As may be recalled, under the Financial Services Act 2010 the FSA, in enforcement action cases, now has enhanced powers allowing it to publish decision notices before issuance of the final notice – previously the FSA only had power to publish final notices which added to the time that had to elapse before a case could be made public. The FSA has used the powers sparingly and Regulatory Roundup 30 provided details of the first two instances of decision notices being published. The FSA’s Enforcement Guide (Regulatory Roundup 30 provides a link) states that the regulator expects to normally publish a decision notice if the subject of enforcement action decides to exercise their right to refer the matter to the Tribunal.
An FSA press release at the end of August reveals that the FSA has exercised its powers once again.
The decision notice dated 6 May relating to Swift Trade Inc (or ‘7722656 Canada Inc’ as it subsequently renamed itself) shows that the FSA has decided to impose a penalty of £8m for engaging in market abuse with the accompanying press release advising that Swift Trade Inc (Swift) has referred the matter to the Tribunal.
Swift and its CEO have also commenced judicial review proceedings to challenge the FSA’s decision (on 11 May) to publish the decision notice. In addition both also obtained a High Court injunction to restrain publication of the decision notice. The injunction lapsed and the High Court dismissed a further application for an interim injunction to restrain the FSA from publishing the decision notice.
One thing that is of note here is that Swift is a Canadian domiciled entity; was not an FSA authorised firm; and was not a member of the LSE. Nevertheless the FSA considers that it is not only lawful but also appropriate to bring action against Swift for market abuse committed on markets in the UK.
The notice informs us that the FSA states that Swift engaged in manipulative trading – layering – involving orders to buy and sell swaps and CFDs with LSE member firms which resulted in small price movements. Profits cannot be quantified but the notice refers to ‘in excess of £1.75m’.
The notice is quite detailed and a key argument was that Swift contended that there was a question over whether the financial instruments concerned were ‘qualifying investments’ for the purposes of s118(5) of FSMA (in the Handbook the rules concerning ‘manipulating transactions’ and s118(5) can be found in MAR 1.6) – see s5.2 and s5.13.
Although Swift was voluntarily dissolved on 13 December 2010, with remaining assets being transferred to a former holding company, the FSA will proceed against Swift as if it had not been dissolved (see s4.36 of the decision notice).
