Sigma, a privately owned brokerage firm, has agreed to pay 531,000 pounds ($592,000) in a settlement with the U.K. Financial Conduct Authority (FCA) resulting from a failure to report certain required transactions.
According to the FCA’s Oct. 6 final notice, many of Sigma’s failings resulted from inadequate governance and oversight provided by Sigma’s board of directors. Thus, the FCA additionally fined three Sigma directors a total of £200,000 ($223,000).
Specifically, Sigma’s ex-chief executive Simon Tyson and former director Stephen Tomlin each have been fined £67,900 ($75,704) and £69,600 ($77,600), respectively, and were also banned from holding senior positions in firms regulated by the FCA. Matthew Kent, a current director, was fined £83,600 ($93,200).
Case details
According to the FCA’s final notice, between 2008 and late 2014, Sigma’s core business was offering its customers futures and options trading. In December 2014, however, Sigma expanded its business to include, amongst other products, contracts for difference (CFDs) and spread-bets referenced to the share-price of listed companies, by recruiting several brokers and establishing a CFD desk, which provided these products to its customers.
Both CFDs and spread-bets are high-risk, complex financial products and are “particularly attractive to those seeking to commit market abuse, including insider trading,” the FCA said in its final notice.
Compliance failures
“Despite being aware of the significant change to the risk profile of its business, Sigma did not perform an adequate risk assessment, or engage in any other meaningful preparations to ensure its compliance with regulatory standards prior to expanding its business into these new areas,” the FCA said.
Additionally, the FCA said in the final notice, Sigma’s board of directors “failed to take fundamental steps, such as holding regular board meetings where directors were provided with adequate management information and ensuring the board’s decisions were recorded by written minutes, to enable it to perform its governance role effectively.”
The board further “failed to establish, oversee and resource an effective compliance function, and failed to identify and address serious and systemic failures in relation to Sigma’s market abuse systems and controls and transaction reporting obligations, in respect of the CFD desk,” the FCA said.
“Sigma’s compliance department operated without clear reporting lines, apportionment of responsibilities or appropriately qualified staff and failed to ensure that the firm had adequate policies and procedures in place in relation to the conduct of its CFD desk brokers,” the FCA continued. “Such policies as were in place were not properly communicated to, or adequate steps taken to ensure their observance by, its brokers.”
Consequently, between December 2014 and August 2016, Sigma did not report or failed to report accurately 56,000 CFD transactions to the FCA and failed to identify 97 suspicious transactions or orders that it should have reported, the FCA stated.
“Firms must accurately report their transactions and bring any suspicious activity to our attention,” said Mark Steward, FCA Executive Director of Enforcement and Market Oversight. “Sigma failed to do this, which left potential market abuse undetected.”
Because Sigma agreed to resolve this matter, it qualified for a 10 percent discount under the FCA’s executive settlement procedures. Otherwise, the fine would have been £590,700 ($658,370). 
Jaclyn Jaeger is a contributing editor at Compliance Chief 360° and a freelance business writer based in Manchester, New Hampshire.