FINAL NOTICE

To:
ICAP Europe Ltd

ACTION

1.
For the reasons given in this notice, the FCA imposes on ICAP Europe Ltd
(“IEL”) a financial penalty of £14 million in accordance with section 206
of the Financial Services and Markets Act 2000 (the “Act”).

2.
IEL agreed to settle at an early stage of the FCA’s investigation and
therefore qualified for a 30% (Stage 1) discount under the FCA’s
executive settlement procedures. Were it not for this discount, the FCA
would have imposed a financial penalty of £20 million on IEL.

SUMMARY OF REASONS

3.
The London Interbank Offered Rate (“LIBOR”) is a benchmark reference
rate that is fundamental to the operation of both the UK and international
financial markets, including markets in interest rate derivatives contracts.

4.
The integrity of benchmark reference rates such as LIBOR is therefore of
fundamental importance to both the UK and international financial
markets.

5.
Between 17 October 2006 and 25 November 2010 (the “Relevant
Period”), IEL breached Principles 5 and 3 of the FCA’s Principles for
Businesses in that a number of its employees sought to manipulate the
Japanese yen (“JPY”) LIBOR submissions made by various banks that
contributed to the calculation of published LIBOR rates (“Panel Banks”).

2

6.
IEL, through its Brokers, colluded with traders at UBS AG (“UBS”) as part
of a co-ordinated attempt to manipulate JPY LIBOR submissions made by
Panel Banks. IEL Brokers’ misconduct risked undermining the integrity of
the JPY LIBOR benchmark reference rate.

A. Principle 5 breaches: attempts to manipulate JPY LIBOR rates

7.
IEL acted improperly and breached Principle 5 by failing to observe
proper standards of market conduct. IEL breached Principle 5 in that a
number of its Brokers colluded with two UBS traders and attempted to
manipulate the final published JPY LIBOR rate by seeking to influence
submissions made by other Panel Banks to levels requested by the UBS
traders. Certain Brokers understood that traders at UBS were seeking to
manipulate JPY LIBOR in order to improve the profitability of their trading
positions.

8.
IEL’s Brokers were in regular contact with Panel Banks. This included the
provision of a daily email “Run-Through,” whereby one IEL Broker
provided Panel Banks with his assessment (purportedly based on the
knowledge he had gained through his broking of transactions in the
market and his general view of the market) of the correct level of JPY
LIBOR. Some IEL Brokers believed that Panel Banks treated the Run-
Throughs as an important element to be taken into account when making
daily LIBOR submissions.

9.
Some IEL Brokers believed that the degree of reliance placed on its Run-
Throughs by Panel Banks increased significantly during the financial
crisis, because there were very few interbank cash transactions on which
to base LIBOR submissions. The IEL Broker who principally sent the
Run-Throughs was so certain of his status in the market with regard to
his assessment of the correct level of LIBOR that he referred to himself
as “Mr Libor” or even “Lord Libor.”

10.
IEL Brokers colluded with traders at UBS to manipulate the JPY LIBOR
rates for UBS’s benefit. In particular on or around dates on which the
level of JPY LIBOR was of particular significance for these traders:

i.
IEL Brokers emailed deliberately skewed Run-Throughs to some
Panel Banks; and

ii.
IEL Brokers directly requested certain Panel Banks to make
specific JPY LIBOR submissions that would benefit the traders.

11.
The IEL Brokers helped the UBS traders because UBS was a significant
client which accounted for a substantial proportion of the revenue of the
relevant desk. In particular, Trader A’s value to IEL was not limited to
the revenue which he personally generated. Trader A made it possible
for IEL to facilitate numerous trades for other clients by acting as a
counterparty for those trades. Had Trader A not been willing to provide
“a lot of liquidity” by acting as a counterparty, then IEL would have lost
out on the substantial commissions gained from those trades.

12.
In addition, one IEL Broker, who was central to the collusion, received (at
the instigation of one manager) £5,000 per quarter in corrupt bonus

3

payments, which were paid to him as an allocation from the bonus pool
of the relevant desk to reward him for his efforts in influencing Panel
Banks’ JPY LIBOR submissions.

13.
IEL Brokers colluded and schemed with Trader A to try to manipulate the
JPY LIBOR rates without getting caught. Three Brokers (including one
manager) were central to the collusion, although at least seven other
individuals (including another manager) spanning three desks also
participated. The collusion continued with another trader at UBS even
after Trader A had left.

14.
In total, UBS made at least 330 written requests to IEL Brokers during
the Relevant Period. UBS also made oral requests, which by their nature
are not documented and so cannot be counted precisely. Although IEL
Brokers did not always accommodate the requests of UBS traders, they
often followed them, particularly when Trader A had large fixings or when
the firm’s commissions or the Brokers’ individual bonuses were
threatened. On occasion, Brokers also sought to manipulate Panel Banks’
JPY LIBOR submissions, without a direct request from traders at UBS, if
they thought that doing so would benefit their trading positions.

15.
IEL’s breaches of Principle 5 were extremely serious. Its misconduct
gave rise to a risk that the published LIBOR rates would be manipulated
and the integrity of those rates undermined. Brokers’ manipulation of
Run-Throughs increased the risk of manipulation of the published JPY
LIBOR rates because they were sent to several Panel Banks. The
averaging process applied to submissions as part of the calculation of the
published rate means that the risk of manipulation is greater if more than
one Panel Bank’s submission has been manipulated.

B. Principle 3 breaches: systems and controls failings

16.
IEL breached Principle 3 throughout the Relevant Period by failing to
have adequate risk management systems or effective controls in place to
monitor and oversee its broking activity.

17.
While IEL’s senior management might not have been expected to foresee
the specific misconduct that occurred, the firm failed to have adequate
systems and controls in place during the Relevant Period to address the
general risk of collusion between IEL Brokers and their clients (which
included the risk of Brokers over-accommodating their clients).

18.
Although IEL had certain policies and procedures in place to govern
individual Broker behaviour in general, these policies and procedures
were inadequately designed, and in cases of Broker collusion, were easily
circumvented.

19.
During the Relevant Period, IEL failed to adequately review the Brokers’
communications for compliance issues generally or place any compliance
staff on the broking floors.

20.
At certain times during the Relevant Period, one Broker, who had only
one client, worked in an overseas IEL office which had no Compliance
staff and was in a different country from the two different desks to which

he reported. No steps were taken to mitigate the risk of this
arrangement.

21.
IEL’s managers were responsible for day-to-day misconduct monitoring
and reporting and were the first line of defence against Broker
misconduct. This line of defence was ineffective where those managers
failed to report misconduct to the firm’s Compliance department or were
involved in their desk’s misconduct.

22.
IEL also had a policy under which individual desks within the firm were
periodically audited for compliance issues. However, during the Relevant
Period, no audit of the desk at the centre of the misconduct (the JPY
Derivatives Desk) was carried out.

23.
IEL’s lack of adequate systems, controls, supervision and monitoring
throughout the Relevant Period meant that this misconduct went
undetected and continued throughout the Relevant Period.

24.
The integrity of benchmark reference rates such as LIBOR is of
fundamental importance to both UK and international financial markets.
The misconduct of IEL’s Brokers could have caused serious harm to other
market participants. The Brokers’ misconduct also risked undermining
the integrity of LIBOR and threatened confidence in and the stability of
the UK financial system. The misconduct of certain Brokers was routine,
widespread and condoned by managers. The Brokers engaged in this
serious misconduct in order to serve their own interests. The duration
and extent of their misconduct was exacerbated by IEL’s inadequate
systems and controls.

25.
The FCA therefore considers it is appropriate to impose a very significant
financial penalty of £20 million on IEL in relation to its breaches of
Principles 3 and 5 during the Relevant Period.

DEFINITIONS

26.
The following definitions are used in this Notice (whether capitalised or
not):

“Act” means the Financial Services and Markets Act 2000, as amended by
the Financial Services Act 2012.

“BBA” means the British Bankers’ Association.

“Broker” or “Brokers” means an interdealer broker or brokers who acted
as intermediaries in, amongst other things, deals for funding in the cash
markets and interest rate derivatives contracts. Brokers 1-8 are
specifically referred to in this notice.

“DEPP” means the FCA’s Decision Procedure & Penalties Manual.

5

“FCA” means the Financial Conduct Authority, which was, until 1 April
2013, known as the Financial Services Authority.

“FCA Handbook” means the FCA Handbook of rules and guidance.

“GBP” means pound sterling.

“IEL” means ICAP Europe Ltd.

“IEL’s Cable Desk” or “Cable Desk” means the desk at IEL responsible for
facilitating trades for institutional clients in relation to pound sterling
forward currency exchange products (referred to as “Cable” products).

“IEL’s Cash Desk” or “Cash Desk” means the desk at IEL responsible for
facilitating trades for institutional clients in relation to physical cash
denominated in various currencies, including JPY.

“IEL’s JPY Derivatives Desk” or “JPY Derivatives Desk” means the desk at
IEL responsible for facilitating trades for institutional clients in relation to
JPY derivatives products.

“JPY” means Japanese Yen.

“LIBOR” means London Interbank Offered Rate.

“Manager” means an IEL Broker with direct line day-to-day management
responsibility over other Brokers.

“Panel Bank” or “Panel Banks” means the contributing banks that
submitted LIBOR rates to the BBA in one or more currencies. UBS and
Panel Banks A to D were JPY LIBOR Panel Banks and are referred to in
this notice. At least two JPY LIBOR Panel Banks other than UBS were
contacted by IEL Brokers in connection with their efforts to manipulate
LIBOR.

“Relevant Period” means 17 October 2006 to 25 November 2010.

“Run-Through” means the daily information IEL Brokers provided to their
clients concerning bid and offer prices for cash as well as suggestions as
to where the Brokers believed the published LIBOR rate would set for
that day.

“Trader A” is an interest rate derivatives products trader employed by
UBS.

“Tribunal” means the Upper Tribunal (Tax and Chancery Chamber).

“UBS” means UBS AG.

“USD” means US Dollar.

6

FACTS AND MATTERS

LIBOR and interest rate derivatives contracts

27.
LIBOR is the most frequently used benchmark for interest rates globally;
it is referenced in transactions with a notional outstanding value of at
least USD 500 trillion.

28.
LIBOR is currently published for five currencies with seven maturities,1
although the majority of financial contracts use only a small number of
currencies and maturities. JPY is a widely used currency and one, three
and six months are commonly used maturities.

29.
LIBOR was published at the relevant time on behalf of the BBA. LIBOR
(in each relevant currency) is set by reference to the assessment of the
interbank market made by a number of Panel Banks. Panel Banks are
selected by the BBA and each Panel Bank contributes LIBOR rate
submissions each business day. These submissions are not averages of
the relevant Panel Banks’ transacted rates on a given day. Rather,
LIBOR requires Panel Banks to exercise their judgement in evaluating the
rates at which money may be available to them in the interbank market
when determining their submissions.

30.
Interest rate derivative contracts typically contain payment terms that
refer to benchmark rates. LIBOR is by far the most prevalent benchmark
rate used in over-the counter interest rate derivatives contracts and
exchange traded interest rate contracts.

Definition of LIBOR

31.
The definition of LIBOR sets out the precise nature of the judgement
required from Panel Banks when determining their submissions. Since
1998, the LIBOR definition published by the BBA has been as follows:
“The rate at which an individual contributor panel bank could borrow
funds, were it to do so by asking for and then accepting interbank offers
in reasonable market size just prior to 11:00 London time.”

32.
The definition requires Panel Banks to make their own submissions. The
definition does not allow for consideration of factors unrelated to
borrowing or lending in the interbank market.

33.
During the Relevant Period (particularly during the financial crisis), there
was very little interbank lending to guide LIBOR submitters at Panel
Banks. Submitters at those Panel Banks therefore came to rely

1 Prior to publication of the Wheatley Review in September 2012, LIBOR was published for 10

currencies with 15 maturities.

7

increasingly on Broker-provided market colour and Run-Throughs to
inform their LIBOR submissions.

34.
Indeed, one JPY LIBOR submitter (who later became a Broker) described
the environment as follows: “I would say that most banks prefer to ask a
broker where the other banks will set their [LIBOR rates, and] match
theirs accordingly.”

35.
This practice was questionable. Indeed, BBA guidance released in
November 2009, explicitly stated that Panel Banks should not ask
brokers were they believe LIBOR rates will fix as a basis for their
submissions.

IEL’s role in the financial markets and LIBOR

36.
IEL acts as a voice and electronic Broker for institutional clients
transacting in the wholesale financial markets. During the Relevant
Period, IEL’s main role as a Broker was to bring together counterparties
to execute trades in return for commissions and where necessary,
provide information to clients.

37.
The information IEL Brokers provided to their clients included advice as
to where they believed the published LIBOR rates would set on particular
days.

38.
As a Broker, IEL, among other things, helps facilitate interbank funding
by introducing and assisting clients (including Panel Banks) to negotiate:
(i) deposits and loans; and (ii) trades in relation to interest rate
derivatives products that are directly referenced to LIBOR rates. This
provides IEL with particular market insight into cash trading prices and
expected LIBOR rates. Based on this insight, IEL is able to provide their
clients (including Panel Banks) with suggestions (in Run-Throughs) as to
where LIBOR will set on particular dates.

IEL’s internal structure

39.
IEL is (and was during the Relevant Period) organised by various “desks”
of Brokers. Each desk specialises in facilitating trades in different
currencies and financial products on behalf of its respective clients.

40.
IEL’s JPY Derivatives Desk is responsible for facilitating trades for
institutional clients (including Panel Banks) in relation to JPY derivatives
products. Throughout the Relevant Period, the JPY Derivatives Desk was
comprised of at least five Brokers, including Brokers 1, 2, 5 and 6. The
JPY Derivatives Desk distributed a portion of the desk’s net revenue as a
bonus paid to each Broker on the desk.

41.
IEL’s Cash Desk is responsible for facilitating trades for institutional
clients (including Panel Banks) in relation to cash instruments in various
currencies, including JPY. Two Brokers on the Cash Desk (Brokers 3 and
4) participated in Trader A’s attempts to manipulate LIBOR.

42.
IEL’s Cable Desk is responsible for facilitating trades for institutional
clients (including Panel Banks) in relation to pound sterling/US dollar spot

and forward exchange transactions. Trader A made requests to two
individuals on the Cable Desk (Brokers 7 and 8) as part of his attempts
to manipulate LIBOR.

B. Principle 5 breaches: attempts to manipulate JPY LIBOR rates

IEL and Trader A

43.
Trader A was one of the JPY Derivatives Desk’s most significant clients.
He worked at UBS throughout most of the Relevant Period. Trader A’s
trading positions were principally interest rate derivatives contracts
whose underlying payment obligations were determined by the published
one, three and six month JPY LIBOR rates on particular fixing dates.

44.
Trader A appealed to Broker 1 to collude with him to try to influence
Panel Banks’ JPY LIBOR submissions and thereby influence in his favour
the overall published JPY LIBOR rates.

45.
Brokers on the JPY Derivatives Desk, in particular Brokers 1 and 2,
wanted to assist Trader A because Trader A and UBS were significant
clients of the JPY Derivatives Desk. Whilst Trader A was at UBS:

i.
UBS was the JPY Derivatives Desk’s largest client and on
average accounted for approximately 22% of the Desk’s
revenue (although at times, this was more than 30%);

ii.
Trader A was the JPY Derivatives Desk’s largest individual client
(and third largest overall client) and on average accounted for
around 12% of the Desk’s revenue, (although at times, this was
more than 20%); and

iii.
IEL’s brokers understood that the agreement in place to cover
trades facilitated by IEL for Trader A was one of UBS’ most
expensive fixed fee agreements at the time.

46.
Initially, Brokers 1 and 2 persuaded Broker 3 to participate in the
collusion in exchange for: (i) meals and champagne; (ii) a percentage of
certain commissions IEL gained from transactions brokered by the JPY
Derivatives Desk; and (iii) Trader A’s agreement on one occasion to enter
into a trade with a client of Broker 3, at a favourable rate “just for
[Broker
3]”,
thereby
allowing
Broker
3
to
earn
commission.

Subsequently, Broker 3, demanded additional compensation to assist
Trader A. Trader A’s value to IEL was not limited to the revenue for
which he personally accounted. He also made it possible for IEL to
facilitate numerous trades for other clients by acting as a counterparty
for those trades. This was particularly important during the financial
crisis. Had Trader A not been willing to provide “a lot of liquidity” by
acting as a counterparty for those trades, then IEL would have lost out
on the substantial commissions it gained from those trades.

47.
Although the commission IEL received from UBS in relation to trades it
facilitated for Trader A was fixed by contract, the corresponding

commission IEL could receive from the other counterparties to those
trades was not. Indeed, at times, the commission paid by these other
counterparties could be much more than the amount IEL received from
Trader A as commission for that transaction.

48.
Additionally, because part of the compensation awarded to the JPY
Derivatives Desk’s Brokers was in the form of a bonus calculated as a
share of the Desk’s total revenue, everyone on the desk (and especially
Brokers 1 and 2, who received larger bonuses) was incentivised to keep
Trader A happy so that IEL could retain Trader A’s business. Brokers 1, 2
and 5 were further incentivised to help Trader A because the three
shared their commissions, including commissions they received from
Trader A.

49.
On occasion, Trader A threatened to stop using IEL if the Brokers failed
to accommodate his requests.

50.
Broker 3 was a cash Broker with long-standing and close relationships
with individuals at a number of Panel Banks, including JPY LIBOR
submitters at some of those Panel Banks. Broker 3 communicated
regularly with some of those submitters about their and other Panel
Banks’ intended JPY LIBOR submissions. Broker 3 used this and other
market colour to assess where he believed the published JPY LIBOR rates
would set each day and then circulated that assessment in a daily email
(a Run-Through) containing JPY LIBOR suggestions that purported to be
based on objective market colour. This email was typically sent to
Broker 3’s clients several hours before Panel Banks made their actual
LIBOR submissions, and accordingly could be useful to submitters at
Panel Banks trying to determine what JPY LIBOR rates they should
submit.

51.
Some IEL Brokers believed that Panel Banks treated the Run-Throughs as
an important element to be taken into account when making daily LIBOR
submissions. The IEL Broker who principally sent the Run-Throughs out
was so certain of his status in the market with regard to his assessment
of the correct level of LIBOR that he referred to himself as “Mr Libor” or
even “Lord Libor.”

52.
Broker 1 and possibly also Broker 3 believed that during the financial
crisis certain Panel Banks (including Panel Banks that did not directly
receive them) were “copying” Broker 3’s Run-Throughs “across all
periods” because, in part, traders and submitters at those Panel Banks
believed that the JPY LIBOR suggestions in Broker 3’s Run-Throughs
were accurate reflections of actual bid and offer prices for JPY cash trades
and other market data.

Establishing the IEL Broker-Trader A scheme

53.
At first, to help him to decide what trading positions he should take,
Trader A regularly asked Brokers 1 and 2 to seek Broker 3’s opinion on
where the overall published JPY LIBOR rates would set on particular days,

which was based in part on Broker 3’s knowledge of what JPY LIBOR
rates individual Panel Banks would be submitting

54.
But despite being provided with this advance market colour, around
September 2006 Trader A became increasingly concerned about certain
interest rate derivatives trading positions he held that were about to fix,
because the published JPY LIBOR rates at that time were moving against
him.

55.
To address these concerns, Trader A and Broker 1 decided to enlist the
help of Broker 3 to help Trader A make profits or reduce losses on his
positions by trying to influence the JPY LIBOR submissions of other Panel
Banks on or around Trader A’s fixing dates. As a result Broker 1 and
Broker 2 persuaded Broker 3 on occasion to:

i.
email skewed Run-Throughs to Panel Banks; and

ii.
leverage his relationships with certain submitters at Panel
Banks to try to persuade those individuals to make certain JPY
LIBOR submissions (for the purpose of benefitting Trader A’s
trading positions).

56.
To augment the actions of Broker 3, Broker 1 regularly contacted a
submitter he knew at a Panel Bank and suggested that he make JPY
LIBOR submissions that were consistent with the skewed Run-Throughs
of Broker 3.

57.
Starting from 17 October 2006, Trader A was routinely asking IEL
Brokers to influence other Panel Banks to benefit his trading positions
and in response to some of his requests the Brokers did some or all of
the above in attempts to help Trader A and thereby profit from Trader A’s
and UBS’s business. At a later point in time Trader A also contacted an
IEL Broker he knew on IEL’s Cable Desk (Broker 7) and asked him to use
his JPY submitter contact at Panel Bank D to get him to make JPY LIBOR
submissions to benefit Trader A’s trading positions.

58.
But as the frequency of Trader A’s requests increased, Broker 3
demanded more substantial compensation. For example:

i.
On 18 April 2007, Broker 3 emailed Broker 2, stating: “With
[UBS] how much does [Trader A] appreciate the yen libor
scoop? It seems to me that he has all his glory etc and u guys
get his support in other things. I get the drib and drabs.” In
that email, Broker 3 then requested “some form of performance
bonus per quarter from your . . . bonus pool to me for the libor
service.”

ii.
The following day, Broker 3 sent another email to Broker 2
threatening “LIBORS NO MORE,” if he did not receive sufficient
compensation. Broker 3 added that “As far as I was concerned
[Trader A] was paying for the libor assist for my assistance” and
that were he not to be compensated properly, there would be
“no more mr libor.”

59.
Because Brokers 1 and 2 believed that Broker 3 was critical to the
success of the scheme, they agreed (with Trader A’s support) to pay him
a “LIBOR services” bonus or “fixing service” bonus as a reward. The
bonus money was derived from UBS’s brokerage commission and was
allocated to Broker 3 out of the JPY Derivatives Desk’s bonus pool. From
June 2007 to September 2009, Broker 3 received £50,000 (£5,000 per
quarter) in bonus payments, which the three Brokers knew to be corrupt.

60.
Once Broker 3 was informed that he would receive this bonus, there was
no uncertainty as to what was expected of him. Broker 1 later recounted
to Broker 2 that he had told Broker 3 that IEL and Trader A would “line
[Broker 3]’s pockets,” and that, in exchange, they expected him to do
such things as “keep[ing] 6mos libor up” by sending out JPY Run-
Throughs “higher” than Broker 3’s “genuine opinion” of where JPY LIBORs
would set that day.

Operation of the IEL Brokers-Trader A scheme

61.
Having established the scheme, the IEL Brokers and Trader A put it into
operation. Trader A would approach the Brokers with the published JPY
LIBOR rates he wanted them to seek to achieve. Typically, Trader A
made his requests to Broker 1 (or if Broker 1 was unavailable, then one
of at least six other members of the JPY Derivatives Desk). Trader A
assumed that his request would be passed to Broker 3 so that Broker 3
could skew his JPY LIBOR Run-Through to reflect Trader A’s requests or
directly ask his contacts at Panel Banks to make submissions consistent
with Trader A’s requests. On a limited number of occasions, Trader A
also made his requests directly to Broker 3.

62.
The examples below show Trader A’s approaches to IEL Brokers:

i.
On 24 October 2006, Trader A emailed Broker 1, explaining that
he had large fixing dates in the coming days and would benefit
from the six month JPY LIBOR rate remaining high: “on weds
have 100b[billion] 6m[month] fix, on mon another 100b 6m fix,
Tuesday another 100b fix and . . . on thurs next week 200b 6m
fix all received libor so really really need 6m to stay high pls.”
Broker 1 relayed Trader A’s preferences to Broker 3, stating:
“Realise it might be getting harder but need 6 month kept as
high as possible....tomorrow I [meaning Trader A] have a
massive fix, today just large!”

ii.
On 10 September 2007, Trader A informed Broker 1 that he
“need[ed] high at the start of oct” and thereafter he wanted the
Brokers to “push for lower fixes.” Broker 1 replied, “gotcha . . .
just give me a ‘wish list’ at the start of each day and I will
compose a begging letter to [Broker 3] after lunch.”

iii.
On 21 September 2007, Broker 1 emailed Broker 3, thanking
him for his Run-Through on 20 September and then asking him
as follows: “[C]ould you do your best to hold these as low as
possible please. I realise the pressure is on the top side at the
moment but if you should send them out lower than you reckon

they should be it would be a great help . . . I [meaning Trader
A] have a very large 6mos exposure especially.”

iv.
On 15 August 2008, Trader A told Broker 1 that “today is the
last day I need a high 6m . . . after that I need it as low as poss
. . . really need low 3m tonight.” In response to the request for
the low three month submission, Broker 1 informed Trader A
that Broker 3 “has sent out down 1bp [basis point].” Following
up on Trader A’s request for submissions “as low as poss” after
15 August, Broker 1 texted Broker 3 on 28 August to remind
Broker 3 that Trader A “need[ed] a massive favour today and
[that Broker 3 should] send out [his] run through lower than it
should be [because Trader A] has massive exposure in all
periods.”

63.
In response to receiving Trader A’s requests directly or indirectly, Broker
3 on a significant number of occasions skewed the JPY Run-Throughs
directly or communicated with traders and submitters at Panel Banks to
request that they make particular JPY LIBOR submissions.

64.
Broker 3 agreed that he accommodated Trader A’s and Broker 1’s
requests only on a limited number of occasions (the FCA has concluded
that there were at least 20 occasions), but claimed that he only did so
within what he perceived to be a reasonable range. However, Broker 3’s
communications indicate that at times, his LIBOR suggestions were
outside of the range of what he perceived to be reasonable (see example
at paragraph [66] below). Further, it appears that Broker 3’s reasonable
range encompassed only LIBOR suggestions that were not “…too far from
the truth [as otherwise] banks [would] tend to ignore him.”

65.
Of these methods, Broker 3 more frequently tried to indirectly influence
Panel Banks by skewing his JPY Run-Through. Indeed, even when Broker
3 received Trader A’s LIBOR requests after he had circulated IEL’s Run-
Through, he was (on occasion) willing to resend a “revised” Run-Through
that incorporated Trader A’s requests. For example:

i.
In his Run-Through of 28 June 2007, Broker 3 suggested a six
month JPY LIBOR rate of “0.86.” But this suggested LIBOR rate
did not benefit Trader A’s trading positions. Noting this, Broker
1 said to Broker 2: “this is getting serious [Trader A] is not
happy with the way things are progressing. . . . Can you please
get hold of [Broker 3] and get him to send out 6 mos libor at
0.865 and to get his banks setting it high. This is very
important because [Trader A] is questioning my (and our)
worth.” Broker 2 then emailed and spoke to Broker 3 to
emphasise that “the carrot might go if this carries on” (meaning
if Broker 3 again failed to accommodate Trader A’s requests,
then he might lose his bonus or additional benefits). Broker 3
apparently took this threat seriously and resent a “revised
libors” list that suggested a six month JPY LIBOR rate of
“0.865.”

ii.
On 4 September 2007, in an email titled “3mos libor going to
the moon!,” Broker 1 emailed Broker 3, asking Broker 3 to

suggest a three month JPY LIBOR rate that was “higher” than
the previous day. In response, Broker 3 told Broker 1 that he
thought that “3M shud be 95.” Nevertheless, Broker 1 asked
Broker 3 to “[t]ry and send out 96 if you can please.” Despite
the fact that this was higher than Broker 3 believed LIBOR
would be, he agreed to accommodate Trader A’s request,
stating “[of] course” and first sent out a Run-Through
suggesting three month JPY LIBOR of “0.96” and then shortly
thereafter, sent a revised Run-Through suggesting “0.98.”

66.
It appears that on occasion, Broker 3 also communicated directly with
traders and submitters at Panel Banks to attempt to influence their JPY
LIBOR submissions. For example, on 27 February 2008, the following
exchanges took place:

i.
Broker 1 informed Broker 3 of Trader A’s request, stating
“[n]eedless to say have a rather large fixing in 3mos and would
really like to see it get dragged up a couple of bps.” Broker 3
then informed Broker 1 that although he “can’t really see it
going up by 2bps [because] 3mos has been pretty flat all month
[and] [h]asn’t gone above 90 as far as [he] can remember,” he
had still “moved 6m up today” to assist Trader A.

ii.
After Broker 1 thanked Broker 3 in advance for “work[ing] his
magic,” Broker 3 sent out a suggested three month JPY LIBOR
rate of “0.92” (which was 2.5 basis points higher than the
previous day) and a six month rate of “0.98” (which was 2 basis
points higher than the previous day).

iii.
Later that day, a derivatives products trader and a submitter at
Panel Bank D separately questioned the Run-Through. The
trader asked Broker 3: “[Y]ou think 3s will be 92? Where is
that coming from?” Similarly, the submitter asked Broker 3:
“3m cash offer at 88, where does 92 come from??.” Broker 3
tried to assuage their concerns by separately telling the trader
and submitter that there was “a lot of movement in the
forwards this morning” and “good names taken yen cash at 90
and looking for further offers in the market,” even though—
based on Broker 3’s prior communications with Broker 1—that
does not seem to have been the case.

iv.
Trader A informed Broker 1 that he wanted the Brokers to seek
to obtain “low 6’s relative to 3m.” Broker 1 reassured Trader A
that the Brokers would “try and move the 3m more than the 6m
[and that Broker 3] knows what we are after, will remind him
again later.”

v.
Broker 1 conveyed this information to Trader A, and added that
Trader A could “help [him]self out a bit with these libors” if he
could get the submitter at UBS to “move 6m up 2bps,” which
would “affect 1m and 3m” LIBOR rates.

67.
On occasion, Broker 1 would also directly request JPY LIBOR submitters
that he knew to make specific submissions. For example, Broker 1 would

text or call his friend, a submitter at Panel Bank A, to make particular JPY
LIBOR submissions that would have benefitted Trader A. Trader A knew
that Broker 1 had this relationship and would, for example, expressly ask
Broker 1 to see if he could “get your mate at [Panel Bank A] to put 6m
libor up.”

Extent of IEL Brokers’ involvement in the scheme

68.
Although Brokers 1, 2 and 3 were the main IEL Brokers who colluded
with Trader A to attempt to manipulate LIBOR, they were not the only
IEL Brokers involved. Other Brokers on the JPY Derivatives and Cable
Desks assisted Trader A on a number of occasions by:

i.
Passing requests from Trader A to Broker 3 when Brokers 1 or 2
were unable to do so;

ii.
Disseminating skewed Run-Throughs under Broker 3’s name
when Broker 3 was unable to do so; and

iii.
Approaching a contact at Panel Bank D (through Broker 7), to
ask Panel Bank D to ensure that they made particular LIBOR
submissions.

69.
For example:

i.
On 30 October 2006, Trader A asked Broker 5 to “give us a
shout when you get in . . . . can you try to keep 6m libor up
again, I need it high till thurs [2 November 2006] then after I
am out of a lot of these fixes.” Broker 5 replied, “hi [Trader A],
have just had a word with our cash guys and they said they will
be on the case again.”

ii.
On 1 November 2007, Broker 1 asked Broker 6 to appeal to
Broker 4 (who was Broker 3’s cover) to “doctor 6m libor down,”
explaining that it was “v important.” Broker 6 told Broker 1
that although Broker 4 believed that LIBOR was likely to remain
“unchanged,” Broker 4 was nevertheless “working on pushing
them down.” On the previous day (31 October 2007), Broker 4
had sent a Run-Through (under Broker 3’s name) suggesting
that six month JPY LIBOR would set at “0.995.” Despite his
view that the six month rate was likely to remain the same on 1
November, Broker 4 nevertheless sent out a Run-Through
(again, under Broker 3’s name) suggesting a six month JPY
LIBOR rate of “0.95[0]” for 1 November. This was 4.5 basis
points lower than the previous day.

70.
Even after Trader A left UBS, Broker 1 and Broker 3 continued to help
another trader at UBS attempt to manipulate JPY LIBOR. They did this
because Trader A’s trading book remained with UBS and was a source of
significant potential business for IEL. For example, on 11 November
2009, after Trader A had left UBS, Broker 1 expressed his frustration in
an email that UBS was challenging the amount of commission it would
pay to IEL, even though “they are still asking [Broker 3] for ‘arbitrage’
help [a euphemism for helping to manipulate LIBOR rates] (we moved

6m 3/8ths last night, their favour in a static market and the P and L
benefit could easily cover some sort of monthly cap.”

71.
The IEL Brokers’ role in the collusion was not limited to passively
executing Trader A’s requests. Broker 1 also schemed with Trader A
about how Trader A could best manipulate JPY LIBOR without “getting
into shit.” For example:

i.
On 28 February 2008, Broker 1 told Trader A: “[Y]ou were
again the most conservative in your libor moves, you can still
afford to move 6m up without affecting the fix and that would
allow you to move 1m and 3m higher . . .which will affect the
fix.”

ii.
On 15 July 2009, Trader A told Broker 1 that he had a plan to
lower 6 month LIBOR in co-operation with Panel Banks B and C.
On 22 July 2009, Trader A told Broker 1 that the three Panel
Banks were going to put that plan into action. Broker 1
suggested to Trader A that: “[I]f you drop your 6m
dramatically on the 11th mate, it will look v fishy, especially if
[Banks B and C] go with you. I’d be v careful how you play it,
there might be cause for a drop as you cross into a new month
but a couple of weeks in might get people questioning you.”
Trader A reassured Broker 1, “don’t worry will stagger the
drops[,] ie 5bp then 5bp. Us then [Panel Bank C] then [Panel
Bank B] then us then [Panel Bank C] then [Panel Bank B].”
Broker 1 replied, “great the plan is hatched and sounds
sensible. He added that he did not “want [Trader A] getting
into shit.” The next day Broker 1 said to Trader A, “nice
knowing you have the “3 top fixers all onside in the 6m it can
really shift [the published LIBOR rates].”

Principle 5 - conclusion

72.
In total, during the Relevant Period, Trader A made at least 330 JPY
LIBOR requests to IEL Brokers, with the intention that those requests
would be relayed to Broker 3 (or his cover on the Cash Desk) or Panel
Banks directly. These requests included:

i.
At least 278 JPY LIBOR requests to Broker 1 (one of which was
also directed to Broker 2);

ii.
At least 11 JPY LIBOR requests to Broker 2 (one of which was
also directed to Broker 1);

iii.
At least 33 JPY LIBOR requests to other Brokers on the JPY
Derivatives Desk;

iv.
At least 5 JPY LIBOR requests to Broker 3; and

v.
At least 3 JPY LIBOR requests to Broker 7.

73.
The calculations above do not include:

i.
Requests that Trader A made to IEL Brokers by telephone
(because, by their nature, such oral requests are undocumented
and therefore cannot be counted precisely); and

ii.
Efforts that Brokers made to assist Trader A without having
received a direct request, which are mostly not documented and
cannot be counted precisely.

74.
Although IEL Brokers did not always accommodate Trader A’s requests,
particularly when they believed that those requests were so unreasonable
that no Panel Bank would follow such suggestions (and even making
them would cost IEL its credibility), IEL Brokers did follow Trader A’s
requests frequently, particularly when Trader A had large fixings or when
the firm’s commissions or the Brokers’ individual bonuses were
threatened.

75.
The Brokers’ motivation for colluding with Trader A to try to manipulate
the published JPY LIBOR rates was to secure additional revenue for the
firm and bonuses for individuals.

C. Principle 3 breaches: systems and controls failings

Inadequate policies and practices

76.
IEL had the following policies and practices in place to monitor the
conduct of its Brokers:

i.
Broker
training
programmes,
run
by
IEL’s
Compliance

department, in which Brokers were enrolled on courses covering
general regulatory and ethical issues, such as market abuse,
personal dealing, bribery and corruption;

ii.
Automated review of written Broker communications, using
standard market abuse terms. This was a practice rather than
a formal policy;

iii.
A range of automated monitoring and trade surveillance
reports;

iv.
Escalation by managers to IEL’s Compliance department of
regulatory concerns. This was governed by the written
standard job description for managers, which included IEL’s
compliance manual and which imposed on all employees the
responsibility
of
“informing
your
managing
director
or

Compliance of any potential compliance issues you become
aware of or have a concern about”; and

v.
Periodic audits of separate desks within IEL.

77.
These policies and practices were insufficiently rigorous. In particular,
and as described below, they were not supplemented by effective hands-

on monitoring of the relevant Brokers and review of day-to-day conduct,
and they were easily circumvented.

78.
There was inadequate managerial supervision and oversight of the IEL
Brokers. Managers were expected to report any misconduct on the desk
but no monitoring of the relevant managers was done to ensure that they
did identify and report misconduct. Therefore in circumstances such as
these where managers were themselves complicit in the misconduct, it
went undetected.

79.
For example, at certain times in the Relevant Period, Broker 1 worked in
an overseas ICAP office in which there were no Compliance staff. At
these times, Broker 1 was in a different country from the two different
desks to which he reported (or reasonably should have reported) and had
no effective oversight.

80.
Furthermore, Broker 3 was not effectively supervised. Broker 3’s
purported manager explained that Broker 3 was “almost like his own little
desk” and was unsure whether he was Broker 3’s actual manager or just
responsible for approving Broker 3’s administrative requests (such as
holiday leave).

Lack of Compliance review or audit

81.
IEL also had a policy under which individual desks within the firm were
periodically audited for compliance issues. However, during the Relevant
Period, no audit of the desk at the centre of the misconduct (the JPY
Derivatives Desk) was carried out.

82.
Albeit the Cash Desk was reviewed twice during the Relevant Period and
the Brokers’ misconduct was not discovered, a review or audit of the JPY
Derivatives Desk during the Relevant Period might have revealed:

i.
Broker 1’s frequent discussions with Trader A (Broker 1’s only
client);

ii.
Broker 1 relaying Trader A’s requests to other IEL Brokers and
the fact that those IEL Brokers on occasion took Trader A’s
requests into account;

iii.
The collusion to disseminate skewed Run-Throughs; and

iv.
The lack of effective oversight of certain employees.

83.
Further, a risk-based compliance review or audit might have revealed
that, because Trader A and UBS represented an extremely high
proportion of the JPY Derivatives Desk’s revenue, there was a significant
risk that the JPY Derivatives Desk could be (and indeed was) beholden to
Trader A’s preferences. This risk was exacerbated by the fact that Trader
A was Broker 1’s only client. Indeed, Broker 1 stated as much in an
email he wrote to Broker 2: “I am obviously totally reliant upon [Trader
A’s] business and need to fall into line with his wishes.”

84.
However, for most of the Relevant Period, IEL had no Compliance staff
based on the broking floors and IEL did not conduct a review of the JPY
Derivatives Desk and further, had no Compliance staff at all in one of the
overseas offices from which Broker 1, for a time, colluded with Trader A.

85.
The culture of IEL’s business gave undue weight to revenue generation at
the expense of regulatory requirements. IEL’s employees and managers
were incentivised to focus heavily on revenue and this created a poor
compliance culture within the firm.

86.
For example, Brokers 1 and 2 have explained that it was unlikely that an
IEL Broker would ever escalate to their Compliance department (or to the
FCA) concerns about a client. Broker 1 said that it was not “realistic” to
expect him to report Trader A’s actions. He said, “I don’t see any benefit,
other than the fact we’d lose a line” and “It’s not up to me. I’m not a
regulator . . . . I think if brokers brought everything to [regulators] then
the brokers would end up having no clients . . . . .”

87.
One manager who was complicit in the collusion said, “I go to
Compliance, [and if a Trader] gets sacked, how many more lines have I
got the next day? You have no lines . . . . If you’re known as a grass to
traders, you’re not going to do very well in terms of how many people
want to talk to you . . .”

88.
In conclusion, IEL failed to design or implement systems and controls
that were adequate to detect the widespread and prolonged misconduct
in relation to LIBOR. This failing, combined with a poor compliance
culture within the firm, exacerbated the duration and extent of the IEL
Brokers’ misconduct during the Relevant Period.

89.
ICAP plc made significant improvements to IEL’s systems and controls at
the end of the Relevant Period in late 2010, as a result of a section 166
skilled persons report and implementation programme.

FAILINGS

90.
The regulatory provisions relevant to this Final Notice are referred to in
Annex A.

91.
Principle 5 of the FCA’s Principles for Businesses requires a firm to
observe proper standards of market conduct.

92.
IEL, acting through two managers and the IEL Brokers, failed to observe
proper standards of market conduct (and thereby breached Principle 5)
on numerous occasions during the Relevant Period. IEL committed these
breaches through the acts of IEL Brokers, on or around the fixing dates
for Trader A’s interest rate derivative positions, and in order to benefit
those positions:

i.
Through
skewed
Run-Throughs,
indirectly
or
directly

disseminating to Panel Banks suggested JPY LIBOR rates that
were knowingly misleading;

ii.
Requesting that submitters at Panel Banks make particular JPY
LIBOR submissions; and

iii.
Asking contacts at Panel Banks to ensure that those Panel
Banks made particular JPY LIBOR submissions.

93.
The Brokers’ intentions in committing this misconduct were to secure
additional revenue for IEL and bonuses for its employees. This
misconduct was carried out openly and involved IEL managers.

94.
IEL’s breach of Principle 5 created a significant and unacceptable risk that
the published JPY LIBOR rates would be manipulated and the integrity of
LIBOR would be impugned.

95.
Principle 3 of the FCA’s Principles for Businesses requires a firm to take
reasonable care to organise and control its affairs responsibly and
effectively, with adequate risk management systems.

96.
IEL breached Principle 3 throughout the Relevant Period by failing to
have adequate risk management systems or effective controls in place to
monitor and oversee the relevant broking activity. There were serious
deficiencies with IEL’s policies and practices, there was inadequate
oversight of certain Brokers, there was no review by Compliance or audit
of the relevant part of the business and the culture within the firm was
poor.

97.
Routine and widespread misconduct by IEL Brokers was allowed to
continue unchecked throughout the Relevant Period. Some managers
knew about and participated in the misconduct.

98.
IEL’s lack of adequate systems and controls exacerbated the duration
and extent of Brokers’ misconduct during the Relevant Period.

SANCTION

99.
The FCA’s policy on the imposition of financial penalties and public
censures is set out in the FCA’s Decision Procedure & Penalties Manual
(“DEPP”). The detailed provisions of DEPP are set out in Annex A.

100.
In determining the financial penalty, the FCA has had regard to this
guidance. The FCA’s current penalty regime applies to breaches that
take place on or after 6 March 2010. However, most of the Relevant
Period falls under the previous penalty regime, so DEPP in its pre-6
March 2010 form has been applied. The FCA has also had regard to the
provisions of the FCA’s Enforcement Manual (“ENF”) relevant to the pre-
28 August 2007 part of the Relevant Period.

101.
The FCA considers the following DEPP factors to be particularly important
in assessing the sanction.

Deterrence - DEPP 6.5.2G(1)

102.
The principal purpose of a financial penalty is to promote high standards
of regulatory and 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. The FCA
considers that the need for deterrence means that a very significant fine
on IEL is appropriate.

Nature, seriousness and impact of the breach - DEPP 6.5.2G(2)

103.
IEL’s breaches were extremely serious. The misconduct of IEL Brokers
took place repeatedly over several years and encompassed a number of
incidents that involved a significant number of employees (including two
managers) on a number of desks. Indeed, during the Relevant Period, it
was considered to be a normal and acceptable business practice on IEL’s
JPY Derivatives Desk to attempt to manipulate LIBOR for the benefit of
Trader A and UBS. In total, at least ten individuals (including two
managers) on three desks participated in the attempts to manipulate
LIBOR. The misconduct leveraged Trader A’s efforts to manipulate JPY
LIBOR by influencing a much larger number of Panel Banks than he could
influence himself.

104.
The
misconduct
included
the
deliberate
dissemination
of
false

suggestions of appropriate LIBOR rates to Panel Banks as part of a co-
ordinated attempt to manipulate JPY LIBOR submissions made by Panel
Banks.

105.
There were also serious weaknesses in IEL’s systems and controls
throughout the Relevant Period.

106.
LIBOR is a benchmark reference rate in a number of relevant markets,
including markets in over-the-counter and exchange-traded derivatives
contracts. LIBOR also has a wider impact on other markets. The
integrity of benchmark reference rates such as LIBOR is of fundamental
importance both to UK and international financial markets. The
misconduct of IEL Brokers threatened the integrity of those benchmarks
and confidence in, and the stability of, the UK financial system.

107.
The Brokers could have caused serious harm to other market participants
if the published LIBOR rates were affected by their actions on any given
day. The Brokers sent out skewed Run-Throughs they believed Panel
Banks would rely upon. They also targeted specific Panel Banks to
attempt to influence their submissions. IEL Brokers could have
potentially affected a large number of Panel Banks’ submissions, and
therefore increased Trader A’s chances of affecting the overall published
LIBOR rates than any individual Panel Bank or trader acting on their own.

The extent to which the breach was deliberate or reckless - DEPP
6.5.2G(3)

108.
The FCA does not conclude that IEL (as a firm) engaged in deliberate
misconduct. Nevertheless, the improper actions of a number of IEL
Brokers involved in the misconduct were deliberate. IEL, because of a

poor culture and weak systems and controls, failed to prevent the
deliberate, reckless and frequently blatant actions of its employees.

The size, financial resources and other circumstances of the firm - DEPP
6.5.2G(5)

109.
Although IEL is not as big or well-resourced as a major bank, it is one of
the biggest, most sophisticated and well-resourced interdealer brokerage
firms in the UK. Serious breaches committed by a firm such as IEL merit
substantial penalties.

The amount of benefit gained or loss avoided - DEPP 6.5.2G(6)

110.
IEL Brokers sought to influence Panel Banks’ LIBOR submissions in order
to assist one of their clients (UBS) and thereby secure additional
commission for themselves. During the Relevant Period, IEL received
from UBS approximately £2 million in fixed fee commission income for
trades the JPY Derivatives Desk facilitated for Trader A. Having received
this commission, Brokers 1 and 2 allocated a total of £50,000 (10
payments of £5000) in corrupt bonuses to Broker 3 for his assistance
with the collusion.

111.
This does not include commission income IEL might have received from
its other clients as a result of Trader A’s willingness to serve as a
counterparty to trades IEL facilitated for those other IEL clients. The FCA
estimates that this amount was equal to, and perhaps twice, the amount
IEL received from UBS during the Relevant Period.

Conduct following the breach - DEPP 6.5.2G(8)

112.
In determining the appropriate level of penalty, the FCA considered the
level of cooperation provided by IEL during the course of the FCA’s
investigation.

113.
In April 2010, FCA Supervision requested a section 166 review of ICAP
Group’s systems and controls after identifying several key weaknesses in
the Group’s Compliance function, Market Abuse controls, and Governance
arrangements. The review and implementation programme was released
in August 2010, and as a consequence, ICAP plc made significant
improvements to its (and IEL’s) systems and controls commencing at the
end of the Relevant Period, in late 2010. After being made aware of the
Brokers’ misconduct in June 2011, both ICAP plc and IEL made further
improvements to their systems and controls.

Disciplinary record and compliance history - DEPP 6.5.2G(9)

114.
The FCA has taken into account the fact that IEL has no previous
disciplinary history.

Other action taken by the FCA - DEPP 6.5.2G(10)

115.
On 27 June 2012, the FCA issued a final notice against Barclays Bank plc
with respect to the firm’s attempted manipulation of LIBOR. On 19

December 2012 and 6 February 2013, the FCA issued final notices
against UBS AG and The Royal Bank of Scotland plc, respectively, with
respect to those firms’ attempted manipulation of LIBOR. The FCA has
considered IEL’s misconduct relative to these other firms in determining
IEL’s penalty.

Quantum of financial penalty

116.
Taking into account all the factors listed above, in particular the relative
seriousness of the conduct, as compared with Barclays, RBS and UBS and
the size and financial resources of IEL as compared with these three
banks, the FCA has imposed a penalty of £20 million on IEL, which has
been discounted to £14 million because IEL qualified for a 30% stage 1
discount.

PROCEDURAL MATTERS

Decision maker

117.
The decision which gave rise to the obligation to give this Notice was
made by the Settlement Decision Makers.

118.
This
Final
Notice
is
given
under,
and
in
accordance
with

section 390 of the Act.

Manner of and time for Payment

119.
The financial penalty must be paid in full by IEL to the FCA by no later
than 9 October 2013, 14 days from the date of the Final Notice.

If the financial penalty is not paid

120.
If all or any of the financial penalty is outstanding on 10 October 2013,
the FCA may recover the outstanding amount as a debt owed by IEL and
due to the FCA.

121.
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 FCA must publish such information about the matter to
which this notice relates as the FCA considers appropriate. However, the
FCA may not publish information if such publication would, in the opinion
of the FCA, be unfair to you or prejudicial to the interests of consumer.

122.
The FCA intends to publish such information about the matter to which
this Final Notice relates as it consider appropriate.

FCA contacts

123.
For more information concerning this matter generally, please contact
Patrick
Meaney
(+44
(0)20
7066
7420)
or
David
Hayton

(+44 (0)20 7066 1404) at the FCA.

Matthew Nunan
Project Sponsor
FCA Enforcement and Financial Crime Division






ANNEX A

RELEVANT STATUTORY PROVISIONS, REGULATORY REQUIREMENTS AND
FCA GUIDANCE

1.
STATUTORY PROVISIONS

1.1.
The FCA’s statutory objectives, set out in section 2(2) of the Act, are
market confidence, financial stability, consumer protection and the
reduction of financial crime.

1.2.
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.”

1.3.
IEL 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.

2.
REGULATORY PROVISIONS

2.1.
In exercising its power to issue a financial penalty, the FCA must have
regard to the relevant provisions in the FCA Handbook of rules and
guidance (the FCA Handbook).

2.2.
In deciding on the action proposed, the FCA has also had regard to
guidance published in the FCA Handbook and set out in the Regulatory
Guides, in particular the Decision Procedure and Penalties Manual (DEPP).

Principles for Businesses (“PRIN”)

2.3.
The Principles are a general statement of the fundamental obligations of
firms under the regulatory system and are set out in the FCA’s 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. The relevant
Principles are as follows:

2.4.
Principle 3 provides:

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

2.5.
Principle 5 provides:

“A firm must observe proper standards of market conduct.”

Decision Procedure and Penalties Manual (DEPP)

2.6.
Guidance on the imposition and amount of penalties is set out in Chapter 6
of DEPP. Changes to DEPP were introduced on 6 March 2010. Given that

the majority of the misconduct occurred prior to that date, the FCA has
had regard to the provisions of DEPP in force prior to that date.

2.7.
DEPP 6.1.2 provides that the principal purpose of imposing a financial
penalty is to “promote high standards of regulatory and/or market conduct
by deterring persons who have committed breaches from committing
further breaches, helping to deter other persons from committing similar
breaches, and demonstrating generally the benefits of compliant
behaviour.”

2.8.
DEPP 6.5.2 sets out some of the factors that may be taken into account
when the FCA determines the level of a financial penalty that is
appropriate and proportionate to the misconduct as follows:

(1)
deterrence;

(2)
the nature, seriousness and impact of the breach in question;

(3)
the extent to which the breach was deliberate or reckless;

(4)
whether the person on who the penalty is to be imposed is an
individual;

(5)
the size, financial resources and other circumstances of the person
on whom the penalty is to be imposed;

(6)
the amount of benefit gained or loss avoided;

(7)
difficulty of detecting the breach;

(8)
conduct following the breach;

(9)
disciplinary record and compliance history;

(10)
other action taken by the FCA;

(11)
action taken by other domestic or international regulatory
authorities;

(12)
FCA guidance or other published materials; and

(13)
the timing of any agreement as to the amount of the penalty.

2.9.
The FCA has also had regard to the provisions of the Enforcement manual
(ENF) in force prior to 28 August 2007, in relation to misconduct which
occurred prior to that date.