Quick Facts
-
Fine Amount: £531,600 (additional individual fines totaling £221,100)
-
Primary Violation: Transaction Reporting
- Systems & Controls failures (Principle 3), with related MiFID transaction reporting and STOR obligations breaches.
-
Regulator: Financial Conduct Authority (FCA)
-
Fine Date: 4 Oct 2022
Overview
The Financial Conduct Authority (FCA) issued final notices on 4 October 2022, fining Sigma Broking Limited £531,600 for breaches of SUP 17 (transaction reporting), SUP 15 and EU MAR (suspicious transaction reporting), and Principle 3 (inadequate risk management systems) during the period from December 2014 to August 2016.
The firm failed to report or accurately report approximately 56,000 CFD transactions, did not submit any suspicious transaction reports despite identifying 97 suspicious trades post-review, and lacked effective governance, compliance oversight, and policies for its CFD desk. Additionally, three directors (Matthew Charles Kent (£83,600 fine), Stephen John Tomlin (£69,600 fine and prohibition), and Simon Tyson (£67,900 fine and prohibition)) were penalized for failing to ensure compliance with regulatory standards in their roles.
Details of the Case
Sigma Broking Limited, a brokerage firm authorized by the FCA, expanded its business in December 2014 to include contracts for difference (CFDs) and spread bets. During the relevant period (1 December 2014 to 12 August 2016), the firm executed around 56,000 unreported or inaccurate client-side CFD transactions, breaching SUP 17.1.4R and SUP 17.4.1 EU, which require firms to submit complete and accurate transaction reports to aid the FCA in detecting market abuse. Sigma also failed to identify and report 97 suspicious transactions (potentially 24 STRs/STORs) under SUP 15.10.2R and Article 16(2) of EU MAR, submitting zero reports despite obligations to notify the FCA of reasonable suspicions of market abuse.
The firm's broader failings under Principle 3 included inadequate board governance, with infrequent meetings, no minutes, and poor management information. Compliance functions were under-resourced and unclearly allocated, leading to confusion over responsibilities for monitoring the CFD desk. Policies were outdated or absent, such as those for escalating suspicious trades or prohibiting unrecorded communications. Sigma did not prepare for EU MAR's introduction in July 2016 and lacked effective post-trade surveillance, relying on manual processes without audit trails. These issues exposed the firm to risks of market abuse, insider dealing, and financial crime, breaching SYSC 6.1.1R.
WORKED EXAMPLES
- Client Side Underreporting: Sigma used a "matched principal" methodology for CFD trades, reporting only the hedging leg but not the client-side leg, resulting in incomplete data for FCA surveillance. In a one-week sample reviewed by an external firm, 1,257 out of 1,346 CFDs had incorrect pricing (e.g., reported in GBP instead of pence, like Barclays PLC at £164.56 instead of 164.56p).
- Suspicious Transaction Oversight: No formal escalation policy existed; suspicions were verbally discussed without records. A post-event review flagged 97 suspicious trades (e.g., patterns indicative of insider dealing), none of which Sigma had reported as STRs/STORs during the period.
- Governance Shortcoming: The board did not conduct a risk assessment before launching the CFD desk, despite recognising its high-risk nature, and failed to monitor progress on identified gaps in policies and procedures.
-
Recording and communications controls: The firm did not monitor telephone conversations and lacked effective policies to prevent use of unrecorded personal devices, with some brokers using encrypted apps to take client orders—practices inconsistent with COBS 11.8.5AR requirements.
-
Post‑trade surveillance and EU MAR readiness: No effective post‑trade surveillance existed for the CFD desk, and Sigma did not adequately prepare for the introduction of the Market Abuse Regulation (EU MAR) in July 2016.
-
Conflicts and incentives: Brokers were paid up to 60% of net revenue, creating potential conflicts that were not adequately mitigated. Additional conflicts noted included undeclared Power of Attorney arrangements and personal loans from clients.
Fines and Penalties
- Total Fine for Sigma Broking Limited: £531,600 (calculated under DEPP 6.5A, based on 12% of relevant CFD desk revenue of £4,475,028, adjusted for seriousness and a 10% settlement discount).
- Individual Fines:
- Matthew Charles Kent: £83,600.
- Stephen John Tomlin: £69,600 (plus prohibition from senior management and significant influence functions).
- Simon Tyson: £67,900 (plus prohibition from senior management and significant influence functions). No disgorgement was required, as no direct financial benefit from the breaches was identified.
Key Quotes
- "Sigma failed to report, in breach of SUP 17.1.4R, or to accurately report, in breach of SUP 17.4.1 EU/SUP 17 Annex 1 EU, an estimated 56,000 transactions." (From the FCA's final notice on Sigma Broking Limited).
- "The breaches...gave significant scope for potential financial crime to be facilitated, occasioned or otherwise occur as a result, particularly as transaction levels on the CFD desk increased." (From the FCA's final notice on Matthew Charles Kent).
- "An aggravating factor in this case is that the Authority has given substantial and ongoing support to the industry regarding transaction reporting requirements including through the TRUP and Market Watch both prior to and throughout the Relevant Period." (From the FCA's final notice on Sigma Broking Limited).
Sources:
