Upper Tribunal publishes decision on Linear Investments Limited in relation to penalty imposed by FCA

Mark Steward, FCA Executive Director of Enforcement and Market Oversight, said:

'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.

'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.'

This is the first decision by the Upper Tribunal under a process introduced for partly contested cases. This process allows firms or individuals under investigation to enter into a contract called a Focused Resolution Agreement (FRA) by which they agree certain elements of the case.

Linear is an authorised firm providing its clients with a range of brokerage services, including access to trade execution via electronic Direct Market Access. As with any other broker, inherent within Linear’s business was the risk that clients may commit market abuse. Linear did not appreciate the need to undertake its own separate surveillance based on information available to it and its perspective; it mistakenly believed that it could rely upon post-trade surveillance undertaken by the brokers through which it executed transactions.

In June 2018, the FCA issued a Decision Notice in relation to Linear’s failure 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 breaches occurred from 14 January 2013 to 9 August 2015. 

Linear agreed the matters of fact and liability set out in the Decision Notice. However, it disputed the penalty of £409,300 and appealed the amount to the Upper Tribunal. In its decision, the Upper Tribunal agreed that the appropriate action for the FCA to take was to impose a penalty of £409,300. It interpreted Linear’s submissions and evidence in a manner that did not conflict with the FRA, and did not consider it appropriate to re-open any matter agreed in the FRA.

Partly contested cases give flexibility to firms and individuals to agree some aspects of the case in the FRA and dispute others, while still obtaining some level of discount on the penalty. This reflects the savings of time or public resources that result. If all facts and all breaches are agreed, and penalty is the only outstanding issue, as happened in this case, a 30% reduction is applied to the penalty.

The Regulatory Decision Committee (RDC), an independent FCA Board committee, considers representations on the disputed issues, but does not depart from the agreed position on the issues set out in the FRA. The subject may refer the RDC’s decision on the disputed issues to the Upper Tribunal.

The period within which Linear can apply for permission to appeal the Upper Tribunal’s decision expires on 23 April 2019.

Notes to editors

1. The Upper Tribunal’s decision[1]
2. Decision Notice for Linear Investments Limited[2]
3. FCA and PRA publish final changes to enhance enforcement decision-making processes[3]
4. On 1 April 2013, the FCA became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).
5. The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this, it has 3 operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers.
6. Suspicious Transaction Reports (STR) before 3 July 2016 and Suspicious Transaction and Order Reports (STOR) after this date.
7. Information about the Upper Tribunal[4]
8. Find out more about the FCA[5]