FINAL NOTICE

1.
ACTION

1.1.
For the reasons given in this Final Notice, the Authority hereby imposes on Mr Kent

a financial penalty of £83,600.

1.2.
Mr Kent agreed to resolve this matter and qualified for a 10% discount under the

Authority’s executive settlement procedures. Were it not for this discount, the

Authority would have imposed a financial penalty of £92,900 on Mr Kent.

2.
SUMMARY OF REASONS

2.1.
Between 1 December 2014 and 12 August 2016 (“the Relevant Period”), Mr Kent

performed the CF1 (Director) significant influence function at Sigma.

2.2.
Sigma is a privately-owned brokerage firm which provides its customers with a range

of services, including access to trading worldwide through its platform.

2.3.
Between 2008 and late 2014, Sigma’s core business was offering its customers

futures and options trading. But in December 2014, Sigma expanded its business to

include, amongst other products, contracts for difference (“CFDs”) and Spread-Bets

referenced to the share-price of listed companies, by recruiting several brokers and

establishing a desk which provided these products to its customers (“the CFD desk”).

2.4.
CFDs and Spread-Bets are high-risk, complex financial products. Given their high

leverage, they are particularly attractive to those seeking to commit market abuse,

including insider trading. Leverage means that it is possible to gain or lose

significantly more than the sum staked. However, if, as in the case of insider trader,

the client has non-public information that a stock will move in a certain direction,

there is no risk of loss. Despite being aware of the significant change to the risk

profile of its business, Sigma, through its board of directors, did not perform an

adequate risk assessment, or engage in any other meaningful preparations to ensure

its compliance with regulatory standards prior to expanding its business into these

new areas.

2.5.
Statement of Principle 7 of the Authority’s Statements of Principle (“Statement of

Principle 7”), states that an approved person performing an accountable higher

management function must take reasonable steps to ensure that the business of the

firm for which they are responsible in their accountable function complies with the

relevant requirements and standards of the regulatory system.

2.6.
One such requirement is Principle 3 of the Authority’s Principles for Businesses

(“Principle 3”) which states that a firm must take reasonable care to organise and

control its affairs responsibly and effectively, with adequate risk management

systems.

2.7.
During the Relevant Period, Sigma breached Principle 3 by failing to organise and

control its affairs responsibly and effectively with adequate risk management

systems in relation to the business activities of the CFD desk generally, and

specifically its compliance with the Authority’s MiFID transaction reporting

requirements.

2.8.
Many of Sigma’s Principle 3 failings had their origins in the wholly inadequate

governance and oversight provided by Sigma’s governing body, namely its Board, of

which Mr Kent was an important part.

2.9.
Mr Kent breached Statement of Principle 7 by failing to take reasonable steps to

ensure, in respect of his responsibility as a director, in common with the other

members of the Board, that Sigma complied with Principle 3 and associated SYSC

rules, by having formal systems and controls, sufficient to enable its Board to review

in a structured fashion the business activities of the CFD desk.

2.10.
For example, Mr Kent failed, in common with the other members of the Board, to

ensure that:

3


(1)
Board meetings were held with sufficient regularity to enable the Board’s

effective oversight of Sigma’s business;

(2)
Board minutes, sufficient to record the matters discussed and decisions

reached, were maintained;

(3)
he, and the other members of the Board, were provided with adequate

management information to enable the Board to properly oversee,

understand, and where appropriate challenge, Sigma’s business activities;

and

(4)
an adequate risk assessment was undertaken prior to the commencement

of the CFD desk’s business activities.

2.11.
In breach of his responsibilities as a director, Mr Kent did not perform, or seek to

perform, an effective role in ensuring that the Board reviewed in a structured fashion

the business activities of the CFD desk and oversaw the desk’s compliance with

regulatory standards.

2.12.
During the Relevant Period SUP 17 required firms entering into reportable

transactions to send accurate and complete transaction reports to the Authority on

a timely basis. These reports were required to contain mandatory details of those

transactions. The Authority relies on firms to submit complete and accurate

transaction reports to enable it to carry out effective market surveillance and to

detect and investigate cases of market abuse, insider dealing, market manipulation

and financial crime. As such, these transaction reports are an essential tool in

assisting the Authority to meet its objective of protecting and enhancing the integrity

of the UK’s financial system.

2.13.
Throughout the Relevant Period, Sigma executed its client trades in CFDs and

Spread-Bet products using a “matched principal” methodology. For each trade

executed, two trades were in fact carried out. While Sigma reported the first leg of

the trade, it did not report the second client-side transaction. Additionally, Sigma

failed to accurately report a number of other CFD transactions. As a result, during

the Relevant Period, Sigma failed to report, in breach of SUP 17.1.4R, or to accurately

report, in breach of SUP 17.4.1 EU/SUP 17 Annex 1 EU, an estimated 56,000

transactions.

2.14.
A cornerstone of the regime in place to protect markets from abuse is the

requirement on firms to identify where there are reasonable grounds to suspect

market abuse has occurred and to submit Suspicious Transaction and Order Reports

(“STORs”) to the Authority (Suspicious Transaction Reports (“STRs”) before 3 July

2016). These are a critical source of intelligence for the Authority in identifying

possible market abuse.

2.15.
During the period from 21 April 2015 to 2 July 2016, Sigma contravened SUP

15.10.2R, and thereafter until the end of the Relevant Period Article 16 (2) EU MAR,

by failing to identify 97 suspicious transactions or orders, which would likely have

been reported collectively to the Authority as 24 STRs/STORs. In fact, during the

Relevant Period Sigma did not report a single STR/STOR to the Authority.

2.16.
Mr Kent breached Statement of Principle 7 by failing to take reasonable steps to

ensure that Sigma complied with SUP 17.1.4R, SUP 17.4.1EU/SUP 17 Annex 1 EU,

SUP 15.10.2R, and Article 16(2) of EU MAR.

2.17.
In performing his responsibilities as a director, Mr Kent failed to take reasonable

steps to ensure, in common with the other members of the Board, that the Board

was provided with adequate management information to enable it to reasonably

satisfy itself that Sigma was complying with its reporting obligations under SUP 17

and Article 16(2) of EU MAR.

2.18.
To the extent that these reporting obligations may have been delegated by the Board

to Mr Tomlin as CF10, Mr Kent did not have reasonable grounds for believing that Mr

Tomlin had the necessary competence, knowledge or skill to deal with these

responsibilities. Nor did Mr Kent take reasonable steps to properly satisfy himself

that Sigma’s procedures for complying with its reporting obligations, whether

delegated to Mr Tomlin or to others, were operating satisfactorily.

2.19.
For example, throughout the Relevant Period, neither Mr Kent nor the Board,

reviewed or approved any policies and procedures describing the CFD desk’s

reporting and monitoring activities, nor did they receive any, or any adequate,

reports on the nature of any such monitoring, the numbers of suspicious transactions

that were being escalated from the CFD desk to the Compliance Department, or the

number of STRs or STORs that had been submitted to the Authority.

2.20.
Sigma’s arrangements in this regard were wholly inadequate to furnish the Board

with the information it needed to play its part in identifying, measuring, managing

and controlling the risks associated with the CFD desk’s activities such as market

abuse, insider dealing, market manipulation and financial crime.

2.21.
In fact, during the Relevant Period, there is no evidence of any structured probing of

any compliance issues by Mr Kent, or of the Board being otherwise engaged in

compliance matters.

2.22.
Furthermore, Mr Kent, in common with the other members of the Board, failed to

ensure that Sigma had taken adequate preparatory steps for the introduction of EU

MAR in July 2016, despite the fundamental importance of EU MAR to the detection

and reporting of market abuse.

2.23.
The Authority considers Mr Kent’s failings to be serious because they directly

contributed to Sigma failing to manage its potential exposure to market abuse,

insider dealing, market manipulation and related financial crime.

2.24.
The Authority hereby imposes a financial penalty on Mr Kent in the amount of

£83,600 pursuant to section 66 of the Act.

3.
DEFINITIONS

3.1.
The definitions below are used in this Notice:

“accountable higher management function” means any accountable function that is

an FCA controlled function that is a significant-influence function;

“the Act” means the Financial Services and Markets Act 2000;

“the Authority” means the Financial Conduct Authority;

“the Board” and/or “directors” means Sigma’s board of directors, comprising, during

the Relevant Period, Mr Simon Tyson, Mr Stephen John Tomlin and Mr Matthew

Charles Kent;

“Contract for Difference” or “CFD” means a contract between two parties (a CFD

provider and a client) to pay each other the change in the price of an underlying

asset. At the expiry of the contract, the parties exchange the difference between the

opening and closing prices of a specified financial instrument, such as shares, without

owning the specified financial instrument;

“the CFD desk” means the part of Sigma’s business offering CFDs and Spread-Bets

to its customers and those employed, or otherwise retained, by Sigma to do so.

Where the term “CFD desk brokers” or “brokers” is used in this notice any facts or

findings should not be read as relating to all such persons, or even necessarily any

particular person, in that group;

“DEPP” means the Decision Procedure and Penalties Manual part of the Handbook;

“F&O” means futures and options;

“Handbook” means the Authority’s Handbook of Rules and Guidance;

“EU MAR” means Regulation (EU) No 596/2014 of the European Parliament and of

the Council of 16 April 2014 on market abuse;

“MRT” means the Authority’s Markets Reporting Team;

“MiFiD II” means Directive 2014/65/EU;

“Principle” means one of the Authority’s Principles for Businesses;

“RDC” means the Regulatory Decisions Committee of the Authority (see further under

Procedural Matters below);

“Relevant Period” means the period from 1 December 2014 to 12 August 2016;

“SAR” means a suspicious activity report, a report of suspected money laundering to

be made by financial institutions, amongst others, to the National Crime Agency as

required by Part 7 of the Proceeds of Crime Act 2002;

“senior management function” means a function defined as such in section 59ZA of

the Act;

“Sigma” means Sigma Broking Limited;

“significant influence function” means a function defined as such in SUP 10A.4.4;

“Spread-Bet” means a contract between a provider, such as Sigma, and a client

which takes the form of a bet as to whether the price of an underlying asset (such

as an equity) will rise or fall. A client who spread-bets does not own, for example,

the physical share, he simply bets on the direction he thinks the share price will

move.

“Statement of Principle” means one of the Authority’s Statements of Principle for

approved persons;

“STOR” means a suspicious transaction and order report providing notification to the

Authority in accordance with Article 16(2) of EU MAR;

“STR” means a suspicious transaction report providing notification to the Authority

in accordance with SUP 15.10.2 R;

“SUP” means the Authority’s Supervision Manual;

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“SYSC” means the Authority’s Senior Management Arrangements Systems and

Controls Sourcebook;

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

“TRUP” means the Transaction Reporting User Pack, the Authority’s guidance on

transaction reporting which was released in several versions. Version 1 became

effective from November 2007; version 2 became effective from 21 September 2009;

version 3 became effective from 1 March 2012; and version 3.1 became effective

from 6 February 2015.

4. FACTS AND MATTERS

4.1.
Sigma is, and was during the Relevant Period, a brokerage firm authorised by the

Authority. It provides its customers with a range of services, including access to

worldwide exchanges through its trading platform.

4.2.
During the Relevant Period, almost all of Sigma’s trading was carried out by

customers instructing a Sigma broker by telephone, email or Bloomberg messenger,

with only a very few customers using direct market access.

4.3.
In December 2014, Sigma expanded its business, beyond its core service of F&O

provided to funds and institutions, and established its CFD desk which offered CFDs

and Spread-Bets to a customer base largely comprised of high net worth individuals.

4.4.
In order to grow the CFD desk’s business, during the early part of 2015, Sigma

recruited several brokers with their own established customer bases, whose

remuneration was to a very large extent determined by the levels of fees that they

generated rather than a fixed basic salary.

4.5.
The number of CFD trades executed by Sigma increased steadily following the

implementation of the CFD Desk in December 2014. In the first quarter of 2015,

Sigma executed 1,911 transactions, this number rose to 5,757 transactions in the

first quarter of 2016. Despite having up to 100 positions open per day by 2016,

Sigma’s trade surveillance remained entirely manual; neither automatic electronic

monitoring tools, nor basic case management software, were used to facilitate

monitoring of the trading activity or to maintain an audit trail. As a result, Sigma

failed to identify transactions which were potentially suspicious.

4.6.
In January 2016, the Authority became aware of transaction reporting anomalies at

Sigma, leading to the discovery that Sigma had failed to report any of the equity CFD

and Spread Bet transactions it had executed with its clients since the inception of its

CFD desk in December 2014, and that it had never submitted an STR to the Authority.

A supervisory visit to Sigma in June 2016, identified further causes for concern as to

whether Sigma was complying with regulatory standards.

4.7.
On 12 August 2016, in response to the concerns identified by Supervision, Sigma

voluntarily applied to the Authority for the imposition of certain restrictions on its

permissions relating to the CFD desk.

Mr Kent’s responsibilities as CF1 (Director)

4.8.
Mr Kent was approved to perform the CF1 (Director) significant influence controlled

function on behalf of Sigma from 5 August 2008 until 8 December 2019, and from 9

December 2019 has been approved to perform the SMF3 (Executive Director) senior

management function on Sigma’s behalf.

4.9.
As a CF1 (Director), Mr Kent had a responsibility to take reasonable steps to ensure

that Sigma had formal systems and controls, sufficient to enable its Board to review

in a structured fashion the business activities of the CFD desk.

4.10.
In his CF1 (Director) role, Mr Kent had a responsibility, in common with other

members of the Board, for ensuring that the Board was provided with adequate

management information to enable it to reasonably satisfy itself that Sigma was

complying with its reporting obligations under SUP 17 and Article 16(2) of EU MAR.

4.11.
Mr Kent’s responsibilities as a Board director were neither formally recorded by Sigma

nor acknowledged by him.

Sigma’s systems and controls

Board governance

4.12.
During the Relevant Period, the Board comprised three directors: Simon Tyson, who

was approved to perform the CF3 (Chief Executive), CF1 (Director) and CF11 (Money

laundering reporting) controlled functions; Matthew Kent, who was approved to

perform the CF1 (Director) controlled function and Steven Tomlin, who was approved

to perform the CF1 (Director) and CF10 (Compliance oversight) controlled functions.

4.13.
During the Relevant Period, Sigma’s Board did not formally and regularly meet.

Sigma described holding informal meetings with “ad-hoc discussions held between

each director and other members of senior staff”. No formal minutes were maintained

of such meetings. As a result, there exists no record of attendees, the matters

discussed, the nature of any challenges made or decisions reached. Accordingly,

Sigma was unable to demonstrate the proper functioning of its Board or the nature

of its oversight of the activities of the CFD desk.

4.14.
Nor did the Board operate under any terms of reference describing its procedures

and responsibilities, or any similar such document, against which Sigma’s directors

could measure whether they were complying with them and providing effective

governance oversight.

Management information

4.15.
On those occasions when the Board met during the Relevant Period, they were not

provided with structured management information to enable them to understand the

business of the CFD desk, such that its activities could be reviewed and any issues

of concern identified and any remedial measures proposed, monitored. Sigma was

unable to provide the Authority with any board packs or briefing notes, or records of

any occasion when employees, such as those working in compliance, had briefed

members of the Board on the operations of the CFD desk.

4.16.
During the Relevant Period, the Board received no written reports from the CF10 or

the CF11 on matters relating to their areas of oversight. If they provided oral

briefings, there is no adequate record of what was said or any decisions that were

reached to progress the concerns raised because no minutes were taken.

4.17.
Starting in January 2015, a member of staff in the Compliance Department produced

quarterly updates intended for the Board, largely outlining required actions. But there

is no evidence that the Board used these updates effectively to monitor and oversee

progress on the matters of concern that were raised.

4.18.
Sigma maintained a Risk Register, but there is no evidence that the Board, formally

or informally, used the register effectively to monitor and oversee risks to the

business. For example, a risk entered in December 2014 was a lack of up to date

and/or comprehensive policies and procedures. The control in place to address this

purported to be that procedures were either in place or being put in place to ensure

Sigma was compliant with current regulatory requirements. This risk was classified

as “critical” which the Risk Register defined as a “high likelihood of regulatory censure

and/or remedial action requiring significant expenditure or timescale.” The Risk

Register recorded this as a high risk which must be subject to audit review. Despite

the seriousness of these concerns, there is no evidence that during the Relevant

Period the Board monitored this risk or recorded the steps being taken towards

comprehensive policies being put in place.

4.19.
That remedial work was required in respect of Sigma’s governance, and its policies

and procedures over aspects of its business, including the CFD desk, had been set

out in a memo sent by a senior Sigma employee to Messrs Tyson, Tomlin and Kent

on 28 November 2014. The memo recorded, amongst other matters, a need to:

a)
“Review and update [Sigma’s] compliance manual and all associated policies

(for approval by Board) to ensure that Bonds and CFDs are included”;

b)
“Review primary compliance policies/procedures including the compliance

monitoring plan (especially in the context of the new businesses)”;

c)
“Recommend (and if necessary assist in the implementation of) appropriate

Governance procedures/practices for [Sigma] both at Board and Committee

level including org/structure charts and information flow”; and

d)
Under
the
heading
CFD
desk,
“Progress/draft
all
third-party

documents/agreements as well as all internal Compliance/Risk Policies and

Procedures.”

4.20.
Despite these concerns being brought directly to the Board’s attention, there is no

evidence that Mr Kent, or any other members of the Board, sought to monitor

progress on any of these areas in a structured manner, or at all, or to seek regular

updates from those members of staff delegated to carry out these tasks.

Allocation and performance of controlled functions

4.21.
Although the controlled functions referred to above in paragraph 4.12 were nominally

assigned among the Board directors, they were allocated with little regard to each

director’s capabilities, training or previous experience.

4.22.
Mr Tomlin was appointed to, and performed, the CF10 controlled function of Sigma

from 10 August 2008. He did so with reluctance due to his lack of any previous

experience of the CF10 role, but accepted it nevertheless because there was no other

suitability qualified person within Sigma to do so. Prior to the supervisory visit he

had not, for example, received any training on transaction reporting.

4.23.
Throughout the Relevant Period, Mr Tomlin’s CF10 responsibilities included oversight

of the CFD desk. Mr Tomlin explained during an interview with the Authority that,

due to his experience in the industry, he had been comfortable performing the CF10

role overseeing Sigma’s F&O business, but he had never been comfortable doing so

over the business of the CFD desk. He had seen it as a necessity that served the

purpose for a limited period until he could pass it to someone with more appropriate

experience than himself.

4.24.
Mr Tyson was appointed to, and during the Relevant Period performed, the CF11

controlled function despite having no relevant qualifications, or having undertaken

any training, such as in relation to SARs, financial crime or market abuse, to enable

him properly to do so.

4.25.
In relation to the CF10 and CF11 controlled functions, Mr Tyson stated that he had

wanted both himself and Mr Tomlin to stop performing these roles because “it was

not a fair reflection of who did the work on a day-to-day basis and who had the

relevant knowledge within the firm”.

4.26.
Beyond the allocation of these controlled functions, there was no clear allocation of

responsibilities amongst the Board directors, for example by way of a statement of

responsibilities or employment contract, that set out the expectations of each director

in the performance of their controlled functions, over the various parts of Sigma’s

business.

4.27.
From 2009, Mr Tyson involved himself fully in the day-to-day running of the firm,

with Mr Tomlin doing so to a lesser extent.

4.28.
Mr Kent largely restricted his involvement in the firm to strategic decisions and

developing business relationships.

4.29.
In an email sent by Mr Tyson copied to Mr Tomlin on 21 October 2014, with the

subject “Re: Compliance and FCA related matters”, he wrote “Re: CF10 and CF11

positions - I will be assuming the CF10 position whilst keeping the CF11 position. It

is not proposed as a swap”. But there was no clarification or formalisation of whether

this proposal related to all CF10 responsibilities or those related solely to the CFD

desk.

4.30.
A further email sent by the Board to all staff in September 2015 announced that

“Simon Tyson will now become responsible for Compliance Oversight (CF10) for both

Sigma Broking and Sigma Americas”.

4.31.
But Sigma did not notify the Authority or seek its approval for any such transfer of

responsibilities for the performance of the CF10 function, and Mr Tomlin remained

the person approved to perform that function throughout the Relevant Period.

Risk assessment prior to commencement of the CFD desk’s activities

4.32.
CFDs and Spread Bets are higher risk products. Their leveraged nature makes them

particularly attractive to those seeking to commit market abuse, including insider

trading. Sigma recognised this. Despite this significant change to the risk profile of

the business, Sigma failed to perform an adequate risk assessment prior to

expanding into this higher risk business area.

4.33.
The Board had no prior experience or expertise of CFDs and Spread Bets and did not

take any steps to educate themselves about these products or to anticipate and

manage the associated risks. For example, compliance resourcing at Sigma remained

unchanged, and no additional training was provided for staff overseeing that aspect

of Sigma’s business.

Compliance oversight and delegation of responsibilities

4.34.
During an interview with the Authority, Mr Tyson acknowledged his own limited

understanding of the activities of the CFD desk but claimed that oversight of its

activities had been appropriately delegated to employees within the legal and

compliance departments. But such delegations, as may have been made, were not

clearly documented with the result that it was uncertain which responsibilities had

been delegated and to whom.

4.35.
One of those to whom Mr Tyson said compliance responsibilities had been delegated

was Mr A, a senior lawyer who had performed the CF10 and CF11 functions while at

previous firms which offered CFDs and Spread-Bets to their customers. Mr A joined

Sigma in mid-2014 initially as a consultant and as a permanent employee from early

2015. Another was a more junior employee within the Compliance Department, Mr

B.

4.36.
Mr Tyson stated that “[Mr A] had two roles with the firm, one was to advise and deal

with any legal matters in his function as a practising lawyer. The other was to advise,

implement and run the Compliance Department within Sigma … We as a firm brought

in what we considered at the time the appropriate skills and knowledge into the firm

in the light of the new business unit … So [Mr A] having held CF10, CF11 functions

at [two firms], we deemed that knowledge and experience as being exactly what we

needed to, sort of, plug the gap that we had”. Mr Tyson observed “I think we didn’t

rely on Steve [Tomlin] to perform that function [CF10]. We relied on the external

compliance consultancy firms before we hired [Mr A]”.

4.37.
Mr A, however, told the Authority that he did not have a role in relation to compliance

other than to give legal advice on regulatory matters. He said that his potentially

taking a Head of Compliance role was discussed but he never agreed to do so.

4.38.
Mr Tyson said that as to the performance of his CF11 role, for oversight of Sigma’s

compliance with the Authority's rules on systems and controls against money

laundering, he relied on Mr A for the “day-to-day of that”.

4.39.
Sigma was unable to provide the Authority with any job description which set out Mr

A’s responsibilities for compliance, or financial crime, matters delegated to him by

Mr Tyson, or by the Board, or more generally in relation to his responsibilities for the

activities of the Compliance Department. A draft employment contract was

exchanged between Sigma and Mr A on 17 February 2015 which described his role

as “General Counsel & Chief Compliance Officer”. Correspondence between Mr A and

Messrs Tyson, Tomlin and Kent in November 2014 demonstrates that Mr A was

communicating with them regarding both legal and compliance matters.

4.40.
Mr Tomlin stated that the CFD desk fell entirely outside his CF10 responsibilities and

that he was not involved in compliance issues that arose in that part of the business.

He did not know what systems and controls were in place regarding surveillance of

the CFD desk or what practical arrangements were in place to investigate potentially

suspicious trades. He did not know who was responsible for suspicious transaction

reporting on the CFD desk, and was unaware of any STRs or STORs that Sigma may

have submitted arising from its activities. The CFD desk was, Mr Tomlin said, “run as

a separate company by Simon [Tyson]”.

4.41.
During the Relevant Period, Mr B was the only employee in Sigma’s Compliance

Department. He had no prior experience of CFDs, and considered that his

responsibilities were restricted to Sigma’s F&O activities. Mr B said that the CFD desk

managed its own compliance issues, including market abuse surveillance and

transaction reporting, “on desk” with day-to-day compliance responsibilities

apportioned between Mr A and an individual, Mr C, who was involved in risk

monitoring for the CFD desk. He believed that Mr Tyson approved the arrangement.

4.42.
Mr A, however, said that Mr B, as compliance officer had overall responsibility for

compliance and monitoring for market abuse. Mr C denied responsibility for market

abuse surveillance and said that this was Mr B’s responsibility, he described his role

as making risk-based decisions around leverage and margin calls and liaising with

Sigma’s hedging counterparties.

4.43.
Whatever the situation was in practice, or individuals’ understanding of their own or

others’ responsibilities, the arrangements were unclear and confused and none of

these arrangements or divisions of responsibility were adequately documented by

Sigma.

4.44.
There is no evidence that the CFD desk’s trading system was used by Sigma’s

Compliance Department to perform any real-time trade surveillance, nor was there

any automated monitoring system in place to enable it to conduct effective post-

trade surveillance. Sigma did not even use basic management software, such as a

spreadsheet, to facilitate monitoring of the trading activity or to maintain an audit

trail.

4.45.
Sigma did not recruit suitably qualified compliance staff to, or provide necessary

training to those employed within, the Compliance Department and it remained

insufficiently resourced throughout the Relevant Period to enable it to adequately

monitor the growing business of the CFD desk. Concerns over inadequate and

ineffective compliance resourcing were not effectively escalated and the situation

was not remedied.

4.46.
During the Relevant Period, Sigma had in place a policy document called the

Compliance Monitoring Programme (“CMP”) which described its purpose as one of

the means by which Sigma could monitor its activities on a periodic basis in order to

ensure that it remained in compliance with all relevant rules and regulations and to

identify areas of weakness or non-compliance.

4.47.
According to the CMP, at Sigma: “Monitoring is performed on a regular basis and the

results submitted to senior management for review and to ensure prompt action to

correct any deficiencies or breaches identified”.

4.48.
The CMP also provided that “Findings and recommendations arising from completed

monitoring are circulated to the Board and line management where appropriate. The

Compliance Officer reports monthly to the Management Committee and includes in

his report any appropriate monitoring matters”. Sigma was unable to demonstrate

that it complied with these standards of reporting and monitoring.

4.49.
The CMP explained that it was divided into separate tests, which were conducted on

four different levels of frequency: monthly, quarterly, semi-annually and annually to

reflect the current assessment of operational and regulatory risk associated with each

underlying activity. It observed that it was important to evidence the application of

Sigma’s CMP with supporting documentation.

4.50.
Amongst many other matters identified by the CMP in its “High Level Programme for

2014” were quarterly monitoring of money laundering and financial crime processes,

to include a review of a suspicious activity reporting register, and of market conduct

to prevent the firm being a conduit for market abuse, and daily monitoring to ensure

all transactions conducted by telephone were recorded.

4.51.
The Business Standards section of the CMP gave “Market Conduct” a medium risk

rating in August 2014, with monitoring recorded as quarterly, giving the reason for

this as: “The FCA has raised concerns in issued guidance, Market Watch publications

and numerous speeches that all regulated entities are in the current climate, more

at risk of conducting or being a conduit in the performance of market abuse”.

4.52.
Sigma was unable to provide any supporting documentation to evidence that any

quarterly monitoring of the CFD desk’s activities occurred, as envisaged by the CMP,

which was then reported to the Board or to senior management. During the Relevant

Period Sigma did not monitor telephone conversations, daily or at all.

CFD desk policies and monitoring of broker conduct

4.53.
Sigma was unable to provide the Authority with a clear picture of which policies and

procedures, such as desk-manuals, it had in place over the activities of the CFD desk

during the Relevant Period. Many areas which should have been covered by written

policies appear to have had no written policies in place, and of those policy

documents provided by Sigma, many did not record when they were implemented or

when they may have been revised, if at all.

4.54.
The following are examples of some of these deficiencies:

•
There was no formal written procedure or policy in place regarding the

escalation or consideration of STRs/STORs from the CFD desk, Sigma’s Market

Conduct Policy & Procedure referred only to procedures for reporting a SAR if a

suspicious transaction was identified;

•
During the Relevant Period, Sigma did not monitor any telephone

conversations, contrary to its own compliance policy;

•
There were no formal written policies in place prohibiting the use of unrecorded

devices to take instructions from Sigma’s customers, or any training provided

on restrictions around the use of personal devices or the use of personal phones

to communicate with customers, thereby placing Sigma in breach of COBS

11.8.5AR;

•
As a result, on occasion, brokers on the CFD desk were using encrypted chat

apps on their personal mobile devices to communicate with, and take orders

from, clients without the knowledge of, or approval from, compliance.

4.55.
During the Relevant Period, there were examples of arrangements concerning certain

brokers on the CFD desk which should have been overseen and monitored, had

suitable policies and procedures been in place.

•
Brokers on the CFD desk had Power of Attorney (PoA) arrangements with

clients, which were neither declared as a conflict of interest, nor monitored

by compliance.

•
One broker on the CFD desk had PoA over the trading account of a family

member, from whom he had received loans which totalled more than

£100,000 during the Relevant Period. These loans were not recorded in

Sigma’s gifts and inducements register or reported to compliance.

Commission based remuneration

4.56.
Against the background of these deficiencies of Sigma’s policies, its commission-

based remuneration structure incentivised brokers on the CFD desk to focus on their

trading activity, to the potential detriment of promoting the identification and

escalation of potential market abuse. Brokers on the CFD desk were not paid a salary,

but instead were entitled to up to 60% of the net revenue generated by their clients

as commission.

4.57.
Whilst such remuneration structures are not an uncommon feature within the

industry, they may bring with them conflicts that should be mitigated. For example,

brokers dependent largely on fee income may be reluctant to escalate concerns

regarding trading by high-revenue generating customers. Clear front-desk policies

and procedures and routine compliance monitoring can mitigate the risk that

suspicious trading is not escalated appropriately. During the Relevant Period Sigma

lacked any such monitoring. These conflicts were further exacerbated by the fact that

many of the brokers on the CFD desk maintained close personal relationships with

their customers, which included, as in the example above, brokers receiving personal

loans which were not declared to Sigma.

4.58.
Furthermore, Mr Tomlin’s only income from Sigma during much of the Relevant

Period was brokerage derived from his trading, creating a potential further conflict in

the performance of his CF10 function which should have been appropriately

managed.

Transaction reporting

4.59.
During the Relevant Period SUP 17 and the guidelines in the Transaction Reporting

User Pack (“TRUP”) required firms entering into reportable transactions to send

accurate and complete transaction reports to the Authority on a timely basis. These

transaction reports assist the Authority to meet its objective of protecting and

enhancing the integrity of the UK’s financial system by helping it to identify situations

of potential market abuse. Each transaction report should include, amongst other

elements: information about the financial instrument traded, the firm undertaking

the trade, the buyer and the seller, and the date and time of the trade.

4.60.
TRUP (Version 3.1 effective from 6 February 2015) at section 10.1 contains the

following guidance regarding a firm’s obligations concerning data integrity:

“We expect firm’s controls and review processes to embody Principle 3 and

comply with SYSC obligations. To assist with this, firms should validate the

accuracy and completeness of the reports they submit to the FCA by

comprehensive testing of their full reporting processes and by regularly

performing ‘end-to-end transaction reconciliations.’ We consider an ‘end to end

reconciliation to mean the reconciliation of a firm’s front-office trading records

and data against the reports it submits to its ARM(s) and against data samples

extracted from the FCA transaction report database (see section 10.1.1.).”

4.61.
Section 10.1.1. states that:

“To help check reports have been successfully submitted to us, firms can

request a sample of their transaction reports using an online form on our

website. […] We encourage firms to use this facility from time to time as part

of their review and reconciliation processes. This enables firms to compare the

reports we receive with their own front office trading records and the reports

firms (or their representatives) submit to their ARM(s). Firms should also check

the accuracy and completeness of the individual data elements within their

transaction reports, and their compliance with transaction reporting rules and

requirements, having regard to the guidance we have issued.”

4.62.
During the Relevant Period, Sigma did not make use of this facility.

4.63.
Throughout the Relevant Period Sigma executed its client trades in CFDs and Spread-

Bet products using a “matched principle” methodology. For each trade executed, two

trades were in fact carried out. While Sigma reported the first leg of the trade, it did

not report the second, client-side transaction.

4.64.
In February 2016, the Authority’s Markets Reporting Team (“MRT”) wrote to Sigma

setting out concerns that MRT had identified regarding the completeness and

accuracy of Sigma’s transaction reporting. Following these communications, Sigma

instructed a specialist regulatory reporting firm (Firm A) to review the reports it had

submitted to the Authority across a one-week sample taken from earlier that month,

to assess their compliance with the rules in SUP, Chapter 17.

4.65.
In April 2016, Firm A reported its findings to Sigma and to the Authority. Whilst

Sigma’s F&O business, managed by Mr Tomlin, was compliant, the findings revealed

significant reporting failings in respect of the activities of the CFD desk. These failings

included, amongst others:

•
a mismatch between the instrument description and the derivative type in the

case of 1,314 out of 1,346 CFDs reported, from a one-week sample. The

description ended with “SB” indicating Spread Bet, although all of these trades

were CFD hedges against a brokerage firm;

•
CFDs were reported in GBP currency although the price stated reflected the

pence at which the stock traded (e.g. Barclays PLC reported at £164.56 instead

of 164.56p). UK stock prices need to be divided by 100 in most cases before

being reported in the major currency. This issue affected 1,257 out of 1,346

CFDs, from a one-week sample; and

•
Although Firm A was able to match all 383 CFD trades from Sigma’s raw data

to transactions accepted by the Authority, these trades represented only the

hedging portion of Sigma’s CFD activity, and its client-side CFDs were not being

reported as required.

4.66.
In particular, the failure to report client-side CFDs materially impacts the Authority’s

ability to carry out effective surveillance. Without client-side transaction reports, the

MRT is unable to differentiate transactions carried out by each individual and is

provided with an incomplete picture of each individual’s trading activity which may

have been conducted across a number of firms, or indeed any activity by customers

who only held accounts at Sigma.

4.67.
Mr Tyson told the Authority that Sigma’s failure to report client-side CFDs was “a

genuine misunderstanding” originating from when the CFD desk was set up.

4.68.
During the Relevant Period, Sigma failed to report, in breach of SUP 17.1.4R, or to

accurately report, in breach of SUP 17.4.1 EU/SUP 17 Annex 1 EU, an estimated

56,000 transactions.

Suspicious transaction reporting – STRs and STORs

4.69.
From the start of the Relevant Period until 2 July 2016, SUP 15.10.2 R provided that

a firm which arranges or executes a transaction with or for a client and which has

reasonable grounds to suspect that the transaction might constitute market abuse

must notify the Authority without delay, thereafter and throughout the rest of the

Relevant Period, Article 16(2) of EU MAR provided to similar effect in relation to both

suspicious orders and transactions.

4.70.
Sigma lacked an understanding of its regulatory obligations in respect of market

abuse and in particular the fundamental difference between the STR/STOR regime

and the SAR regime. Sigma did not put in place adequate policies or procedures or

deliver training to enable staff to identify and escalate suspicious transactions. As a

result, there was widespread uncertainty and misunderstanding amongst Sigma staff

as to the regulatory obligations regarding market abuse, which transactions should

be regarded as suspicious, when such transactions should be escalated, and to

whom.

Escalation of concerns regarding suspicious trading

4.71.
During the Relevant Period, there was no formal procedure or policy in place

regarding the escalation or consideration of suspicious transactions. The informal but

widely accepted custom for identifying suspicious transactions on the CFD desk

involved the front office staff verbally communicating their suspicions to senior

members of the CFD desk, who would take a personal view before deciding whether

to raise the matter verbally with Mr Tyson. Record-keeping was largely non-existent;

discussions around a suspicious transaction were not recorded, including the

rationale supporting any decision not to submit a STR/STOR.

Written procedures for the escalation of suspicious trades

4.72.
In May 2015, a senior CFD desk trader communicated by a brief email to the CFD

desk that suspicious transactions should be escalated in writing to him prior to his

discussing them with Mr A and Mr C; however, no accompanying guidance was issued

to any of the brokers to enable them to understand how to recognise a suspicious

transaction. Despite this apparent procedural change at Sigma, brokers on the CFD

desk made only eight such escalations from then until the end of the Relevant Period.

4.73.
During the Relevant Period, Sigma did not submit any STRs to the Authority.

4.74.
In correspondence with the Authority in May 2016, Sigma described responsibilities

purportedly placed on Mr C for “real-time” monitoring of the CFD desk, stating that

he had: “a consolidated view via the platform and reviews all client trading during

the day; the trading platform produces an end of day report of all transactions

together with associated profit and loss, which [Mr C] reviews on a daily basis; [Mr

C] will report any suspicious transactions to Compliance for further evaluation; [Mr

C] is supported by [a senior individual in technology and operations] who carries out

this role in his absence.” But these responsibilities were not recorded in any of

Sigma’s policies or procedures; and nowhere were they formally designated to Mr C.

4.75.
During an interview with the Authority, Mr C denied responsibility for market abuse

surveillance, asserting that it was the responsibility of Mr B.

Preparations for the introduction of EU MAR

4.76.
Towards the end of the Relevant Period, on 3 July 2016, the Market Abuse Regulation

came into force and introduced extra safeguards and responsibilities upon broker

firms in managing the risks of market abuse. Sigma did not take any preparatory

steps for the introduction of EU MAR, despite the fundamental importance of EU MAR

to the identification, prevention and detection of market abuse and the Authority

publishing communications reminding firms of their obligations under EU MAR.

Although a relevant member of Sigma’s staff attended a course concerning the

implementation of MAR, there were no formal presentations, announcements or

communications within Sigma about the changes to the STR regime in July 2016

which resulted from the introduction of EU MAR.

Post-trade Surveillance on the CFD desk

4.77.
During the Relevant Period, there was confusion about who was responsible for post-

trade surveillance to identify potentially suspicious trading activity including market

abuse. In practice, nobody was performing this role. There were no policies or

procedures which outlined the post-trade monitoring to be undertaken on the CFD

desk, and no thresholds, parameters or criteria to assist staff with identifying

suspicious orders or transactions.

4.78.
From March 2016, the Compliance Department started performing monthly post-

trade surveillance of F&O transactions, however no post-trade surveillance was

carried out in respect of the CFD desk.

4.79.
Sigma’s reliance on manual oversight of its CFD trading, without the benefit of proper

analysis or case management tools, hindered its ability to capture types of suspicious

activity and to identify patterns effectively. Given the daily volume of trades executed

by the CFD desk, Sigma should have implemented an in-house solution to collate the

trading data and to track and evaluate emerging suspicions.

Back-book review for STRs / STORs

4.80.
In February 2017, Sigma established a panel to conduct a review of all transactions

that had taken place on the CFD desk during the Relevant Period to determine

whether any required STR or STOR notifications to the Authority (“the Panel”). The

Panel consisted of four individuals including the newly recruited member of the

Compliance Department.

4.81.
First, Sigma used automated market abuse monitoring software to flag trades that

warranted review according to parameters which had been approved by the Skilled

Person for use by the CFD desk’s current transaction monitoring software. This

process flagged 1,621 transactions. Secondly, an initial review of the flagged

transactions was conducted by a senior individual on the CFD desk and a senior,

newly recruited, member of the Compliance Department. Thirdly, the Panel reviewed

the initial analysis accordingly to set terms of reference.

4.82.
The review by the Panel resulted in the identification of 97 suspicious transactions or

orders during the Relevant Period, which would likely have been collectively reported

to the Authority as 24 STRs/STORs, none of which had been identified previously by

Sigma as potentially suspicious. Some of these notification assessments, however,

were made with the benefit of information which would not have been available to

Sigma at the time of the transactions; such as subsequent trading behaviour, or

accounts which had been the subject of information requests from the Authority.

Sigma has not suggested that a significant proportion would only have been

identifiable with hindsight.

4.83.
SARs form part of a regime under which suspicious activity related to money

laundering or criminal property is reported to the UK Financial Intelligence Unit at

the National Crime Agency.

SARs submitted

4.84.
During the Relevant Period, only two SARs were submitted by Sigma to the National

Crime Agency. No STRs or STORs were submitted to the Authority despite at least

one of the SARs relating to a suspicious transaction.

Subsequent training by Mr Kent

4.85.
After the conclusion of the Relevant Period, Mr Kent undertook formal regulatory

training in a number of areas relevant to the performance of his Senior Management

Function (“SMF”) role and he has provided verifiable evidence of the same to the

Authority.

5. FAILINGS

5.1.
The statutory and regulatory provisions relevant to this Notice are referred to in

5.2.
Statement of Principle 7 states that an approved person performing an accountable

higher management function must take reasonable steps to ensure that the business

of the firm for which they are responsible in their accountable function complies with

the relevant requirements and standards of the regulatory system.

5.3.
One such requirement is Principle 3 which states that a firm must take reasonable

care to organise and control its affairs responsibly and effectively, with adequate risk

management systems.

5.4.
During the Relevant Period, Mr Kent breached Statement of Principle 7 by failing to

take reasonable steps to ensure, in respect of his responsibilities as a director, in

common with the other members of the Board, that Sigma complied with Principle 3

and associated SYSC rules, by having adequate systems and controls, sufficient to

enable its Board to review in a structured fashion the business activities of the CFD

desk.

5.5.
Mr Kent failed to take reasonable steps to ensure that Sigma complied with these

requirements and standards. In particular, he failed to ensure that:

(1)
Board meetings were held with sufficient regularity to enable the Board to

exercise effective oversight of Sigma’ business;

(2)
Board minutes, sufficient to record the matters discussed and decisions

reached, were maintained;

(3)
he, alongside his fellow directors, was provided with adequate management

information to enable him to properly oversee, understand, and where

appropriate challenge, Sigma’s business activities; and

(4)
an adequate risk assessment was undertaken prior to the commencement

of the CFD desk’s business activities.

5.6.
These failures demonstrate that Sigma did not take reasonable care to organise and

control its affairs responsibly and effectively, with adequate risk management

systems.

5.7.
Mr Kent also breached Statement of Principle 7, in respect of his responsibilities as a

director, by failing to take reasonable steps, in common with the other members of

the Board, to ensure that Sigma complied with SUP 17.1 .4R, SUP 17.4.1EU/SUP 17

Annex 1 EU, SUP 15.10.2R, and Article 16(2) of EU MAR.

5.8.
Mr Kent, also further breached Statement of Principle 7, in respect of his

responsibilities as a director, in common with the other members of the Board, by

failing to take reasonable steps to ensure that he, and the other members of the

Board, were provided with adequate management information regarding the CFD

desk’s activities to enable the Board to reasonably satisfy itself that Sigma was

complying with its reporting obligations under SUP 17 and Article 16(2) of EU MAR.

5.9.
To the extent that these reporting obligations may have been delegated by the Board

to Mr Tomlin as CF10, Mr Kent did not have reasonable grounds for believing that Mr

Tomlin had the necessary competence, knowledge or skill to deal with these

responsibilities. Nor did Mr Kent take reasonable steps to properly satisfy himself

that Sigma’s procedures for complying with its reporting obligations, whether

delegated to Mr Tomlin or to others, were operating satisfactorily.

5.10.
Throughout the Relevant Period, neither Mr Kent nor the Board, reviewed or

approved any policies and procedures describing the CFD desk’s reporting and

monitoring activities, nor did they receive any, or any adequate, reports on the

nature of any such monitoring, the numbers of suspicious transactions that were

being escalated from the CFD desk to the Compliance Department, or the number of

STRs or STORs that had been submitted to the Authority.

5.11.
Sigma’s arrangements in this regard were wholly inadequate to furnish the Board

with the information it needed to play its part in identifying, measuring, managing

and controlling the risks associated with the CFD desk’s activities such as market

abuse, insider dealing, market manipulation and financial crime.

5.12.
During the Relevant Period, there is no evidence of any structured probing of any

compliance issues by Mr Kent, or by his fellow directors, or of their being otherwise

engaged in compliance matters.

5.13.
Furthermore, Mr Kent, in common with the other members of the Board, failed to

ensure that Sigma had taken adequate preparatory steps for the introduction of EU

MAR in July 2016, despite the fundamental importance of EU MAR to the detection

and reporting of market abuse.

5.14.
Mr Kent also breached Statement of Principle 7, in respect of his responsibilities as a

director, in common with the other members of the Board, because he did not

perform, or seek to perform, an effective role in ensuring that the Board reviewed in

a structured fashion the business activities of the CFD desk and oversaw the desk’s

compliance with regulatory standards.

5.15.
It was not reasonable in the circumstances for Mr Kent to rely entirely, or almost

entirely, on the other members of the Board to discharge its function of governance

and oversight. Particularly so, where he failed to take any, or any reasonable steps,

to satisfy himself that they were doing so in compliance with regulatory requirements

and standards.

5.16.
Statement of Principle 7 makes it clear that it is incumbent upon any person holding

a significant influence function to take reasonable steps to ensure that the business

of the firm for which he is responsible in his controlled function complies with the

relevant requirements and standards of the regulatory system. As the board of a

regulated firm is the governing body responsible for ensuring that a firm complies

with these requirements, there is a responsibility on individual directors to take

reasonable steps to ensure that these obligations are discharged.

5.17.
Mr Tyson, as CF3 (Chief executive) and CF11 (Money laundering reporting) and Mr

Tomlin, as CF10 (Compliance oversight), had particular responsibilities in the

performance of those functions. However, this did not absolve Mr Kent from obtaining

a sufficient understanding of Sigma’s business; the key issues that were likely to

arise out of the CFD desk’s business; and the manner in which they were being

addressed, which he, in common with the other members of the Board, was

ultimately responsible for managing.

5.18.
There was a clear obligation on the part of the Board as a whole to provide a challenge

to the actions of individual directors performing particular functions and to ensure

that there were processes in place whereby it could receive the necessary information

to enable it to discharge that function. In the performance of his director (CF1)

function, Mr Kent failed to discharge that obligation.

6.
SANCTION

Financial penalty

6.1.
Sections 66(1) and (3) of the Act give the Authority the power to impose a penalty

on an individual if that person is guilty of misconduct and it is satisfied that it is

appropriate in all the circumstances to take action against him.

6.2.
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

6.5B sets out the details of the five-step framework that applies in respect of financial

penalties imposed on individuals in non-market abuse cases.

Step 1: disgorgement

6.3.
Pursuant to DEPP 6.5B.1G, at Step 1 the Authority seeks to deprive an individual of

the financial benefit derived directly from the breach where it is practicable to

quantify this.

6.4.
The Authority has not identified any financial benefit that Mr Kent derived directly

from the breach.

6.5.
Step 1 is therefore £0.

Step 2: the seriousness of the breach

6.6.
Pursuant to DEPP 6.5B.2G, at Step 2 the Authority determines a figure that reflects

the seriousness of the breach. That figure is based on a percentage of the individual’s

relevant income. The individual’s relevant income is the gross amount of all benefits

received by the individual from the employment in connection with which the breach

occurred, and for the period of the breach.

6.7.
The period of Mr Kent’s breach was from 1 December 2014 to 12 August 2016. The

Authority considers Mr Kent’s relevant income for this period to be £281,770.

6.8.
In deciding on the percentage of the relevant income that forms the basis of the step

2 figure, the Authority considers the seriousness of the breach and chooses a

percentage between 0% and 40%. This range is divided into five fixed levels which

represent, on a sliding scale, the seriousness of the breach; the more serious the

breach, the higher the level. For penalties imposed on individuals in non-market

abuse cases there are the following five levels:

Level 1 – 0%

Level 2 – 10%

Level 3 – 20%

Level 4 – 30%

Level 5 – 40%

6.9.
In assessing the seriousness level, the Authority takes into account various factors

which reflect the impact and nature of the breach, and whether it was committed

deliberately or recklessly.

6.10.
DEPP 6.5B.2G(8) lists factors relating to the impact of a breach committed by an

individual, none of which are present in this case.

6.11.
DEPP 6.5B.2G(9) lists factors relating to the nature of a breach by an individual. Of

those, the Authority considers the following to be relevant:

(1)
the breaches of SUP 17, SUP 15, and Article 16(2) of EU MAR during the

Relevant Period, being rules intended to facilitate the Authority’s ability to

monitor and detect market abuse, gave significant scope for potential financial

crime to be facilitated, occasioned or otherwise occur as a result, particularly

as transaction levels on the CFD desk increased, (DEPP 6.5B.2G(9)(d));

(2)
Mr Kent is an experienced industry professional (DEPP 6.5B.2G(9)(j)); and

(3)
Mr Kent held a senior position with the firm as CF1 (DEPP 6.5B.2G(9)(k)).

6.12.
DEPP 6.5B.2G(10) and (11) list factors tending to show whether the breach was

deliberate or reckless. The Authority considers that none of these are present in this

case and that Mr Kent’s breach was negligent rather than deliberate or reckless.

6.13.
DEPP 6.5B.2G(12) lists factors which are likely to be considered ‘level 4 or 5 factors’.

Of these, the Authority considers a relevant factor to be that the breach created a

significant risk that financial crime would be facilitated, occasioned or otherwise

occur, for example, Sigma’s failures in transaction reporting and notifications of

STR/STORs, which when remedied resulted in an estimated 56,000 transaction

reports and the identification of 97 suspicious transactions or orders, which would

likely have resulted in 24 collective STR/STOR notifications, failings which potentially

undermined the effectiveness of the Authority’s own surveillance tools.

6.14.
DEPP 6.5B.2G(13) lists factors likely to be considered ‘level 1, 2 or 3 factors’. Of

these, the Authority considers a relevant factor to be that the breach was committed

negligently.

6.15.
Taking all of these factors into account, the Authority considers the seriousness of

the breach to be level 4 and so the Step 2 figure is 30% of £84,531.

6.16.
Step 2 is therefore £84,531.

Step 3: mitigating and aggravating factors

6.17.
Pursuant to DEPP 6.5B.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.

6.18.
An aggravating factor in this case is that the Authority has given substantial and

ongoing support to the industry regarding transaction reporting requirements

including through the TRUP and Market Watch both prior to and throughout the

Relevant Period that highlighted the importance of transaction reporting and

submitting STRs / STORs (see DEPP 6.5B.3G(k)).

6.19.
The Authority considers that the Step 2 figure should be increased by 10% at Step

3.

6.20.
Step 3 is therefore £92,984.

Step 4: adjustment for deterrence

6.21.
Pursuant to DEPP 6.5B.4G, if the Authority considers the figure arrived at after Step

3 is insufficient to deter the individual who committed the breach, or others, from

committing further or similar breaches, then the Authority may increase the penalty.

6.22.
The Authority considers that the Step 3 figure of £92,984 represents a sufficient

deterrent to Mr Kent and others, and so has not increased the penalty at Step 4.

6.23.
Step 4 is therefore £92,984.

Step 5: settlement discount

6.24.
The Authority and Mr Kent reached agreement to settle between the end of stage 1

and prior to the expiry of the period for making representations. The Authority has

applied a 10% discount to the Step 4 figure.

6.25.
Step 5 is therefore £83,685.

Financial penalty

6.26.
The Authority hereby imposes a total financial penalty of £83,600 (rounded down to

the nearest £100).

7.
PROCEDURAL MATTERS

7.1.
This notice is given to Mr Kent under and in accordance with section 390 of the Act.

7.2.
The following statutory rights are important.

Decision maker

7.3.
The decision which gave rise to the obligation to give this Notice was made by the

Settlement Decision Makers.

Manner and time for payment

7.4.
The financial penalty must be paid in full by Mr Kent to the Authority no later than

28 October 2022.

If the financial penalty is not paid

7.5.
If all or any of the financial penalty is outstanding on 28 October 2022, the Authority

may recover the outstanding amount as a debt owed by Mr Kent and due to the

Authority.

7.6.
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 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 you

or prejudicial to the interests of consumers or detrimental to the stability of the UK

financial system.

7.7.
The Authority intends to publish such information about the matter to which this Final

Notice relates as it considers appropriate.

Authority contacts

7.8.
For more information concerning this matter generally, contact Kerri Scott at the

Authority (direct line: 020 7066 4620/email: Kerri.Scott@fca.org.uk).

Head of Department, Enforcement and Market Oversight Division

ANNEX A

RELEVANT STATUTORY PROVISIONS

The Financial Services and Markets Act 2000 (“the Act”)

The Authority’s operational objectives

1.
The Authority’s operational objectives are set out in section 1B(3) of the Act and include

securing an appropriate degree of protection for consumers and protecting and

enhancing the integrity of the UK financial system.

Sections 66 and 66A of the Act1

2.
Under section 66 of the Act, the Authority may take action against a person if it appears

to the Authority that he is guilty of misconduct and the Authority is satisfied that it is

appropriate in all the circumstances to take action against him, including the imposition

of a penalty of such amount as it considers appropriate.

3.
During the Relevant Period, under section 66(2) of the Act (in force until 6 March 2016)

misconduct included failure, while an approved person, to comply with a statement of

principle issued under section 64 of the Act or to have been knowingly concerned in a

contravention by the relevant authorised person of a requirement imposed on that

approved person by or under the Act.

4.
During the Relevant Period, under section 66A of the Act (in force from 7 March 2016)

a person was guilty of misconduct if, inter alia, he at any time failed to comply with

rules made by the Authority under section 64A of the Act and at that time was an

approved person, or had been knowingly concerned in a contravention of relevant

requirement by an authorised person and at that time the person was an approved

person in relation to the authorised person.

Regulation (EU) No 596/2014 (“EU MAR”)

5.
Article 16(2) of EU MAR provides: “Any person professionally arranging or executing

transactions shall establish and maintain effective arrangements, systems and

procedures to detect and report suspicious orders and transactions. Where such a

person has a reasonable suspicion that an order or transaction in any financial

instrument, whether placed or executed on or outside a trading venue, could constitute

insider dealing, market manipulation or attempted insider dealing or market

1 Section 66 was amended and section 66A added during the Relevant Period, but those changes are not material

to the manner in which the Authority has exercised its powers as set out in this Notice.

manipulation, the person shall notify the competent authority as referred to in

paragraph 3 without delay.”

RELEVANT REGULATORY PROVISIONS

The Authority’s Handbook of Rules and Guidance

6.
In exercising its powers to impose a financial penalty, the Authority must have regard

to the relevant regulatory provisions in the Authority’s Handbook of rules and guidance

(the “Handbook”). The main provisions that the Authority considers relevant are set out

below.

Principles for Businesses (“PRIN”)

7.
The Principles are a general statement of the fundamental obligations of firms under

the regulatory system and are set out in the Handbook. They derive their authority from

the Authority’s rulemaking powers as set out in the Act and reflect the Authority’s

regulatory objectives. They can be accessed here:

8.
Principle 3 provides: “A firm must take reasonable care to organise and control its affairs

responsibly and effectively, with adequate risk management systems.”

Statements of Principle and Code of Practice for Approved Persons (“APER”)

9.
The part of the Authority’s handbook known as APER sets out the Statements of Principle

issued under section 64 of the Act as they relate to approved persons and descriptions

of conduct which, in the opinion of the Authority, do not comply with a Statement of

Principle.

10.
APER further describes factors which, in the opinion of the Authority, are to be taken

into account in determining whether or not an approved person’s conduct complies with

particular Statements of Principle.

11.
During the Relevant Period, Statement of Principle 7 stated:

“An approved person performing an accountable [significant-influence (in place

until 6 March 2016)] or [higher management (in place from 7 March 2016

onwards)] function must take reasonable steps to ensure that the business of the

firm for which they are responsible in their accountable function complies with the

relevant requirements and standards of the regulatory system.”

12.
‘Accountable higher management functions’ includes any accountable function that is

an Authority controlled function that is a significant influence function. Significant

influence functions include the following controlled functions: CF1 (Director), CF3 (Chief

Executive), CF10 (Compliance Oversight) and CF11 (Money Laundering Reporting).

13.
APER 3.1.8AG2 provides, in relation to applying Statements of Principle 5 to 7, that the

nature, scale and complexity of the business under management and the role and

responsibility of the individual performing an accountable higher management function

within the [APER employer (in place from 7 December 2020, previously “the firm”] will

be relevant in assessing whether an approved person’s conduct was reasonable.

14.
APER 3.3.1G states that in determining whether or not the conduct of an approved

person performing an accountable [significant-influence until 6 March 2016] or [higher

management (in place from 7 March 2016)] function complies with Statements of

Principle 5 to 7, the following are factors which, in the opinion of the Authority, are to

be taken into account:

(1) whether he exercised reasonable care when considering the information

available to him;

(2) whether he reached a reasonable conclusion which he acted on;

(3) the nature, scale and complexity of the [APER employer’s] (in place from 7

December 2020, previously “the firm’s”) business;

(4) their role and responsibility as an approved person performing an accountable

[significant-influence (in place until 6 March 2016)] or [higher management (in

place from 7 March 2016)] function; and

(5) the knowledge he had, or should have had, of regulatory concerns, if any,

arising in the business under his control.

15.
APER 4.7 describes conduct which in the opinion of the Authority does not comply with

Principle 7.

16.
APER 4.7.2G provides that in the opinion of the Authority, conduct of the type described

in APER 4.7.3G, APER 4.7.4G, APER 4.7.5G, APER 4.7.7G, APER 4.7.9G, APER 4.7.10G

or APER 4.7.11AG does not comply with Statement of Principle 7.

17.
APER 4.7.3G provides that failing to take reasonable steps to implement (either

personally or through a compliance department or other departments) adequate and

appropriate systems of control to comply with the relevant requirements and standards

of the regulatory system in respect of the regulated activities of the [APER employer]

(in place from 7 December 2020, previously “the firm”) firm in question (as referred to

2 This and each of the following APER sections were designated “E” until 6 March 2016.

in Statement of Principle 7) falls within APER 4.7.2G. [In the case of an approved person

who is responsible, under SYSC 4.4.5R(2), with overseeing the firm's obligation under

SYSC 4.1.1R, failing to take reasonable care to oversee the establishment and

maintenance of appropriate systems and controls falls within APER 4.7.2G. (in place

18.
APER 4.7.4G provides that failing to take reasonable steps to monitor (either personally

or through a compliance department or other departments) compliance with the

relevant requirements and standards of the regulatory system in respect of the

regulated activities of the [APER employer] (in place from 7 December 2020, previously

“the firm”) in question (as referred to in Statement of Principle 7) falls within APER

19.
APER 4.7.11G provides that the Authority expects an approved person performing an

accountable [significant-influence (in place until 6 March 2016)] or [higher management

(in place from 7 March 2016)] function to take reasonable steps both to ensure their

[APER employer’s] (in place from 7 December 2020, previously “firm’s”) compliance

with the relevant requirements and standards of the regulatory system and to ensure

that all staff are aware of the need for compliance.

20.
APER 4.7.12G provides that an approved person performing an accountable [significant-

influence (in place until 6 March 2016)] or [higher management (in place from 7 March

2016)] function need not themselves put in place the systems of control in their

business (APER 4.7.4G). Whether he does this depends on his role and responsibilities.

He should, however, take reasonable steps to ensure that the business for which he is

responsible has operating procedures and systems which include well-defined steps for

complying with the detail of relevant requirements and standards of the regulatory

system and for ensuring that the business is run prudently. The nature and extent of

the systems of control that are required will depend upon the relevant requirements

and standards of the regulatory system, and the nature, scale and complexity of the

business.

Senior Management Arrangements, Systems and Controls (“SYSC”)

21.
The following provisions of SYSC (relevant to the facts relied on in this notice) were in

force during the Relevant Period.

22.
SYSC 2.1.1R provided that:

“A firm must take reasonable care to maintain a clear and appropriate

apportionment of significant responsibilities among its directors and senior

managers in such a way that:

(1) it is clear who has which of those responsibilities; and

(2) the business and affairs of the firm can be adequately monitored and

controlled by the directors, relevant senior managers and governing body of

the firm.

23.
SYSC 2.1.3R provided that:

“A firm […] must appropriately allocate to one or more individuals, in accordance

with SYSC 2.1.4 R, the functions of:

(1) dealing with the apportionment of responsibilities under SYSC 2.1.1 R;

and

(2) overseeing the establishment and maintenance of systems and controls

under SYSC 3.1.1 R.”

24.
SYSC 2.1.4R provided that [so far as applicable to Sigma] both functions within SYSC

2.1.3R must be allocated to the firm’s chief executive, but in default of this they will fall

to the firm’s directors and senior managers.

25.
SYSC 6.1.1R provided that:

“A firm must establish, implement and maintain adequate policies and procedures

sufficient to ensure compliance of the firm including its managers, employees and

appointed representatives (or where applicable, tied agents) with its obligations

under the regulatory system and for countering the risk that the firm might be

used to further financial crime.”

26.
SYSC 6.1.2R provided that:

“A common platform firm and a management company must, taking into account

the nature, scale and complexity of its business, and the nature and range of

financial services and activities undertaken in the course of that business,

establish, implement and maintain adequate policies and procedures designed to

detect any risk of failure by the firm to comply with its obligations under the

regulatory system, as well as associated risks, and put in place adequate

measures and procedures designed to minimise such risks and to enable the

appropriate regulator to exercise its powers effectively under the regulatory

27.
SYSC 6.1.3R provided that:

“A common platform firm and a management company must maintain a

permanent and effective compliance function which operates independently and

which has the following responsibilities:

(1) to monitor and, on a regular basis, to assess the adequacy and

effectiveness of the measures and procedures put in place in accordance

with SYSC 6.1.2 R, and the actions taken to address any deficiencies in the

firm's compliance with its obligations; and

(2) to advise and assist the relevant persons responsible for carrying out

regulated activities to comply with the firm's obligations under the regulatory

system.”

28.
SYSC 6.1.4R provided that:

“In order to enable the compliance function to discharge its responsibilities

properly and independently, a common platform firm and a management company

must ensure that the following conditions are satisfied:

(1) the compliance function must have the necessary authority, resources,

expertise and access to all relevant information;

(2) a compliance officer must be appointed and must be responsible for the

compliance function and for any reporting as to compliance required by SYSC

4.3.2 R; […]

29.
SYSC 4.3.2R provides:

“A common platform firm […], must ensure that:

(1) its senior personnel receive on a frequent basis, and at least annually,

written reports on the matters covered by SYSC 6.1.2R to SYSC 6.1.5R, […];

and

(2) the supervisory function, if any, receives on a regular basis written

reports on the same matters.”

Supervision Manual (“SUP”)

30.
SUP sets out the relationship between the Authority and authorised persons (referred

to in the Handbook as firms). The following provisions of SUP were in force during the

Relevant Period.

31.
SUP 15.10.2R provided that “A firm which arranges or executes a transaction with or

for a client and which has reasonable grounds to suspect that the transaction might

constitute market abuse must notify the FCA without delay.” This rule applied from 6

February 2014 to 2 July 2016.

32.
SUP 15.10.3R provided that, in applying SUP 15.10.2R, a firm "must decide on a case-

by-case basis whether there are reasonable grounds for suspecting that a transaction

involves market abuse, taking into account the elements constituting market abuse."

33.
SUP 15.10.2A EU records that Article 16 of EU MAR applied from 3 July 2016 to date,

in place of SUP 15.10.2R.

34.
SUP 17.1.4R provided that “A firm which executes a transaction: (1) in any financial

instrument admitted to trading on a regulated market or a prescribed market (whether

or not the transaction was carried out on such a market); or (2) in any OTC derivative

the value of which is derived from, or which is otherwise dependent upon, an equity or

debt-related financial instrument which is admitted to trading on a regulated market or

on a prescribed market; must report the details of the transaction to the FCA.” This rule

applied from 1 April 2013 to 2 January 2018.

35.
SUP 17.4.1 EU provided that “Reports of transactions made in accordance with Articles

25 (3) and (5) of MiFID shall contain the information specified in SUP 17 Annex 1 EU

which is relevant to the type of financial instrument in question and which the FCA

declares is not already in its possession or is not available to it by other means.” This

rule applied from 1 April 2013 to 2 January 2018.

Conduct of Business Sourcebook (“COBS”)

36.
COBS applies to a firm with respect to designated investment business carried on from

an establishment maintained by it, or its appointed representative, in the United

Kingdom and activities connected with them.

37.
The following provisions of COBS applied to Sigma during the Relevant Period.

38.
COBS 11.8.5R provides:

“A firm must take reasonable steps to record relevant telephone conversations,

and keep a copy of relevant electronic communications, made with, sent from or

received on equipment:

(1) provided by the firm to an employee or contractor; or

(2) the use of which by an employee or contractor has been sanctioned or

permitted by the firm;

to enable that employee or contractor to carry out any of the activities

referred to in COBS 11.8.1R.”

39.
COBS 11.8.5AR requires a firm take reasonable steps to prevent an employee or

contractor from making, sending or receiving relevant telephone conversations and

electronic communications on privately-owned equipment which the firm is unable to

record or copy.

Decision Procedures and Penalties Manual (“DEPP”)

40.
Chapter 6 of DEPP, which forms part of the Authority’s Handbook, sets out the

Authority’s policy for imposing a financial penalty. The Authority applies a five-step

framework to determine the appropriate level of financial penalty. DEPP 6.5B sets out

the details of the five-step framework that applies to financial penalties imposed on

individuals in non-market abuse cases, which can be accessed here:

41.
EG sets out the Authority’s approach to taking disciplinary action. The Authority’s

approach to financial penalties is set out in Chapter 7 of EG, which can be accessed

PUBLIC STATEMENTS

42.
The Authority has made public statements about the standards that are expected of

firms in relation to market abuse, and their obligation to submit suspicious transaction

reports (“STRs”) to the Authority.

43.
The Authority published two papers during the Relevant Period setting out observations

from suspicious transaction reporting supervisory visits.

44.
The first, Market Watch 48, published in June 2015, set out observations from the

Authority’s suspicious transaction reporting supervisory visits including:

•
the consideration of a detailed risk assessment of the market abuse risks to

which a firm may be exposed prior to designing a surveillance programme was

important to the effectiveness of the surveillance programme;

•
under-investment in training of front office staff was noted across several firms,

which led to a low level of understanding and commensurately low reporting of

potential incidents of market abuse;

•
where firms had undocumented reporting to heads of desk or business

management, the Authority observed it had led to conflicts of interest, lack of

audit trail and potentially inadequate challenge on decisions not to submit STRs.

45.
The second, Market Watch 50, published in April 2016, set out further observations from

the Authority’s supervisory visits including:

a. the importance of a well-resourced and independent second surveillance

function in order to provide genuine challenge to the business was highlighted;

b. forewarning of changes brought in by the EU MAR including, the requirement

for firms and other persons to report suspicious orders and attempted

behaviours as well as suspicious transactions

46.
Market Watch 48 and 50 can be accessed here:

47.
The Authority published guidance on 6 February 2015, FG/15/3 which clarified certain

requirements of firms, including that the transaction reports a firm sends for its

transactions must accurately reflect the change in the position for the firm and its

client(s) resulting from the transactions.

48.
The Authority publishes guidance concerning transaction reporting, highlighting the

importance of data accuracy, which includes its Transaction Reporting User Pack which

can be accessed here: