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In recent years, the Financial Services industry has seen record levels of fines and an increase in prohibitions and restrictions against individuals and companies for regulatory misconduct and disciplinary breaches. Long custodial sentences have been imposed on individuals who have been found guilty of criminal wrongdoing.
Individual responsibility and accountability is at the forefront of the government and regulators’ mission for cultural change in the finance industry. The finance sector and, in particular, individuals who work within it will continue to be very much the target for regulatory, disciplinary and criminal investigations and prosecutions.
The complexities of financial services regulation and investigation can ensnare even the most cautious company or individual. The potential consequences of an adverse regulatory finding or criminal proceedings are devastating. We provide intelligent and tactical representation at this crucial time by defending the accusations and mitigating the risks.
We have an established and highly experienced team of lawyers representing individuals and companies from all aspects of the financial and commercial world. Our clients include senior management in banks, accountants, accountancy firms, hedge fund managers, traders, senior corporate management, independent financial advisers, mortgage brokers, investors and company advisers. We have acted in investigations for criminal or regulatory offences including market abuse, market manipulation, insider dealing, fraud and breaches of the principles for business and approved persons.
Investigations in the financial services sector may be conducted by a number of agencies. These agencies include:
- The Financial Conduct Authority (FCA)
- The Serious Fraud Office (SFO)
- City of London Police (CoLP)
- HM Revenue and Customs (HMRC)
- A wealth of other agencies from overseas.
- The Financial Reporting Council (FRC)
- The Institute of Chartered Accountants in England and Wales (ICAEW)
- The Association of Chartered Certified Accountants (ACCA)
- The Chartered Institute of Management Accountants (ACCA)
- The Chartered Institute of Public Finance and Accountancy (CIPFA)
The FCA has powers to investigate companies and individuals, whether they are in the financial regulated sector or not. It has significant investigation, prosecution and regulatory powers.
The FCA works closely with other organisations both at home and abroad to combat market misconduct and financial crime, in particular the SFO, CoLP, the US Department of Justice, the Securities Exchange Commission and the various European and international prosecutors and financial regulators.
Carrying out unauthorised business – Frequently asked questions
What is “unauthorised business”?
Section 19 of the Financial Services and Markets Act 2000 (“FSMA”) sets out that no person or firm can carry on a “regulated activity” in the UK unless it is authorised to do so, or is exempt. Carrying out a regulated activity without authorisation is a criminal offence, punishable by up to 2 years imprisonment and/or a fine. Often this type of offence results in money laundering also being committed and a conviction for money laundering can result in a prison sentence of up to 14 years and/or a fine, plus any proceeds of the criminal activity can be confiscated.
What is a “regulated activity”?
For the purposes of FSMA a regulated activity is an activity carried on, as a business, relating to a specified investment. For example, an individual or firm running a business providing financial advice to investors in relation to what investments to make.
What type of unauthorised business is the Financial Conduct Authority interested in?
Boiler room frauds
Share scams are often run from what are known as "boiler rooms" where lots of individuals cold-call investors offering them often worthless, overpriced or non-existent shares. High returns are promised, but investors usually end up losing their money.
Land Banking Scams
Land banking companies divide land into smaller plots to sell to investors, on the basis that once it is available for development it will soar in value. However, the land is often in areas of natural beauty or historic interest, with little chance of planning permission being granted and investors never see a return for their investment.
Ponzi schemes promise investors high returns or dividends that are not usually available through traditional investments. Payments are made to existing investors using money from new investors. This helps to make the scheme seem genuine and profitable to the early investors, and encourages them to attract more people and money.
Ponzi schemes collapse when the supply of new investors and money dries up. Investors usually find that most or all of their money is gone, and the fraudsters who set up the scheme have claimed much of the money for themselves.
Market Abuse – Frequently asked questions
What is market abuse?
Market abuse concerns two broad types of behaviour: insider dealing and market manipulation. Market abuse occurs where investors in financial markets are disadvantaged due to improper or ‘abusive’ behaviour. Market abuse in the UK is typically investigated by the Financial Conduct Authority (FCA) and can be dealt with as a criminal or a regulatory action.
What’s the difference between criminal and regulatory action?
The criminal and regulatory regimes run in parallel – insider dealing and market manipulation can be dealt with either as a criminal or regulatory offence. Where the FCA suspects regulatory and/or criminal misconduct it does not have to decide immediately whether any later proceedings will be criminal or regulatory.
The criminal regime can impose sanctions of up to 7 years imprisonment and/or a fine. The regulatory regime can impose sanctions such as a fine and a prohibition from working in the financial services sector.
What criminal & regulatory offences does the FCA investigate and prosecute?
The FCA can investigate and prosecute a wide range of criminal and regulatory offences or misconduct. Below is a table of the key offences it can investigate and the current maximum penalties:
|Criminal Offence||Maximum Penalty||Regulatory Offence||Penalty|
|Insider dealing (including unlawfully disclosing inside information)||7 years imprisonment and/or a fine on conviction on indictment||Insider dealing (including unlawfully disclosing inside information)||A fine; a public warning; a ban from working in financial services|
|Making misleading statements||7 years imprisonment and/or a fine on conviction on indictment||Making misleading statements||A fine; a public warning; a ban from working in financial services|
|Creating misleading impressions||7 years imprisonment and/or a fine on conviction on indictment||Creating misleading impressions||A fine; a public warning; a ban from working in financial services|
|Making of misleading statements and impressions relating to benchmarks||7 years imprisonment and/or a fine on conviction on indictment||Making of misleading statements and impressions relating to benchmarks||A fine; a public warning; a ban from working in financial services|
|Breaches of the Money Laundering Regulations 2007||2 years imprisonment and/or a fine on indictment||Breaches of the Money Laundering Regulations 2007||A fine; a public warning; a ban from working in financial services|
|Breaches of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017||2 years imprisonment and/or a fine on indictment||Breaches of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017||A fine; a public warning; a ban from working in financial services|
|Carrying out unauthorised business||2 years imprisonment and/or a fine on indictment||Carrying out unauthorised business||Public warning|
|False claims to be authorised or exempt||6 months imprisonment and/or a fine||N/A||N/A|
|Unauthorised financial promotions||2 years imprisonment and/or a fine on indictment||N/A||N/A|
How does the FCA decide whether to take criminal or regulatory action?
The FCA Enforcement Guide sets out the factors which the FCA may consider when deciding whether to begin criminal proceedings for market abuse rather than taking regulatory action. The FCA will consider (among other things):
- How serious is the misconduct? The more serious, the more likely a criminal prosecution;
- Are there victims who have suffered loss?;
- What is the extent of the loss? The greater the loss the more likely a criminal prosecution;
- What effect did the misconduct have on the market? If there was significant disruption to the market, the more likely it will be criminal;
- The level of profit made or loss avoided;
- The likelihood of it happening again or if it has happened in the past;
- Whether any compensation has been paid to the victims (although the payment of compensation does not of itself mean that criminal prosecution will be avoided);
- Whether the person has been voluntarily cooperative with the FCA (although co-operation does not of itself mean that criminal prosecution will be avoided);
- Whether an individual’s misconduct involves dishonesty or an abuse of a position of authority or trust;
- The assistance the individual has given the FCA in proceedings against other individuals in a group;
- The personal circumstances of the individual (age, vulnerability etc).
What should I do if I am told I am being investigated?
I have received a notice of appointment of investigators from the FCA. What does this mean?
Where the Financial Conduct Authority (“FCA”) is investigating an individual for misconduct offences or for criminal offences, it will appoint investigators. Sometimes the FCA will notify the individual that they are under investigation by providing a Memorandum of Appointment of investigators (MoA).
What powers do the FCA investigators have?
An FCA investigator may require a person under investigation or any connected person to be interviewed or provide information or documents.
I have been asked to attend a scoping meeting, what is it?
For cases involving approved persons, the FCA will generally hold scoping discussions with the individual concerned at the start of the investigation. The purpose of these discussions is for the FCA to give an indication of the reason for their investigation; the scope of their investigation; an indication of the likely timing and next steps including if you are likely to be interviewed and when; and which documents are required. Your lawyer can attend and participate in the scoping meeting.
What is a ‘compelled’ interview?
The FCA can use its investigation powers to compel a person to answer questions in an interview. These powers are generally used where the FCA is investigating misconduct that does not amount to criminal conduct or market abuse or when they are interviewing witnesses. When a person is compelled, they must answer questions and do not have an automatic right to silence (see ‘interview under caution’ section below). If a person fails to answer questions without a reasonable excuse they can be dealt with as though they were in contempt of court for which a prison sentence or fine can be given.
Where the FCA interviews a person, they are allowed to have a lawyer present. The potential consequences for an adverse finding for market misconduct are serious, including a potentially hefty fine and a prohibition from working in the financial services industry, therefore it is important to get specialist legal advice before attending an FCA Interview. Your lawyer will be able to explain the process, your rights and options and what is likely to happen in the interview, discuss matters with the FCA and ensure you obtain disclosure of information and documents prior to the interview and help you to prepare for the interview.
What is an interview under caution by the FCA?
For criminal offences, including criminal market abuse, a person who is suspected of having committed a criminal offence can be interviewed by the FCA under caution either voluntarily or under arrest.
The caution is the same one that the police use when they are investigating criminal offences: ‘You do not have to say anything. But it may harm your defence if you do not mention when questioned something which you later rely on in court. Anything you do say may be given in evidence.’ This is often known as the ‘right to silence’ and preserves a suspect’s right not to incriminate themselves.
The person being interviewed can have a lawyer present. It is crucial to take advice about whether or not to answer questions as there may be serious repercussions at a later stage whether you answer questions or not. Criminal market abuse offences carry a prison sentence of up to seven years.
Your lawyer will be able to explain the process, your rights and options and what is likely to happen in the interview, discuss matters with the FCA and ensure you obtain disclosure of information and documents prior to the interview and help you to prepare for the interview.
Financial Services Investigations: Frequently asked questions
What is market manipulation?
Market manipulation is made up of three different types of behaviour and can be prosecuted criminally or as a regulatory offence:
- making misleading statements to the market;
- creating misleading impressions to the market; and
- making misleading statements or impressions in relation to benchmarks
What are misleading statements to the market?
This is where a person makes a statement (usually through some form of media), knowing that it is false or misleading, which encourages someone to enter into an agreement or investment. For example, Mr Bloggs states on Twitter that ABC plc has just won a significant new contract that will be very good for business, with the intention that other people will buy shares in ABC plc, therefore increasing the price of ABC plc shares. Mr Bloggs knows that there is no contract, therefore he is making a misleading statement to the market.
Misleading statements can be prosecuted under s89 of the Financial Services Act 2012, the maximum penalty is 7 years imprisonment and/or a fine. It can also be dealt with as a regulatory matter under article 15 of the Market Abuse Regulation for which the penalties include a fine and/or a ban from working in financial services.
What constitutes creating misleading impressions to the market?
This is where a person undertakes some form of activity which creates a misleading impression to the market about the price or value of an investment. For example, Mr Bloggs makes a number of large purchases of shares in XYZ plc above the market price with the intention of creating an impression that there is a lot of market interest in the company, which induces other investors to purchase shares which further increases the price, creating a profit for Mr Bloggs.
Misleading impressions can be prosecuted under s90 of the Financial Services Act 2012, the maximum penalty is 7 years imprisonment and/or a fine. It can also be dealt with as a regulatory matter under article 15 of the Market Abuse Regulation for which the penalties include a fine and/or a ban from working in financial services.
What are misleading statements or impressions in relation to benchmarks?
This offence was created following the ‘LIBOR’ scandal which related to the improper rigging of an interest rate benchmark known as the London Interbank Offered Rate (LIBOR). It is now an offence to make a misleading statement intended to influence the setting of a benchmark or creates a misleading impression in relation to the value of an investment with the intention of affecting the setting of a benchmark.
Misleading statements or impressions in relation to benchmarks can be prosecuted under s91 of the Financial Services Act 2012, the maximum penalty is 7 years imprisonment and/or a fine. It can also be dealt with as a regulatory matter under article 15 of the Market Abuse Regulation for which the penalties include a fine and/or a ban from working in financial services.
Financial services investigation solicitors
With a proven track record in litigation and regulation, and a wealth of experience representing those accused of criminal, regulatory or disciplinary misconduct (and sometimes all three at the same time), we are uniquely placed to advise in relation to such investigations and prosecutions.
We are experienced in representing individuals who find themselves arrested and interviewed in a police station, subject to search warrants or have their funds frozen by restraint orders. Our lawyers provide strategic and pragmatic advice in financial regulatory and criminal investigations, in circumstances where there is often a complex dynamic between dealing with the FCA and/or overseas authorities and professional regulatory or employment issues.
We are used to understanding and analysing highly complex financial transactions, working in conjunction with others where necessary, including experts, accountants and international lawyers.
Our unique combination of expertise in criminal, regulatory, professional disciplinary and employment investigations enables us to give clear and pragmatic advice in complex matters in often urgent and stressful circumstances.
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