Linear Investments, a London-based broker and discretionary fund manager (DFM), failed to “take reasonable care to organise and control its affairs responsibly and effectively, to ensure potential instances of market abuse could be detected and reported”, the FCA said.
The regulator fined the firm £409,300 in September 2018.
Linear did not challenge its failings at the time, but later contested the penalty through the upper tribunal.
Contesting only parts of a court case
Linear was able to do so thanks to a contract called a “focused resolution agreement” that allows an individual or an organisation to challenge only certain elements of a case.
In this instance, the firm fought the fine but not its failings.
According to the FCA, this was the first time the upper tribunal ruled on a partly contested case.
“Firms are expected to play their part in tackling market abuse by ensuring that they are able to identify and manage the market abuse risks to which they are exposed,” said Mark Steward, executive director of enforcement and market oversight at the FCA.
“The upper tribunal recognised that, despite the pain caused by the size of the penalty, given Linear’s financial resources and level of profits, Linear’s lack of effective monitoring measures was a serious matter and the FCA’s penalty was therefore appropriate.”
The company now has until 23 April 2019 to appeal the decision.
The regulator issued a decision notice to Linear in June 2018 regarding its failings between 14 January 2013 and 9 August 2015.
During that time, the company had changed its business model and started providing more trade execution services to its clients.
Prior to the expansion, the firm used to rely on post-trade monitoring. But when trading volumes increased, this type of manual oversight was no longer suitable.
Linear was unaware of the inadequacy of its systems until November 2014, but it did not amend them until August 2015.
However, the FCA did not find any evidence showing the firm benefitted financially from its oversight shortcomings.
Portfolio Adviser sister publication International Adviser contacted Linear Investments, but the firm was not able to comment.