfeit £7.6m in outstanding pay and bonuses that she could have been entitled to.
A cyber-attack on a subsidiary of the Industrial and Commercial Bank of China (ICBC) caused significant stress in the $26tn market for US Treasuries. ICBC Financial Services, an ICBC group company, is a significant participant in clearing deals in US Treasuries for governments, hedge funds and prop traders. A ransomware cyber-attack brought about a substantial slowing of ICBC Financial Services’ processes as it was forced to confirm batches of trades manually in conjunction with the US Fixed Income Clearing Corporation.
A former analyst at an M&A investment bank in New York is suing the bank for discrimination and requesting $5m in damages. The analyst told HR that she needed eight hours of sleep a night to avoid mood swings and anxiety and the bank agreed to implement “guardrails” – a daily nine-hour window starting at midnight when she would not have to work. Less than three weeks later the analyst was fired because the firm could no longer accommodate her sleep requirement. Her key legal argument is that the bank did not put her on notice that her job was in jeopardy after freely providing guardrails and acknowledging her condition.
Former FTSE 100 constituent NMC Health plc committed market abuse by publishing “materially inaccurate information about its debt position” in 2019/2020, according to the FCA. The FCA will not impose a penalty as NMC Health subsequently fell in administration and no funds are anticipated to be available after creditors have been paid. The debt was understated by as much as $4bn and NMC’s auditor, EY, is under investigation and facing a multi-billion dollar claim from the administrator.
Two reinsurance broking firms that operate in Lloyds of London – Tysers and HW Wood – agreed a settlement with the US Department of Justice over bribes they paid to Ecuadorian officials to win reinsurance contracts from state-owned insurance companies. The firms paid $28.2m in bribes via intermediaries. The settlement saw HW Wood agree to penalties and forfeiture of $28.4m, reduced to $508k due to the company’s financial condition and inability to pay. Tysers will pay $46.5m in penalties and forfeiture.
Cryptocurrency exchange, Binance, and its CEO, Changpeng Zhao, pleaded guilty to US criminal charges for failing to establish an anti-money laundering programme and “wilfully causing violations of US economic sanctions”. The group facilitated money transfers between the US and sanctioned jurisdictions including Cuba, Syria, and Iran. Zhao agreed to pay a $50m fine.
Bim Afolami, the recently appointed minister for the City of London said regulators “need to realise that if you’re regulating a market… there’s no point having the safest graveyard… we need to drive growth and initiative”. The FCA has a secondary statutory objective to facilitate the international competitiveness and growth of the UK economy in the medium to long term, and the minister’s comment reflects the view that taking risk is integral to delivering growth and competitiveness.
The UK’s FCA issued a policy statement outlining its plans to make sure financial products marketed as sustainable do as they claim. The finalised package of measures includes an anti-greenwashing rule that any sustainability-related claims must be fair, clear, and not misleading. There are also four labels for asset managers – sustainability impact, sustainability focus, sustainability improvers and sustainability mixed goals – as well as naming and marketing rules to ensure sustainability-related term usage is accurate.
The FCA launched a consultation suggesting personal investment firms (investment advisors) set aside additional capital to cover the possibility of compensation costs. The background is that the Financial Services Compensation Scheme (FSCS) paid out £760m between 2016 and 2022 for failed personal investment firms, 95% of which was generated by just 75 firms. The FCA wants to make sure that the “polluter pays” and reduces the burden on the FSCS. The consultation suggests that personal investment firms quantify potential redress liabilities and, where necessary, set aside additional capital or be required to retain assets in the business.