Greg Kilminster
Head of Product - Content
FCA fines former CEO £6 million for fake trading scheme
The Financial Conduct Authority (FCA) has imposed a fine of £5.95 million on Nailesh Teraiya, former controller and chief executive of Indigo Global Partners Limited and has banned him from engaging in any regulated activity. This decision follows Teraiya's involvement in a sham trading scheme orchestrated by Indigo, resulting in the illicit collection of €91.2 million from the Danish tax authority, SKAT.
The FCA's investigation revealed that Teraiya knowingly participated in the scheme, which utilised fabricated documents to falsely claim ownership of shares, receipt of dividends, and payment of taxes. In addition to receiving £326,000 through Indigo, Teraiya obtained more than £5.1 million through third parties for his role in the fraudulent activity. Consequently, Teraiya breached Principle 1 of the Statements of Principle for Approved Persons which states that “An approved person must act with integrity in carrying out his accountable functions”.
Therese Chambers, joint Executive Director of Enforcement and Market Oversight at the FCA, condemned Teraiya's actions, stating that he knowingly engaged in deceitful practices for personal gain, undermining the integrity of the UK's financial system. This case marks the sixth instance of the FCA taking action against individuals involved in cum-ex trading, with fines totalling nearly £22.5 million.
Teraiya has referred his Decision Notice to the Upper Tribunal.
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FINRA’s first “finluencer” fine
The Financial Industry Regulatory Authority (FINRA) has announced a significant disciplinary action against M1 Finance LLC, imposing an $850,000 fine for social media posts made by influencers on the firm's behalf that were deemed unfair, misleading, or exaggerated. This marks the first formal FINRA disciplinary action involving a firm's supervision of social media influencers.
The case stems from FINRA's examination of firm practices related to customer acquisition through social media channels. Between January 2020 and April 2023, M1 Finance engaged social media influencers to promote the firm, providing them with graphics and guidelines to enhance their posts. Influencers were compensated for every new account opened and funded through a unique link provided by M1 Finance, resulting in 39,400 new accounts with the help of approximately 1,700 influencers.
However, FINRA found that influencers' posts did not comply with regulations, violating FINRA Rules 2210 and 2010. For example, claims about M1 Finance's margin lending program were misleading, as investors using margin are subject to certain requirements and risks not accurately portrayed in the posts.
M1 Finance failed to review or approve the content of influencers' posts as required by FINRA rules, and lacked a reasonable supervisory system to oversee these communications, violating multiple regulations including Rules 2210, 2010, 3110, and 4511, as well as the Securities Exchange Act of 1934.
As investors increasingly rely on social platforms for financial information, firms must ensure their practices and supervisory systems meet regulatory standards to protect investors and maintain market integrity.
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FSB releases guidance on digitalisation in operational continuity
The Financial Stability Board (FSB) has released a Supplementary Note (2024) related to its 2016 Guidance on Arrangements to Support Operational Continuity in Resolution. This note addresses the challenges posed by the digitalisation of critical shared services.
The 2016 guidance was designed to assist supervisory and resolution authorities, as well as financial institutions, in determining whether firms have adequate arrangements in place to maintain operational continuity in the event of resolution. However, a review conducted in 2023 found that digital services could pose particular challenges for firms in carrying out these arrangements.
As a result, the Supplementary Note builds on the existing guidance to provide further clarity on this topic.
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ECB and EBA establish committee to streamline data reporting
The European Central Bank (ECB) and the European Banking Authority (EBA) have jointly announced the establishment of the Joint Bank Reporting Committee (JBRC) to streamline data reporting by the banking industry. The new structure will integrate and harmonise reporting of statistical, supervisory, and resolution data with the aim of developing common definitions and standards. A key deliverable will be a common data dictionary.
The ECB, EBA, the European Commission, and the Single Resolution Board (SRB) will be part of the JBRC along with relevant authorities with the power to issue supervisory, resolution, and statistical reporting requirements in European Economic Area Member States. The banking industry will participate through a consultative body, the Reporting Contact Group.
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Chair of ECB Supervisory Board on key issues facing euro banking industry
In a recent interview with the Financial Times, Claudia Buch, Chair of the Supervisory Board of the European Central Bank (ECB), shared insights on key issues related to the euro banking industry. She discussed the use of AI, the impact of regulations, bank operations in Russia, emerging risks from geopolitical developments, and the ECB’s strong stance on compliance with climate risk expectations. Some key takeaways below.
Euro banks are not at a disadvantage due to regulations
Buch argued that European banks are not disadvantaged due to regulations. Comparing the prudential regulations to the US framework, she mentioned that investigations carried out by the ECB found no evidence to support the claim that European banks face stricter rules than US banks, particularly the globally systemic ones. She acknowledged that US regulation would result in slightly lower capital requirements for smaller and mid-sized European banks. However, given recent issues with mid-sized US banks, a stricter approach is still preferable.
Clear expectations have been shared with banks still operating in Russia
Regarding banks with significant operations in Russia, Buch emphasised that the ECB has provided clear expectations, outlining the need for downsizing activities and developing exit strategies. She also acknowledged that there had been a significant decline of approximately 50% in the activities of euro-area banks in Russia since the invasion of Ukraine.
ECB keeps a strong stance on compliance with climate risk expectations
On the ECB’s stance on climate risk, Buch emphasised the ECB’s action to ensure banks are keeping up. Interim deadlines have been set, and all banks are expected to be fully compliant by the end of the year. Banks that meet the expectations will not face penalties, but those that fall short may face consequences. Buch also commented on information availability, stating that the ECB believes their expectations are realistic and that relevant information is already accessible. She clarified that some firms mistakenly believe they can no longer lend to companies with high CO2-intensive production, but that is not the case. They can still lend, but they must account for the embedded risk in the contract.
Upcoming developments might pose a challenge to banks’ risk models
Buch warned that markets do not fully account for emerging risks from recent geopolitical developments, such as structural shifts, energy transition, demographics, and digitalisation. These risks will impact banks’ balance sheets and risk profiles in the future. Buch believes that banks’ current risk models are not forward-looking and fail to provide a comprehensive understanding of how risks will evolve. As the economy moves away from a period of stable growth, banks will face the challenge of adapting to different scenarios.
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ASIC issues new instrument for exchange-traded funds
The Australian Securities and Investments Commission (ASIC) has issued a new legislative instrument, the ASIC Corporations (Relief to Facilitate Admission of Exchange Traded Funds) Instrument (CO 2024/147), as a replacement for the ASIC Corporations (Relief to facilitate quotation of exchange-traded funds on the AQUA Market) Instrument (CO13/721).
The latter was scheduled to expire on 1 April 2024, in accordance with the Legislation Act 2003, which requires all class orders to be automatically repealed or ‘sunset’ after a certain period unless ASIC takes appropriate measures to maintain them.
The new instrument expands the relief provided by CO 13/721 and covers a wider class of quoted funds beyond those that track an index.
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ASIC on climate reporting and greenwashing for small business
The Australian Securities and Investments Commission (ASIC) has published an article offering guidance to small businesses on climate reporting and greenwashing developments. This article may also be of interest to the broader industry.
Upcoming climate-related disclosure laws
The Australian government is planning to implement mandatory climate-related disclosure laws for large businesses and financial institutions. While small and medium-sized businesses will not have direct reporting obligations, they may still need to consider climate reporting in the future. ASIC will collaborate with small business representatives to provide guidance on how these new laws may impact them.
ASIC intervention against greenwashing
The article outlines ASIC’s efforts in combating greenwashing practices and encourages businesses to consult:
- ASIC greenwashing report (REP 763)
- ASIC information sheet (INFO 271)
- The Australian Competition and Consumer Commission (ACCC) guide for businesses on making environmental claims
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APRA insurance speech: underwriting the future
In a speech at the Future of Insurance conference on 18 March 2024, Australian Prudential Regulation Authority (APRA) Executive Director of Insurance Sean Carmody spoke about the challenges and opportunities facing the insurance industry in Australia. With a focus on building resilience through transparency, the speech addressed key issues such as the current state of the industry, the growing protection gap, the need for mitigation, and the importance of increasing transparency.
Current state of the industry
The speech highlighted that Australia's insurance industry is financially strong and well-capitalised, playing a crucial role in supporting communities in times of need. Carmody provided key statistics to demonstrate the industry's contribution, including the significant payouts made to policyholders in recent years. Additionally, the industry's response to APRA's call to strengthen governance and risk management was acknowledged, with improvements noted in various areas such as sustainability of products and risk management practices, including preparations for compliance with APRA’s incoming operational resilience prudential standard CPS230, which takes effect in July 2025.
Challenges facing the industry
Despite the industry's strengths, the speech identified several challenges that threaten its long-term sustainability. These challenges include:
- Increasing premiums
- Increasing industry transparency
- A widening protection gap
- Affordability concerns
Carmody said factors contributing to these challenges include rising claims costs, particularly in areas such as natural disasters and healthcare, as well as changes in consumer behaviour and preferences.
Addressing the protection gap
To address the growing protection gap, Carmody stressed the importance of reducing underlying risks, especially those associated with natural catastrophes. While acknowledging the complexity of the issue, he highlighted collaborative efforts underway, such as the establishment of initiatives like the Cyclone Reinsurance Pool and the Disaster Ready Fund. The role of insurers in providing guidance and incentives to customers to mitigate risks was also made.
Increasing transparency
A key theme throughout the speech was the importance of transparency in improving consumer outcomes and building trust. The speech outlined various aspects of transparency, including clear communication of policy coverage, factors driving premiums, and the use of customer information. The role of transparency in addressing the protection gap and facilitating product innovation was also emphasised by Carmody, with a call to insurers to embrace transparency in their operations.
Conclusion
In conclusion, the speech highlighted the industry's progress in risk management and the challenges it faces in ensuring affordability and accessibility of insurance. By focusing on transparency and collaboration, insurers can play a crucial role in addressing these challenges and shaping a resilient and sustainable future for the insurance industry. APRA's commitment to supporting industry efforts and promoting transparency was reiterated, emphasising the collective responsibility of insurers, government, and the community in shaping the future of insurance in Australia.
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Company secretary faces prison sentence for providing false information
Former Continental Coal Company secretary, Jane Flegg, has been sentenced to three years and six months in prison, with a non-parole period of 21 months, following a hearing in the Supreme Court of Western Australia on 15 March 2024.
Flegg was also handed a further eight months imprisonment for providing false information to the Australian Stock Exchange.
The sentencing comes after Flegg pleaded guilty in January to charges including making available false or misleading information to the ASX and stealing approximately $2.2 million of applicant funds from a Citation bank account. She also faced charges related to forging a bank statement.
During sentencing, the judge noted Flegg's persistent dishonesty and repeated breaches of trust over a nine-month period. Compliance officers should note the importance of transparency and honesty in corporate disclosures, as well as the severe consequences of breaching trust and providing false information to regulatory authorities.
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