1

FINAL NOTICE

1.
ACTION

1.1.
For the reasons given in this notice, the Authority hereby imposes on W H Ireland
Limited ("WHI"):

(1)
Pursuant to section 206 of the Act a financial penalty of £1,200,000; and

(2)
Pursuant to section 206A of the Act a restriction for a period of 72 days
from the date the Final Notice is issued, on its Corporate Broking Division,
from taking on New Clients in relation to the carrying on of its regulated
activities.

1.2.
WHI agreed to settle at an early stage of the Authority’s investigation. WHI
therefore qualified for a 20% (stage 2) discount under the Authority’s executive
settlement procedures. Were it not for this discount, the Authority would have
imposed:

(1)
a financial penalty of £1,500,000; and

(2)
a restriction on its Corporate Broking Division of 90 days from the taking
on of New Clients.

2.
SUMMARY OF REASONS

2.1.
WHI breached Principle 3 because it failed to take reasonable care to organise
and control effective systems and controls to protect against the risk of market
abuse occurring during the period 1 January to 19 June 2013.

2.2.
Market abuse is serious and undermines confidence in the integrity of the UK
financial services sector. The first line of defence in the fight against market
abuse is the systems and controls that firms have in place to protect against,
detect and help prevent it, including comprehensive compliance oversight, robust
governance, and adequate training.

2.3.
WHI failed to maintain an adequate control environment in respect of market
abuse. This gave rise to a heightened risk of market abuse occurring and
continuing undetected. These failings included:

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(1)
weak market abuse controls to detect and mitigate against the risk of
market abuse arising from how inside information was handled, personal
account dealing and conflicts of interest;

(2)
deficient compliance oversight including monitoring and oversight of
market abuse controls, the provision of MI, risk assessment and dealing
with suspicious transactions;

(3)
poor governance including a lack of clearly allocated responsibilities,
reporting lines and accountability and, as Board packs were insufficiently
detailed, a lack of market abuse MI and a lack of challenge and review of
this by the Board and its committees; and

(4)
WHI did not have a formal way of identifying and recording what training
had been given and to whom.

2.4.
In addition to the breach of Principle 3, WHI also breached the following SYSC
rules in the FCA Handbook which relate to conflicts of interest in that it failed to:

(1)
keep and regularly update a record of the kinds of service or activity
carried out by WHI in which a conflict of interest entailing a material risk of
damage to the interests of one of more clients has arisen or may arise
(SYSC 10.1.6R);

(2)
maintain an effective written conflicts of interest policy which was
appropriate to the size and organisation of WHI and the nature, scale and
complexity of its business (SYSC 10.1.10R(1)); and

(3)
have an adequate conflicts of interest policy which identified by reference
the specific services and activities carried out by WHI, the circumstances
which constituted or may have given rise to a conflict of interest entailing
a material risk of damage to the interests of one or more clients and
specified the procedures to be followed and measures to be adopted in
order to manage such conflicts (SYSC 10.1.11R).

2.5.
WHI’s failings merit the imposition of a significant penalty. The Authority
considers these failings to be particularly serious for the following reasons:

(1)
During the Relevant Period WHI provided a number of services including:
corporate finance advice, acting as NOMAD and/or Broker to corporate
clients, research services, private client broking, and market making. The
broad range of services offered meant that a broad set of risks of market
abuse needed specifically to be addressed. In particular, corporate broking
services formed a significant part of WHI’s business activity. During the
Relevant Period WHI's private client broking function had around 9,000
clients who may have bought and sold financial instruments through WHI
or been advised by WHI and it had approximately £2.5 billion of assets
under management. WHI’s business activities meant that it routinely
received inside information, this key risk meant that the firm needed
robust systems and controls to protect against this risk materialising.

(2)
In addition, if market abuse occurred as a result of mishandling inside
information or otherwise, there was plainly scope for there to be an impact
on the market and a risk that a large number of market participants could
have been affected.

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(3)
The Authority has published a number of communications to the industry
making clear the importance of firms countering the risks of market abuse
with effective controls.

(4)
Despite being made aware of these failings in August 2013 by the Skilled
Person, the Implementation Report indicated that WHI had implemented
some but not all of the recommended improvements to the systems and
controls relevant to minimising the risk of market abuse.

2.6.
The Authority therefore imposes a financial penalty on WHI in the amount of
£1,200,000 pursuant to section 206 of the Act and to restrict its Corporate
Broking Division from taking on New Clients in relation to the carrying on of its
regulated activities pursuant to section 206A of the Act.

2.7.
The Authority recognises that the Firm has made and continues to make
significant changes to its management team. These changes began in mid-2012
when a number of the key issues identified within the Skilled Persons report had
begun to be addressed. The Authority recognises the Firm’s cooperation with its
investigation.

3.
DEFINITIONS

3.1.
The definitions below are used in this Final Notice.

“the Act”
The Financial Services and Markets Act 2000

“Authority”
The body corporate previously known as the Financial
Services Authority and renamed on 1 April 2013 as the
Financial Conduct Authority

“Board”
The Board of WHI Limited

“CESR”
Committee of European Securities Regulators

“COBS”
Conduct of Business Sourcebook, part of the FCA
Handbook

“Controlled Function”
Controlled Function as set out in the FCA Handbook

“DMA”
Direct Market Access: Electronic trading facilities which
give investors wishing to trade in financial instruments a
way to directly buy and sell through the order book of an
exchange without using a broker as an intermediary to
trade the instruments

“FCA Handbook”
The Authority’s handbook of rules and guidance

“House stocks”
Stocks of WHI corporate clients

“Implementation Report”
A report dated August 2014 on the implementation of the
original Skilled Person’s recommendations

“Insider List”
List of individuals who are in possession of inside
information

“ISIN”
International Securities Identification Number

“MI”
Management Information

“New Clients”
Any individual, partnership, corporation sole, or body
corporate whether incorporated in the UK or outside of the
UK that has not signed a letter of engagement with the
Firm by the date of the Final Notice

“NOMAD”
Nominated Adviser to companies listed on the AIM stock
market with responsibility to advise and guide a company
on its responsibilities and obligations as a member of the
AIM stock market

“PAD”
Personal
account
dealing:
individual
employees

undertaking trading on their own accounts

“Principles”
The Authority’s Principles for Businesses

“Relevant Period”
The period between 1 January 2013 and 19 June 2013

“Skilled Person”
A person appointed to make a report required by section
166 of the Financial Services and Markets Act 2000

“STR”
Suspicious Transaction Report: reports through which a
firm which arranges or executes a transaction for a client
and which has reasonable grounds to suspect that the
transaction might constitute market abuse must notify the
FCA

“SYSC”
The Senior Management Arrangements Systems and
Controls section of the FCA Handbook

“Tribunal”
The Upper Tribunal (Tax and Chancery Chamber)

4.
FACTS AND MATTERS

Background to WHI

4.1.
WHI, authorised by the Authority on 1 December 2001, is one of ten wholly
owned subsidiaries of WHI Group plc, a holding company quoted on AIM. WHI is
based in Manchester and London with smaller offices in seven other locations in
the UK and it has approximately 208 employees.

4.2.
WHI is organised into a number of divisions and teams including Private Wealth
Management, Corporate Broking, Internal Audit and Risk and the Compliance
Department.

4.3.
During the Relevant Period, WHI’s main activities were client and corporate
broking, private wealth management and market making.

4.4.
Corporate Broking services undertaken included corporate finance and arranging
fund raisings for clients and writing research and market making in corporate
stocks only.

4.5.
WHI acted as NOMAD to 85 corporate clients listed on AIM. NOMAD firms play an
important role. They manage the admission of new issues to AIM, guide

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companies through the listing process and have responsibility for maintaining
standards on AIM and upholding the reputation of AIM.

4.6.
WHI also provided research to institutional investors, and private clients,
investors and networks.

4.7.
WHI’s Private Wealth Management function had approximately £1.7bn under
management and provided services such as, private client stockbroking, and
independent financial advice.

4.8.
WHI also engaged in market making in approximately 85 stocks.

Risks inherent in the business

4.9.
Due to the range of work which WHI undertook during the Relevant Period, WHI’s
business activities made it particularly vulnerable to the potential risks of market
abuse as detailed below:

(1)
WHI routinely received inside information during the course of carrying on
parts of its business, for instance corporate broking and NOMAD services
(the “private side”).

(2)
WHI also operated business lines, such as market making, private client
stockbroking and investment research which did not routinely receive
inside information (the “public side”).

(3)
There was an inherent risk that, if inside information passed from the
private side to the public side, or from the private side to external third
parties, it might either be abused (e.g. by a third party seeking to make a
financial gain) or improperly disclosed (e.g. by being incorporated into
research analysis).

(4)
It was therefore important for WHI to establish properly documented and
robust controls: (i) to prevent the uncontrolled transfer of inside
information from the private side to the public side of its business (and
between different parts of the private side); and (ii) to ensure that if it was
necessary for inside information to be passed either to the public side of
the business or to external parties that this was done in a controlled
manner with proper safeguards in place.

(5)
WHI’s large client base meant that there was a risk of WHI being used for
market abuse by clients who had come by inside information from other
sources. Poor surveillance and training increased the risk that this would
go unnoticed.

4.10. In addition, WHI had offices throughout the UK, but only had compliance staff

permanently located in the London and Manchester offices. This meant that many
offices had no permanent compliance department employees and so to ensure
that internal compliance procedures were implemented WHI was reliant on robust
and detailed MI and oversight by the central compliance function.

4.11. Another aspect of WHI’s business activities which made it vulnerable to the risk of

market abuse was that it undertook different types of trading, each of which
required separate consideration by the compliance department. Trading at WHI
took place in three different ways, each of which entailed particular risks of
market abuse:

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(1)
Market making which involves a risk of market abuse if market makers
have access to inside information.

(2)
Non-employee trading in which external parties might be provided with
inside information and informed about trades, events or research. As set
out at paragraph 4.21 below, “Chinese walls” allow firms to stop inside
information being disclosed. When a decision is made that particular
people need to be granted access to inside information, those individuals
can be taken over the Chinese wall or “wall-crossed” so that they receive
relevant inside information. In the absence of clear controls and
procedures for wall-crossing, there is an obvious and serious risk of market
abuse because those in receipt of inside information might rely on that
information to trade or might encourage others to trade on the basis of
that inside information to the detriment of other market users who do not
have access to that information.

(3)
PAD, which involves individual employees at WHI undertaking trading on
their own accounts. This is discussed further in paragraphs 4.25 - 4.34
below. Unless PAD is adequately controlled there is a risk that employees
trading on their own behalf can profit from information which has come to
their knowledge in their professional capacity and which is not available to
other market participants.

History of the Authority’s statements on market abuse systems and
controls

4.12. The Authority has made a number of public statements about the standards that

are expected of firms in relation to market abuse systems and controls.

4.13. The following are examples of some of the relevant guidance issued by the

(1)
In 2005, Issues 12 and 14 of ‘Market Watch’ (a newsletter published by
the Authority on its website) advised firms:

(a)
on their obligations to submit STRs and firms were referred to
guidance by CESR on this issue. Advice and guidance was given
about what the Authority expected from the submission of STRs;

(b)
that when deciding what transactions to report, they should apply
the key test of whether “there are reasonable grounds for
suspecting the transaction involves market abuse”;

(c)
of
the
requirement
to
report
transactions
even
if
they

retrospectively become suspicious;

(d)
that the quality of an STR is improved when detailed client
information is provided and when a thorough explanation of why
trades are considered to be suspicious is given;

(e)
to submit along with an STR any relevant recorded conversations,
market announcements, trading history and ISIN identifier where
applicable; and

(f)
that if the Authority identified a trade that it would expect a firm to
have notified it about, then the Authority’s first step would be to
ask what systems and controls it has in place to identify suspicious

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trades, then to ask WHI why it did not identify the relevant trade
(the example was given that, if this was due to a lack of staff
training about market abuse and the STR requirements, then the
Authority could take action).

(2)
In June 2006, Issue 16 of Market Watch reminded firms of the need to
focus on the management of conflicts, complying with their obligations
under the Market Abuse Directive and reporting wrongdoing by employees.

(3)
In December 2006, Issue 18 of Market Watch reminded firms of their
obligations under the STR regime and the obligation on management to
interpret and apply the rules on STRs. Issue 18 of Market Watch also
referred to the need for firms to have in place appropriate and robust
monitoring systems.

(4)
In March 2007, Issue 19 of Market Watch contained further emphasis on
the importance of STRs and included a number of case studies on STRs
which highlighted the importance of STRs to address market abuse.

(5)
In July 2007, Issue 21 of Market Watch reminded firms of the good
practice of maintaining proper procedures for PAD and of testing
compliance with the policies in place.

(6)
In August 2007, the Authority published a ‘Factsheet’ regarding the
importance and significance of STRs on its website. It included worked
examples of what firms should look for when considering suspicious
transactions and when they should be submitted.

(7)
In October 2008, Issue 29 of Market Watch referred to the obligations on
senior management and the compliance department (in hedge funds) to
ensure adequate monitoring, control of inside information and training was
in place.

(8)
In Final Notices published in 2009 (Mark Lockwood) and 2011 (Caspar
Jonathan William Agnew), the Authority made clear the importance of
firms reviewing trades done and making STRs when appropriate.

(9)
In June 2012 the Authority sent a letter to all authorised firms including
WHI. It referred to the STR regime and certain market abuse concerns and
explained that the Authority required firms to have in place appropriate
systems and controls to prevent market abuse including: generating STRs,
maintaining records of suspicious trades which were investigated but not
reported, market abuse training and compliance monitoring.

The Skilled Person’s Report

4.14. In June 2013 the Authority raised concerns with WHI regarding the systems and

controls in respect of market abuse. On 10 July 2013 the Authority required WHI
to commission a Skilled Person's report.

4.15. The Skilled Person identified weaknesses in both WHI’s ability to identify and

mitigate risks associated with market abuse and in the ability of the compliance
department to administer market abuse related systems and controls. It identified
particular weaknesses in the following areas:

(1)
market abuse controls including the handling of inside information, PAD,
DMA trading and wall-crossing, and the release of sales and research

communications (documents prepared by the research team at WHI
analysing particular financial instruments or markets);

(2)
compliance oversight including a weak market abuse risk assessment, and
the analysis of automated surveillance alerts;

(3)
governance including formal oversight by the Board and management
committees of market abuse systems and controls, the receipt of MI and
market abuse policy documentation; and

(4)
training and awareness including awareness of market abuse requirements
across WHI.

4.16. WHI agreed to implement each of the Skilled Person’s recommendations across all

the relevant areas with deadlines ranging from three to 12 months.

4.17. In July 2014, WHI commissioned the Implementation Report by the Skilled Person

to assess the extent to which it had complied with the Skilled Person’s
recommendations. The findings of the review are set out in more detail at
paragraphs 4.71 - 4.73 below.

Market Abuse policies, procedures and controls

4.18. Properly designed market abuse policies, procedures, and controls are an

important defence against the risk of market abuse events crystallising.

4.19. During the Relevant Period there were weak market abuse controls in place at

WHI to mitigate the risk of market abuse associated with the handling of inside
information, PAD, conflicts of interest and DMA trading.

4.20. Inside information is information which relates, directly or indirectly, to issuers or

financial instruments that is not generally available and has not been made
available to the public through appropriate channels, such as through a press
release or a public statement from a company’s senior officers. The information is
material if, were it to be generally available, it would be likely to have a
significant effect on the price of the financial instrument or on the price of related
investments.

4.21. The purpose of a Chinese wall is to prevent inside information or other sensitive

information being disclosed to individuals within a firm who should not have
access to that information. When a decision is made that particular people need
to be granted access to inside information, those individuals can be wall-crossed
to permit them to receive relevant inside information. It is important for the wall-
crossing procedure to be carefully controlled and recorded so that individuals:
understand the obligations of becoming an insider, are only wall-crossed if
appropriate and the firm is aware at all times of who has been wall-crossed.

4.22. The importance of the careful control of inside information is well known and has

been the subject of rules and guidance (see Annex A).

4.23. The procedure for dealing with inside information and wall-crossing at WHI was

insufficient for the following reasons:

(1)
while the procedure for the wall-crossing of staff was specified, there was
no procedure for wall-crossing clients;

(2)
corporate broking staff were not provided with clear guidance or a script as
to what they could or could not disclose in communications with potential
investors prior to wall-crossing;

(3)
emails drafted by corporate broking and research staff detailing initial
information on potential investment opportunities were not reviewed by
the compliance department prior to circulation to ensure that they did not
contain inside information;

(4)
the compliance department did not monitor calls made between staff and
third parties to ensure that wall-crossing was happening appropriately
and/or whether market abuse was occurring; and

(5)
whilst Corporate Finance was located separately, there was insufficient
physical separation of research staff and corporate and private client staff
meaning that teams could have overheard inside information or have
viewed such information on computer screens.

4.24. The Authority considers that inadequate systems and controls relating to the

handling of inside information led to a risk that inside information may have been
communicated inappropriately to both internal and external third parties before
they were wall-crossed. In addition, poor record keeping and inadequate
monitoring in relation to inside information increased the risk that important
information about communications was not recorded and that inappropriate
disclosure of inside information went undetected.

4.25. PAD is an area of inherent risk for any firm in this sector given the potential for

employees to seek to make personal profit from inside information or other
information that they became aware of in their professional capacity.

4.26. The Authority has clearly articulated the obligations on firms which allow

employees to conduct PAD. The Authority requires firms to establish, implement
and maintain adequate arrangements aimed at preventing employees from
committing acts of market abuse and from misusing or improperly disclosing
confidential information. See COBS 11.7.1R.

4.27. During the Relevant Period WHI had PAD rules in place. However, its PAD rules

were inadequate in the following ways:

(1)
WHI’s PAD rules were inconsistent as to whether external PAD accounts
were permitted. They stated that new employees must notify the
compliance department of any external personal accounts held and
permission was required to deal through them but this was inconsistent
with another section of the rules which stated that employees were “only
permitted to deal through an account with WHI Limited”. Although WHI
intended its PAD rules to cover dealing in any instruments, WHI’s PAD
rules did not make clear whether they were intended to cover all PA
dealing by staff or just PA dealing by staff in House stocks and shares in
WHI plc.

(2)
There was inconsistency as to whether an employee’s holdings must be
declared at the commencement of employment and there was no
requirement for new employees to declare their external PAD holdings on
an annual basis.

(3)
WHI also required attestations from employees that they had read and
understood the PAD rules. However, this system of PAD attestations was
also inadequate as the PAD attestation lacked clarity. It only referred to
PAD in WHI Group shares; employees were not required to attest that they
understood and acknowledged WHI’s wider PA dealing procedures in non-
WHI shares. Moreover, an annual refresher attestation confirming
employees’ understanding of the rules was not conducted. In the absence
of a comprehensive and obligatory annual PAD attestation there was a risk
that staff might have misunderstood the importance of the PAD rules, not
known if the PAD rules had changed and PAD records might not have been
kept up to date.

4.28. The monitoring of any PAD policy is crucial in ensuring that it is effective in

preventing employees from committing market abuse and from misusing or
improperly disclosing confidential information. A firm cannot rely solely on
employees pro-actively complying with the policy. The system of monitoring used
by WHI had the following inadequacies:

(1)
The PAD register during the Relevant Period was incomplete and there was
neither an accurate or comprehensive record maintained of employees’
PAD. This led to a potential risk that PAD could be undertaken during the
Relevant Period without the knowledge or authorisation of the relevant
manager.

(2)
The monitoring of staff compliance with the PAD rules was undertaken by
the compliance department in Manchester who carried out daily PA
monitoring activities. This was inadequate for the following reasons:

(a)
The monitoring team did not check employees’ PAD against the
Research Log or work in progress (“WIP”) list which showed the
companies that were subject to research or which were in
discussion with WHI about potential transactions including proposed
fund raisings and acquisitions. This gave rise to a risk that staff
could possibly deal ahead of unpublished research or deal while in
possession of inside information which was recorded in the
Research Log and/or WIP list but not on the list of House stocks or
the Insider List.

(b)
The daily monitoring did not include checks for PAD in the securities
of companies that were discussed by research analysts at morning
meetings when a research note had been disseminated. There was
a risk that the daily monitoring failed to identify trades in breach of
the restriction, which prohibited staff from dealing 24 hours before,
or after, publication.

(c)
Breaches of the PAD rules were recorded within MI which was
distributed monthly to senior management but was not provided to
the Board until May 2013. Consequently there was a risk that the
existence and significance of PAD breaches might have been
overlooked by the Board. Further, there was no record in the MI of
repercussions for repeat breaches.

4.29. Without WHI consistently imposing robust sanctions for breaches of their PAD

rules there was a risk that employees may have repeatedly breached the PAD
rules exposing WHI to potential market abuse.

Conflicts of Interest

4.30. A significant risk of market abuse arises from inadequate systems and controls to

deal with potential conflicts of interest.

4.31. WHI’s business activities (described in detail at paragraph 4.1 – 4.11 above)

contained inherent potential for conflicts of interest to arise. For example, WHI
had both a private side business such as the corporate division and a public side
business such as private client stockbrokers. This structure meant that a conflict
might emerge between, for instance, a corporate client of WHI trying to acquire
another company and WHI’s private clients and their brokers who could profit
from trading in the stocks of the target company in advance of the acquisition
being made public.

4.32. SYSC 10.1.6R provides that a firm must keep and regularly update a record of

where the kinds of service or activity carried out in which a conflict of interest
entailing a material risk of damage to the interests of one or more clients has
arisen or may arise. During the Relevant Period WHI’s conflict of interest
document (within WHI’s Compliance Plan) did not function as a conflicts
record/register as it was simply a document outlining the systems, controls and
procedures in respect of conflict of interest rather than, as required, a regularly
updated record of the services or activities in which a conflict of interest which
may result in damage to one or more clients has or may arise. WHI therefore
failed to have a comprehensive record of when and where risks of conflicts of
interest might emerge.

4.33. In addition, WHI’s conflicts of interest document did not function as an effective

conflicts of interest policy as required by SYSC 10.1.10R (1). Instead, the
document referred to WHI’s ‘regulatory control environment’ and other policy
documents relating to market abuse and inside information. Consequently, staff
may have been confused by the inclusion of market abuse related policies and
procedures in a document dealing with conflicts of interest. More importantly, the
document does not allow WHI to take reasonable steps to identify the
circumstances which constitute or may give rise to a conflict of interest and does
not specify procedures to be followed and the effective organisational and
administrative arrangements to manage conflicts, in breach of SYSC 10.1.11R.

4.34. A number of WHI’s compliance oversight systems and controls were inadequate

including those in respect of risk assessments, monitoring and surveillance, MI,
and STRs. This limited WHI’s ability to ensure that the market abuse risks
inherent in its business activities were adequately mitigated.

Compliance framework and risk assessment

4.35. Having in place a formal market abuse risk assessment and a compliance risk

management framework which fully takes account of the risks facing a firm is key
to ensuring that a firm designs and implements controls in respect of market
abuse risks applicable to its business.

4.36. As set out at paragraphs 4.9 – 4.11 above, WHI’s business activities made it

vulnerable to the risk of market abuse in various ways.

4.37. However, despite these risks, no formal risk assessment or risk management

framework for market abuse was in place during the Relevant Period.
Consequently,
market
abuse
monitoring
undertaken
by
the
compliance

department was not based on a proper assessment of the nature and seriousness
of market abuse risks and the probability and impact of market abuse risks
crystallising.

4.38. Although WHI had a compliance plan which addressed market abuse, it merely

set out some of the obvious ways market abuse could occur. The Compliance Plan
was not a forward-looking plan detailing the compliance department’s role in
relation to market abuse or a timetable of activities to be undertaken by the
compliance department to mitigate market abuse risks. Without a sufficiently
detailed plan in place, there was a risk that WHI would not fully understand the
risks from market abuse and would not provide the required time and resources
for the compliance department to deal effectively with market abuse issues.

Monitoring and surveillance

4.39. WHI’s compliance department’s oversight was insufficiently thorough and should

have overseen the broad range of trading, business and responsibilities
undertaken by WHI, including monitoring of principal trading and client trading,
approving and monitoring PAD, maintaining Insider Lists and research documents
and ensuring compliance with its STR obligations.

4.40. WHI undertook various daily monitoring activities including preparing reports on

the previous day’s trading and PAD, and using a vendor provided surveillance
software system (“Surveillance System”) to monitor trades undertaken through
WHI’s internal trading system. The Surveillance System was designed to flag
exceptions, including trades not performed at best execution, where there was a
risk of market abuse.

4.41. The monitoring systems WHI used and the surveillance performed as part of its

daily monitoring were inadequate for the following reasons:

(1)
The Surveillance System reviewed trading activity and generated
exceptions based on parameters set by WHI but WHI set the parameters
too narrowly and did not address specific business activities or the full
breadth of its market abuse risks. For example, WHI failed to calibrate the
system to identify potential Market Abuse from activities such as DMA. This
was because the compliance department was not aware that WHI offered
DMA services to its clients and therefore had not appropriately designed
the surveillance around the risk. DMA increases the risk of manipulation
and WHI did not have tests to assess whether such manipulation was
occurring;

(2)
The parameters set during the Relevant Period produced a significant
volume of alerts which could not be reviewed in a timely and consistent
manner. At the end of the Relevant Period there was a backlog of 60 days
between the date of the trade and the date the alerts were reviewed by
the compliance department. This led to a heightened risk that WHI could
not fulfil its obligations to report potential market abuse or suspicious
transactions to the Authority without delay.

(3)
The exception reports generated by the Surveillance System were only
useful to the extent to which the data provided in the reports was analysed
by competent staff in the compliance department. Without analysis the
reports on their own were not sufficient to act as indicators of market
abuse. However, there was no system or training in place to guide staff in
the compliance department as to which alerts should be investigated. This
problem was exacerbated by the fact that the compliance staff tasked with

the review process were junior members of the team with limited
experience or training in market abuse.

(4)
WHI was overly reliant on the Surveillance System for identifying
suspicious trades and did not have in place a ‘back up’ manual monitoring
programme focused on mitigating key market abuse including spot checks
of individual trader activity, reviews of peaks in activity or reviews of
activity in high risk stocks.

4.42. An important part of the compliance oversight process is to use MI to identify

potential risks, forecast problems and determine how to mitigate risks.

4.43. The Authority is concerned that the Board and Risk and Compliance Committee

did not receive any significant MI relating to market abuse for the majority of the
Relevant Period. For example the 60 day backlog in trade surveillance of the
Surveillance System was not reported to the Board, nor was the number of STRs
filed. From May 2013, a Compliance MI spreadsheet was provided to the Board
but this did not have a separate section for market abuse and it was not clear
which breaches were market abuse related.

4.44. Further, there were no documented procedures for the escalation of market abuse

issues from the compliance department to the Board. This created a danger that
significant risks and issues concerning market abuse might not be escalated to
the Board which, in turn, meant that it was unable to fully discharge its oversight
responsibility.

4.45. An important component of the compliance systems and controls at a firm facing

market abuse risks is the investigation of suspicious transactions, the collation of
STRs and the reporting of STRs to the Authority. STR’s are key to the Authority’s
ability to protect and enhance the integrity of the UK financial system and, as set
out at paragraph 4.13 above, has been the subject of guidance from the
Authority.

4.46. WHI’s systems and controls in respect of STRs were inadequate for the following

(1)
WHI’s STR procedures put the emphasis on employees to make
judgements as to whether a transaction was sufficiently suspicious to
require escalation to the compliance department rather than requiring staff
to escalate all suspicious transactions;

(2)
The STR procedures were insufficiently detailed and did not provide
information about how a suspicious transaction should be reported and
communicated to the compliance department.

(3)
There was no detailed log of suspicious incidents or audit trail of
surveillance alerts and escalations and no rationale for not submitting
STRs. This meant there were insufficient records of STRs to demonstrate
that WHI had complied with its regulatory requirements. The only audit
trail on STRs and suspicious incidents maintained by the compliance
department was a record of emails detailing communications on each
reported incident.

(4)
There was no documented procedure for the escalation of suspicious
transactions to the Authority or documented guidelines setting out factors
which should be taken into account as part of the decision making process.

(5)
No formal STR MI was provided to management or the Board.

4.47. As a consequence of these failings, there was a substantive risk that suspicious

transactions would not be reported to the compliance department and that STRs
would not be filed. Further, the lack of formal STR MI could result in Management
and the Board failing to recognise and act on emerging market abuse risks and
issues.

4.48. A well defined corporate governance structure with roles, responsibilities, and

accountability clearly demarcated is needed so that firms can mitigate the risk of
market abuse.

4.49. WHI did not clearly allocate responsibilities, reporting lines and accountabilities

for market abuse and there were no terms of reference for the Board or for the
Compliance and Risk Committee. The Audit Committee’s Terms of Reference
lacked an explicit allocation of responsibility. In addition, there was little
documented discussion of market abuse matters at Board meetings and
insufficient challenge and action when they were discussed.

The Compliance and Risk Committee

4.50. The Compliance and Risk Committee met four times during the Relevant Period

but did not have a documented or formal role with regard to market abuse.
Market abuse was not a standing agenda item and the Committee did not receive
any significant MI related to market abuse.

4.51. The Compliance and Risk Committee's minutes did not contain information on

discussions held and decisions made or agreed actions to be tracked in
subsequent meetings. There was no framework for this committee (or for the
Audit Committee as set out below) to report to the Board for the escalation of any
concerns over the controls and governance of risk and any breaches or potential
breaches.

4.52. The Compliance and Risk Committee was therefore insufficiently involved in the

market abuse risks and issues facing the business during the Relevant Period.

Internal Audit Function and Audit Committee

4.53. A firm’s audit function serves an important role in helping a firm identify

deficiencies in its systems and controls against market abuse. The internal
auditor’s role is to provide independent, objective assurance to the Audit
Committee that the risk management, control and governance processes are
adequate.

4.54. During the Relevant Period there was no adequate audit plan in place at WHI.

Two ‘internal audit plans’ from 2012 and 2013 have been reviewed by the
Authority but both of these plans were inadequate as they consisted of a single
page on which a series of headings was listed without any detail.

4.55. The Audit Committee Board packs for the two Audit Committee meetings held

during the Relevant Period show that market abuse risks were discussed but not

in sufficient detail and there is no record that the market abuse issues raised in
the audit report or in the minutes were acted on.

4.56. The actions which were recorded were not referred to in the next Audit

Committee meeting and there were no adequate risk management policies and
procedures drafted or brought into effect.

The Board

4.57. During the Relevant Period there were three meetings of WHI’s Board. However,

there was little documented discussion of market abuse matters and where there
was discussion the action taken (if any) was not recorded.

4.58. In these meetings and the Board packs which preceded them, potentially

significant market abuse issues were raised. However, there is no evidence that a
plan was put in place to deal with the issues, and nor did the Board request
further MI from the compliance department. For example, after receiving
significant indications of concern about market abuse in the January 2013 Board
meeting the Board did not ask the compliance department to report on market
abuse issues or present the Board with a plan for dealing with the issues raised.

4.59. The Authority is concerned that the Board did not identify the MI, such as a

formal report on market abuse from the compliance department, it expected to
receive to be presented at every Board meeting. Without such MI and a lack of
formal record of discussion, challenge, and resolution, the Board was not able to
fully discharge its oversight responsibility for market abuse.

Training and awareness

4.60. Training in market abuse should ensure both that staff are made aware of their

obligations in relation to market abuse and that they have sufficient
understanding to recognise behaviour which constitutes market abuse in their day
to day business and the Authority has provided guidance in this area.

Training

4.61. WHI’s Compliance Plan referred to the need to have adequate training in place.

However, whilst in fact new recruits during the Relevant Period all received
market abuse training no formal market abuse training programme was in place
during the Relevant Period.

4.62. In terms of face to face staff training, with the exception of specific training on

STRs, no broader market abuse training was given to staff during the Relevant
Period.

4.63. The only training document specifically on market abuse provided to all staff was

called “Market abuse How is it construed?”. This document did not accurately
describe what market abuse is or refer to market abuse offences and did not give
examples or define inside information.

4.64. New joiners and existing staff were required to complete online training which

contained a module on market abuse. Although WHI had records tracking
completion rates, a small number of staff did not in fact complete the online
training during the Relevant Period. There were no sanctions for non-completion
of the training or reference to this as part of the employee appraisal process nor
did WHI’s MI address this issue properly.

4.65. Some informal training was provided. This included PowerPoint presentations and

emails circulated by the compliance department to employees enclosing articles
about market abuse related news. However, there was no mechanism to confirm
that employees had received and understood the training material.

4.66. The Authority is concerned that such high level and informal methods of training

are inadequate to inform and educate staff sufficiently about market abuse
although informal training can form part of a wider training programme.

4.67. In light of the above the Authority considers that there was an inadequate level of

understanding of market abuse across the business during the Relevant Period.

Training of compliance staff

4.68. The proper training of compliance staff is an important element of ensuring

effective monitoring for market abuse. Without the right level of skills and
experience in market abuse, the compliance department will not be able to
provide robust scrutiny of the business.

4.69. The training in place for compliance staff was insufficient: no additional formal

market abuse training was provided to compliance staff over and above the online
training provided to all staff. Further, the compliance department monitoring
team responsible for undertaking daily market abuse monitoring activities had
limited experience.

4.70. The Authority considers that in the absence of a formal training programme for

compliance department staff WHI’s ability to mitigate against market abuse was
significantly compromised.

Implementation Report

4.71. Since the Relevant Period WHI has implemented a number of improvements to its

systems and controls in respect of market abuse. Between August and September
2014 the Skilled Person assessed the extent to which WHI had implemented the
recommendations made in the original report and set out its findings in an
Implementation Report.

4.72. However, the Skilled Person also found that there were some recommendations

which had not been implemented adequately within the time set by the Skilled
Person. In particular, these included (but were not limited to) the following:

(1)
Although a market abuse risk assessment had been presented to the
Board, it had not been formally approved by the Board within three
months as required by the Skilled Person. The same applies to the
Compliance Monitoring Plan, Terms of Reference for Compliance and PAD
rules which had been provided to the Board but not approved within the
timescales set. Most importantly, the Compliance Monitoring Programme
proposed by WHI was not complete by the time of the Implementation
Report and did not wholly facilitate effective risk based compliance
monitoring in a number of different ways.

(2)
With respect to the Surveillance System, the Skilled Person required
improvements to the design and operational development and alert review
procedures within six months and to introduce interim manual monitoring
within three months.. The Implementation Report noted that although WHI
had reconfigured the parameters of the Surveillance System, it did not

introduce a manual monitoring programme as suggested and the previous
parameters were used until May 2014..

4.73. The Skilled Person recommended that within six months WHI should develop and

implement a formal market abuse training programme and formal records of
training should be maintained. Although an email about training was sent to 90
members of staff, the overall completion rate of training was unclear and there
was no evidence of spot checks to ensure that staff had understood the training,
in accordance with the Skilled Person’s recommendation.

5.
FAILINGS

5.1.
The regulatory provisions relevant to this Final Notice are referred to in Annex A.

5.2.
Principle 3 requires a firm to take reasonable care to organise and control its
affairs responsibly and effectively, with adequate risk management systems.

5.3.
WHI breached Principle 3 because it failed to organise and control its affairs in
respect of market abuse responsibly and effectively.

5.4.
On the basis of the facts and matters set out above, WHI failed to maintain an
appropriate control environment in respect of market abuse and this gave rise to
a substantive risk of market abuse occurring. The control environment was
inadequate because:

(1)
Market abuse policies, procedures and controls were either not in place or
were inadequate to identify, prevent or mitigate the risk of market abuse.
Specifically, WHI did not:

(a)
have a comprehensive procedure in place for handling inside
information to prevent the risk that inside information could be
communicated improperly and to ensure that the disclosure of
inside information was appropriately recorded and controlled;

(b)
put in place clear and consistent rules for PAD;

(c)
ensure that PAD was accurately registered and monitored; and

(d)
put in place a policy to address how conflicts of interest were to be
dealt with or record all actual or potential conflicts of interest.

(2)
Oversight of WHI’s systems and controls was not sufficient to allow WHI to
fully understand the market abuse risks in its business activities and to
mitigate those risks. In particular:

(a)
there was no risk assessment or risk management framework to
consider market abuse risks;

(b)
WHI was overly reliant on an automated trade monitoring system
which was not adequately set up and the exception reports
generated by the monitoring system were not promptly or
adequately reviewed or investigated;

(c)
no MI was provided to the Board at all until May 2013 and, even
after that date, the MI provided to the Board did not specifically
consider the risks of market abuse; and

(d)
the STR procedure was inadequately detailed and STRs were not
logged, escalated or reported to the Board where appropriate.

(3)
WHI failed to address and alleviate the risk of market abuse. More
specifically:

(a)
a lack of Terms of Reference or specific role in respect of market
abuse for Board and the Compliance and Risk Committee meant
that WHI was less able to engage withmarket abuse risks and
issues; and

(b)
the Board was not provided with MI relating to market abuse for
most of the Relevant Period and even when market abuse issues
were raised it did not give them adequate consideration.

(4)
Training at WHI was inadequate because:

(a)
the training programme in place at WHI for all staff was insufficient
in scope and detail and in some cases the required programmes
were not conducted leading to a risk that employees did not
understand the risks of market abuse; and

(b)
compliance department staff were not adequately trained, which
meant they were constrained in their ability to identify potential
market abuse, and were not sufficiently clear as to what their
responsibilities were and how they were to discharge their duty to
mitigate market abuse.

(5)
In addition, with regard to conflicts of interest as set out in paragraphs
4.33 – 4.36 (and summarised at paragraph 5.4(1)(d) above), WHI failed
to comply with SYSC in relation to its failure to keep and regularly update
a conflicts of interest register or record (SYSC 10.1.6R), and establish and
implement an effective conflicts of interest policy which identified the
circumstances which constituted or may have given rise to a conflict of
interest and specified the procedures to be followed and measures to be
adopted in order to manage such conflicts (SYSC 10.1.10R(1) and (SYSC
10.1.11R).

6.
SANCTION

Introduction

6.1.
The Authority therefore imposes a financial penalty of £1,200,000 on WHI for
breaching Principle 3 and associated SYSC rules.

6.2.
In addition to imposing a financial penalty, it is also appropriate to impose a
restriction on WHI. Imposing a restriction, in addition to a financial penalty, is a
more effective and persuasive deterrent than a financial penalty alone.

6.3.
Accordingly the Authority, in addition to the financial penalty, also imposes a
restriction for a period of 72 days from the date the Final Notice is issued, on
WHI’s Corporate Broking Division, from taking on New Clients in relation to the
carrying on of its regulated activities.

6.4.
In imposing the combined penalty and restriction, and pursuant to DEPP
6A.4.2(4) and (5), the Authority has reduced the amount of the financial penalty

so that the combined impact of the sanctions is proportionate in relation to the
breach and deterrent effect of the sanctions.

Financial penalty

6.5.
The Authority’s policy for imposing a financial penalty is set out in Chapter 6 of
DEPP. In respect of conduct occurring on or after 6 March 2010, the Authority
applies a five step framework to determine the appropriate level of financial
penalty. DEPP 6.5A sets out the details of the five step framework that applies in
respect of financial penalties imposed on firms.

Step 1: disgorgement

6.6.
Pursuant to DEPP 6.5A.1G, at Step 1 the Authority seeks to deprive a firm of the
financial benefit derived directly from the breach where it is practicable to
quantify this.

6.7.
The Authority has not identified any financial benefit that WHI derived directly
from its breach

6.8.
Step 1 is therefore £0

Step 2: the seriousness of the breach

6.9.
Pursuant to DEPP 6.5A.2G, at Step 2 the Authority determines a figure that
reflects the seriousness of the breach. Where the amount of revenue generated
by a firm from a particular product line or business area is indicative of the harm
or potential harm that its breach may cause, that figure will be based on a
percentage of WHI’s revenue from the relevant products or business area.

6.10. The Authority considers that the revenue generated by WHI's Private Wealth

Management and Corporate Broking Divisions is indicative of the harm or
potential harm caused by its breach.

6.11. The Authority has determined the appropriate Step 2 amount by taking into

account those factors which are relevant to an assessment of the level of
seriousness of the breach.

6.12. DEPP 6.5A.2G(11) sets out factors likely to be considered ‘level 4 factors’, or

‘level 5 factors’. The Authority considers the following factors to be relevant:

(1)
The breach revealed serious and systemic weaknesses in WHI’s
procedures, management systems and internal controls around market
abuse which gave rise to a significant risk of market abuse occurring; and

(2)
In failing to put in place adequate market abuse policies, procedures and
controls to identify, prevent and mitigate the risk of market abuse, WHI
caused a significant risk of loss to individual consumers, investors or other
market users.

6.13. DEPP 6.5A.2G(12) sets out factors likely to be considered ‘level 1 factors’, ‘level 2

factors’ or ‘level 3 factors’. The Authority considers the following factors to be
relevant:

(1)
the Authority has not identified any direct or indirect financial benefit to
WHI as a result of the breaches of Principle 3.

6.14. Taking all of these factors into account, the Authority considers the seriousness of

the breach to be level 4 so that the Step 2 figure is £1,250,000.

Step 3: mitigating and aggravating factors

6.15. Pursuant to DEPP 6.5A.3G, at Step 3 the Authority may increase or decrease the

amount of the financial penalty arrived at after Step 2, but not including any
amount to be disgorged as set out in Step 1, to take into account factors which
aggravate or mitigate the breach.

6.16. The Authority considers that the following factors aggravate the breach:

(1)
The Authority’s Market Watch newsletters were well publicised prior to the
Relevant Period and publications during the period 2005 – 2009 cover
topics including: firms’ obligations under the STR regime; the need for
firms to have in place appropriate and robust monitoring systems;
maintaining proper procedures for PAD; testing compliance with the
policies in place; and obligations on senior management and the
compliance department to ensure adequate monitoring, control of inside
information and training;

(2)
In June 2012 the Authority sent a letter to all authorised firms including
WHI. It referred to the STR regime, market abuse concerns and described
how the STR system was meant to work in some detail; and

(3)
WHI agreed to implement each of the Skilled Person’s recommendations
across all of the relevant areas within three to 12 months. In July 2014, a
year after the initial review, WHI commissioned the Implementation Report
to assess the extent to which it had complied with the Skilled Person’s
recommendations. The Implementation Report found that WHI had
implemented some but not all of the recommended improvements to the
systems and controls relevant to minimising the risk of market abuse.

6.17. Having taken these aggravating factors into account, the Authority considers that

an aggregate uplift of 20% is appropriate.

6.18. Step 3 is therefore £1,500,000.

Step 4: adjustment for deterrence

6.19. Pursuant to DEPP 6.5A.4G, if the FCA considers the figure arrived at after Step 3

is insufficient to deter WHI who committed the breach, or others, from
committing further or similar breaches, the Authority may increase the penalty.

6.20. The Authority considers that the Step 3 figure of £1,500,000 represents a

sufficient deterrent to WHI and others, and so has not increased the penalty at
Step 4.

6.21. Step 4 is therefore £1,500,000.

Step 5: settlement discount

6.22. Pursuant to DEPP 6.5A.5G, if the Authority and WHI on which a penalty is to be

imposed agree the amount of the financial penalty and other terms, DEPP 6.7
provides that the amount of the financial penalty which might otherwise have
been payable will be reduced to reflect the stage at which the Authority and WHI
reached agreement.

6.23. The Authority and WHI reached agreement at Stage 2 and so a 20% discount

applies to the Step 4 figure.

6.24. Step 5 is therefore £1,200,000.

6.25. The Authority therefore imposes a total financial penalty of £1,200,000 on WHI

for breaching Principle 3 and not complying with SYSC 10.1.6R, SYSC
10.1.10R(1) and SYSC 10.1.11R.

Restriction

6.26. The Authority also imposes a restriction for a period of 72 days from the date the

Final Notice is issued, on WHI’s Corporate Broking Division, from taking on New
Clients in relation to the carrying on of its regulated activities. The restriction the
Authority has imposed is a disciplinary measure in respect of WHI's misconduct
during the Relevant Period.

6.27. When determining whether a restriction is appropriate, the Authority is required

to consider the full circumstances of the case. The Authority will impose a
restriction where it believes that such action will be a more effective and
persuasive deterrent than the imposition of a financial penalty alone. DEPP
6A.2.3G specifies examples of circumstances where the Authority may consider it
appropriate to impose a restriction.

6.28. The Authority considers the following factors are relevant:

(1)
WHI has failed properly to carry out all agreed remedial measures as
described in paragraph 6.16(3); and

(2)
The misconduct appears to be widespread involving a number of
individuals across a particular business area (suggesting a poor compliance
culture). A number of individuals across multiple departments were
involved in WHI’s failure to maintain a strong control environment in
respect of market abuse which gave rise to a substantive risk of market
abuse occurring.

6.29. The Authority considers it appropriate to impose a restriction here in relation to

activities directly linked to the breach. Given the systemic nature of WHI’s
breach, the Authority considers that a restriction affecting the regulated activities
of WHI's Corporate Broking Division is appropriate. By restricting WHI, the
Authority signals to the market that where a firm operates with a weak market
abuse control environment, the Authority will take disciplinary action to suspend
and / or restrict that firm’s activities.

Length of restriction

6.30. When determining the length of the restriction that is appropriate for the breach

concerned, and also the deterrent effect, the Authority will consider all the
relevant circumstances of the case. DEPP 6A.3.2G sets out factors that may be
relevant in determining the appropriate length of the restriction. The Authority
considers that the following factors are particularly relevant in this case.

Deterrence (DEPP 6A.3.2G(1))

6.31. When determining the appropriate length of the restriction, the Authority will

have regard to the principal purpose for which it imposes sanctions, namely to
promote high standards of regulatory and/or market conduct by deterring
persons who have committed breaches from committing further breaches and
helping to deter other persons from committing similar breaches, as well as
demonstrating generally the benefits of compliant business.

6.32. The Authority considers that the restriction imposed will emphasise that the

Authority must be able to rely on firms to take actions required to mitigate or
resolve market abuse risks. Due to the range of work which WHI undertook
during the Relevant Period, WHI’s business activities were particularly vulnerable
to the potential risks of market abuse. Effective and credible deterrence indicates
a significant period of restriction.

The seriousness of the breach (DEPP 6A.3.2G(2))

6.33. When assessing the seriousness of the breach, the Authority takes into account

various factors (which may include those listed in DEPP 6.5A.2G(6) to (9)) which
reflect the impact and nature of the breach, and whether it was committed
deliberately or recklessly.

6.34. When considering the seriousness of the breach, the Authority has taken into

account the following factors listed at paragraphs 6.12 (1) to (2) and 6.13 (1).

Aggravating and mitigating factors (DEPP 6A.3.2G(3))

6.35. The Authority takes into account various factors (which may include those listed

in DEPP 6.5A.3G(2)) which may aggravate or mitigate a breach.

6.36. When considering the aggravating and mitigating factors, the Authority has taken

into account the following factors listed at paragraphs 6.16 (1) to (3).

Impact of restriction on WHI (DEPP 6A.3.2G(4))

6.37. When assessing the impact of the restriction on WHI, the Authority has taken into

account the following:

(1)
WHI’s expected lost revenue and profits from not being able to carry out
the restricted activity;

(2)
potential economic costs, for example, the payment of salaries to
employees who will not work or will have reduced work during the period
of restriction;

(3)
the effect on other areas of WHI’s business; and

(4)
whether the suspension or restriction would cause WHI serious financial
hardship.

Impact of restriction on persons other than WHI (DEPP 6A.3.2G(5))

6.38. When assessing the impact of the restriction on persons other than WHI, the

Authority considers the following to be relevant: the extent to which clients may
suffer loss or inconvenience as a result of the suspension or restriction. We do not

consider that the potential loss or inconvenience to potential New Clients is an
appropriate reason not to impose the restriction.

6.39. Taking all of these factors into account, the Authority considers the total length of

the restriction which it is appropriate to impose is 90 days.

Settlement discount

6.40. WHI agreed to settle at an early stage of the Authority’s investigation. WHI

therefore qualified for a 20% (stage 2) discount to the length of the restriction
under the Authority’s executive settlement procedures, reducing the restriction to
72 days. Were it not for this discount, the Authority would have imposed a
restriction of 90 days on WHI's Corporate Broking Division.

6.41. The Authority therefore imposes a total financial penalty of £1,200,000 on WHI

for breaching Principle 3.

6.42. In addition to imposing a financial penalty, the Authority considers that it is also

appropriate to impose a restriction on WHI's Corporate Broking Division that, for
a period of 72 days, from taking on New Clients in relation to the carrying on of
its regulated activities.

6.43. Pursuant to DEPP 6A.4.2, the Authority considers that the combination of

sanctions is proportionate considering the nature and seriousness of the Principle
3 breach.

7.
PROCEDURAL MATTERS

Decision maker

7.1.
The decision which gave rise to the obligation to give this Notice was made by the
Settlement Decision Makers.

7.2.
This Final Notice is given under, and in accordance with, section 390 of the Act.

Manner of and time for Payment

7.3.
The financial penalty must be paid in full by WHI to the Authority by no later
than 8th March 2016, 14 days from the date of the Final Notice.

7.4.
If all or any of the financial penalty is outstanding on 9th March 2016, the
Authority may recover the outstanding amount as a debt owed by WHI and due
to the Authority.

7.5.
Sections 391(4), 391(6) and 391(7) of the Act apply to the publication of
information about the matter to which this notice relates. Under those
provisions, the Authority must publish such information about the matter to which
this notice relates as the Authority considers appropriate. The information may
be published in such a manner as the Authority considers appropriate. However,
the Authority may not publish information if such publication would, in the opinion
of the Authority, be unfair to WHI or prejudicial to the interests of consumers or
detrimental to the stability of the UK financial system.

7.6.
The Authority intends to publish such information about the matter to which this
Final Notice relates as it considers appropriate.

Authority contacts

7.7.
For more information concerning this matter generally, contact Anna Couzens at
the Authority (direct line: 020 7066 6772).

Financial Conduct Authority, Enforcement and Market Oversight Division

ANNEX A

RELEVANT STATUTORY AND REGULATORY PROVISIONS

1.
Statutory Provisions

The FCA’s statutory objectives, set out in section 2(2) of the Act include market
confidence.

Section 206 of the Act provides:

If the Authority considers that an authorised person has contravened a
requirement imposed on him by or under this Act…it may impose on him a
penalty, in respect of the contravention, of such amount as it considers
appropriate.

WHI is an authorised person for the purposes of section 206 of the Act. The
requirements imposed on authorised persons include those set out in the FCA’s
rules made under section 138 of the Act.

Section 206A of the Act provides that where an authorised person has
contravened a requirement imposed on it under the Act the Authority may
impose, for such a period as it considers appropriate, such suspensions of that
person’s permissions or limitations or other restrictions in relation to the carrying
on of a regulated activity by the person as it considers appropriate. A restriction
may, in particular, be imposed so as to require the person concerned to take, or
refrain
from
taking,
specified
action.
The
period
for
which
the

suspension/restriction is to have effect may not exceed 12 months.

Section 206(1) of the Act provides:

If the Authority considers that an authorised person has contravened a
requirement imposed on him by or under this Act… it may impose on him
a penalty, in respect of the contravention, of such amount as it considers
appropriate.

2.
Regulatory Provisions

In exercising its power to issue a financial penalty, the FCA must have regard to
the relevant provisions in the FCA handbook.

In deciding on the action, the FCA has also had regard to guidance set out in the
Regulatory Guides, in particular the Decision Procedure and Penalties Manual
(DEPP).

3.
Principles for Businesses

The Principles for Businesses are a general statement of the fundamental
obligations of firms under the regulatory system and are set out in the FCA
Handbook. They derive their authority from the FCA’s rule-making powers as set
out in the Act and reflect the FCA’s regulatory objectives. Principle 3 provides:

A firm must take reasonable care to organise and control its affairs
responsibly and effectively, with adequate risk management systems.

4.
DEPP

Chapter 6 of DEPP, which forms part of the Authority’s Handbook, sets out the
Authority’s statement of policy with respect to the imposition and amount of
financial penalties and restrictions under the Act.

5.
The Enforcement Guide

The Enforcement Guide sets out the Authority’s approach to exercising its main
enforcement powers under the Act.

Chapter 7 of the Enforcement Guide sets out the Authority’s approach to
exercising its power to impose a financial penalty and restrictions.

6.
Conduct of Business Sourcebook (COBS)

COBS 11.7.1R provides:

A firm that conducts designated investment business must establish,
implement and maintain adequate arrangements aimed at preventing the
following activities in the case of any relevant person who is involved in
activities that may give rise to a conflict of interest, or who has access to
inside information as defined in the Market Abuse Directive or to other
confidential information relating to clients or transactions with or for
clients by virtue of an activity carried out by him on behalf of the firm:

(1)
entering into a personal transaction which meets at least one of the
following criteria:

(a)
that person is prohibited from entering into it under the Market
Abuse Directive;

(b)
it involves the misuse or improper disclosure of that confidential
information;

(c)
it conflicts or is likely to conflict with an obligation of the firm to a
customer under the regulatory system or any other obligation of the
firm under MiFID or the UCITS Directive;

(2)
advising or procuring, other than in the proper course of his employment
or contract for services, any other person to enter into a transaction in
designated investments which, if a personal transaction of the relevant
person, would be covered by (1) or a relevant provision;

(3)
disclosing, other than in the normal course of his employment or contract
for services, any information or opinion to any other person if the relevant
person knows, or reasonably ought to know, that as a result of that
disclosure that other person will or would be likely to take either of the
following steps:

(a)
to enter into a transaction in designated investments which, if a
personal transaction of the relevant person, would be covered by or
a relevant provision;

(b)
to advise or procure another person to enter into such a
transaction.

7.
Senior Management Arrangements, Systems and Controls Sourcebook
(SYSC)

The FCA handbook sets out high level standards relating to senior management
arrangements, systems and controls in SYSC. SYSC 10 sets out the FCA’s general
rules on conflicts of interest.

SYSC 10.1.6R provides:

A common platform firm and a management company must keep and regularly
update a record of the kinds of service or activity carried out by or on behalf of
that firm in which a conflict of interest entailing a material risk of damage to the
interests of one or more clients has arisen or, in the case of an ongoing service or
activity, may arise.

SYSC 10.1.10R(1) provides:

Conflicts policy

(1)
A common platform firm and a management company must establish,
implement and maintain an effective conflicts of interest policy that is set
out in writing and is appropriate to the size and organisation of the firm
and the nature, scale and complexity of its business.

(2)
Where the common platform firm or the management company is a
member of a group, the policy must also take into account any
circumstances, of which the firm is or should be aware, which may give
rise to a conflict of interest arising as a result of the structure and business
activities of other members of the group.

SYSC 10.1.11R provides:

Contents of policy

(3)
The conflicts of interest policy must include the following content:

(a)
it must identify in accordance with SYSC 10.1.3 R and SYSC 10.1.4
R, by reference to the specific services and activities carried out by
or on behalf of the common platform firm or management
company, the circumstances which constitute or may give rise to a
conflict of interest entailing a material risk of damage to the
interests of one or more clients; and

(b)
it must specify procedures to be followed and measures to be
adopted in order to manage such conflicts.

(4)
The procedures and measures provided for in paragraph (1)(b) must:

(a)
be designed to ensure that relevant persons engaged in different
business activities involving a conflict of interest of the kind
specified in paragraph (1)(a) carry on those activities at a level of
independence appropriate to the size and activities of the common
platform firm or the management company and of the group to
which either of them respectively belongs, and to the materiality of
the risk of damage to the interests of clients; and

(b)
include such of the following as are necessary and appropriate for
the common platform firm or the management company4 to ensure
the requisite degree of independence:

(i)
effective procedures to prevent or control the exchange of
information between relevant persons engaged in activities
involving a risk of a conflict of interest where the exchange
of that information may harm the interests of one or more
clients;

(ii)
the separate supervision of relevant persons whose principal
functions involve carrying out activities on behalf of, or
providing services to, clients whose interests may conflict, or
who otherwise represent different interests that may conflict,
including those of the firm;

(iii)
the removal of any direct link between the remuneration of
relevant persons principally engaged in one activity and the
remuneration of, or revenues generated by, different
relevant persons principally engaged in another activity,
where a conflict of interest may arise in relation to those
activities;

(iv)
measures to prevent or limit any person from exercising
inappropriate influence over the way in which a relevant
person carries out services or activities; and

(v)
measures to prevent or control the simultaneous or
sequential involvement of a relevant person in separate
services or activities where such involvement may impair the
proper management of conflicts of interest.

(5)
If the adoption or the practice of one or more of those measures and
procedures does not ensure the requisite level of independence, a common
platform firm and a management company must adopt such alternative or
additional measures and procedures as are necessary and appropriate for
the purposes of paragraph (1)(b).