The Financial Conduct Authority fined the former chief executive and chief compliance officer of Martin Brokers (UK) Limited for compliance and cultural failings at the firm. David Caplin, the former CEO, agreed to pay a fine of GBP 210,000 (approximately US $315,000), while Jeremy Kraft, the former CCO, agreed to pay a fine of GBP 105,000 (approximately US $155,000). Both individuals also consented to an order prohibiting them from performing any so-called “significant influence function” in connection with any FCA-regulated activity going forward. Both the Commodity Futures Trading Commission and the FCA have previously settled enforcement proceedings against Martin Brokers and, in the case of the CFTC, against RP Martin Holdings Limited too, claiming that the firms participated in the attempted and actual manipulation of the official fixing of the London Interbank Offered Rate from at least September 2008 through August 2009. (Click here for details in the article, “CFTC and UK FCA Settle LIBOR-Related Manipulation Charges Against RP Martin Holdings and Martin Brokers (UK)” in the May 12 to 16 and 19, 2014 edition of Bridging the Week.) According to the FCA, Mr. Caplin was “the dominant personality at [Martin Brokers] and his authority over the broking firm was absolute.” In assessing the performance of the firm’s brokers, Mr. Caplin “looked primarily at that [b]roker’s commission and the strength of that [b]roker’s earning potential,” said the FCA. According to the FCA, this culture “ultimately proved to be at the expense of regulatory compliance.” In assessing Mr. Kraft’s failings, the FCA noted that Mr. Kraft was “pre-occupied” with his strategic and operational responsibilities at Martin Broker in addition to other responsibilities and thus “failed to give due attention” to his responsibilities as chief compliance officer. Mr. Kraft also failed, said the FCA, adequately to assess Martin Brokers’ compliance risks and failed to keep the FCA and its predecessor agency adequately informed “of basic and important regulatory matters.” According to a statement issued by the FCA, “Mr. Kraft and Mr. Caplin were responsible for setting the right culture at Martins and ensuring that the firm’s risk management systems and controls were adequate to oversee its broking activities. They failed to do this. Proper systems and controls were non-existent and there was a culture at Martins where revenue came first and compliance was seen as unimportant rather than as an integral part of the running of the firm.”
Culture and Ethics: Setting the right tone is more than the mechanical implementation of required rules and regulations. It is a direction from the board of directors and senior management that the standard of conduct is not just complying with the law, but complying with the spirit of the law to ensure that customers and counterparties are treated fairly, and that the reputation of the firm is constantly maintained if not enhanced. I have said it many times—the standard of conduct for all employees should be the “grandmother test:” don’t engage in conduct that would embarrass you if your grandmother read about it in the morning tabloid and later asked about it during breakfast! A very simple test! Remember: keep grandma proud!