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Appeal against “improper monitoring” fine fails

Last week, the UK’s Upper Tribunal rejected an appeal lodged by Linear Investments against a fine of £409,300 levied against them by the UK’s FCA  last October (see here). The fine was levied under legislation that pre-dates the Market Abuse Regulation(MAR) relating to the requirement on financial firms to appropriately monitor activity for market abuse, often requiring a surveillance system. Since July 2016 MAR has applied similar requirements to the majority of energy and commodity market participants. The ruling can be found here.

The fine relates to activity between January 2013 and August 2015. For much of that period, Linear Investments did not operate a trade surveillance system on the mistaken assumption that one was not required due to their broker’s operation of one. Subsequently, the surveillance system roll out was deemed to have been ineffective for a period.

The appeal was lodged against the level of the fine, rather than than whether a breach in fact occurred. There were 5 “grounds” listed:

  1.  That the use of gross revenue as the basis of the fine is not appropriate.
  2.  The case was not as serious as suggested.
  3.  There was insufficient allowance for mitigating factors.
  4.  The penalty was disproportionate compared to company profit.
  5.  The penalty is inconsistent with previous cases, in particular that against Interactive Brokers in January 2018 (see here).

While there are not necessarily direct comparisons with the majority of activity in energy and commodities, there are several important lessons to be learned, in particular that it is necessary to take seriously the requirement to implement effective anti abuse controls and technology.

About avivhandler

Aviv is the Managing Director of ETR Advisory, a niche consultancy focused on the regulation of the commodity, energy and financial markets. He has more than 23 years of experience in the financial, energy and commodity markets, covering regulatory compliance, credit, risk and financial technology. Prior to founding ETR, he was Partner at SunGard Global Services, where he built a Centre of Excellence in European Energy and Commodity Regulation. Before that, he founded Coherence, a consulting firm specializing in credit risk in commodity and energy trading as well as software product management. The credit practice ultimately became part of Sirius Solutions, where he was the Managing Director of Europe. He has also held management roles at KWI and Iris Financial, among other organizations. Mr. Handler holds a degree in computer science from Imperial College, University of London.


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