FINAL NOTICE

1.
ACTION

1.1.
For the reasons given in this Notice, the FSA hereby imposes on Plus500UK Limited

(“the Firm”) a financial penalty of £205,128 in respect of breaches of SUP 17 of the

FSA Handbook and Principle 3 of the FSA’s Principles for Business (“the

Principles”) .

1.2.
The Firm agreed to settle at an early stage of the FSA’s investigation and therefore

qualified for a 30% (Stage 1) reduction of the financial penalty under the FSA’s

executive settlement procedures. Were it not for this discount, the FSA would have

imposed a penalty of £293,040.

2.
SUMMARY OF REASONS

2.1.
The FSA has decided to take this action because, of the 1,332,000 reportable

transactions it executed between 29 June 2010 and 5 November 2011 (“the Relevant

Period”), the Firm failed to report 189,000 and failed to accurately report the

remaining 1,143,000. This represents a failure by the firm to comply with its

obligations in respect of every reportable transaction it executed during this period.

The Firm’s systems and controls were inadequate because it failed to set up adequate

reporting systems, did not have any documented procedures in place in relation to

transaction reporting and failed to provide any relevant training to staff. It therefore

breached rules in SUP 17 and Principle 3.

2.2.
Accurate and complete transaction reporting is essential to enable the FSA to meet its

statutory objectives of maintaining market confidence and reducing financial crime.

The primary function for which the FSA uses transaction reports is to detect and

investigate suspected market abuse, insider trading and market manipulation.

2.3.
A transaction report is a data set submitted to the FSA that relates to an individual

financial market transaction which includes (but is not limited to) details of the

product traded, the firm that undertook the trade, the trade counterparty and the trade

characteristics such as buy/sell identifier, price and quantity.

2.4.
The FSA considers the reporting failures by the Firm as particularly serious, given

that the FSA (i) has provided a significant quantity of guidance to firms on how to

report, and check those reports and (ii) had, shortly before and during the Relevant

Period, publicised a number of Enforcement actions taken in relation to similar

failings by other firms.

2.5.
Although the Firm is small relative to others in the industry, the FSA does not

consider this in any way lessened the Firm’s obligation to report its transactions fully

and accurately. The FSA does however acknowledge the Firm’s quick engagement

and co-operation in identifying possible breaches, and recognises that the Firm took

independent and positive steps to remedy said breaches.

3.
DEFINITIONS

3.1.
The definitions below are used in this Notice:

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

“SUP” means the FSA Supervision Manual; and

“the FSA” means the Financial Services Authority.

4.
FACTS AND MATTERS

4.1.
The implementation of the Markets in Financial Instruments Directive ("MiFID")

across all European Economic Area (EEA) member states on 1 November 2007

(effective 5 November 2007 for transaction reporting) introduced changes to the list

of products in which transactions have to be reported and standardised the list of

fields which need to be included in the reports.

4.2.
Prior to the Relevant Period the FSA had provided significant guidance on transaction

reporting issues. This guidance included presentations via periodic Transaction

Reporting Forums, the Transaction Reporting User Pack, numerous Market Watch

articles, a transaction reporting helpline and a transaction reporting library on the FSA

website. The FSA also makes available to all firms a tool to enable them to regularly

review their transaction data by requesting a sample of data they have submitted to the

FSA. The FSA encourages firms to use this tool by raising awareness of it at our

Transaction Monitoring Forums and publishing reminders in our Market Watch

newsletters.

4.3.
Shortly before the start of the Relevant Period the FSA published Final Notices and

imposed financial penalties in respect of five firms for transaction reporting failures.

The FSA published Final Notices and imposed financial penalties in respect of a

further two firms for transaction reporting failures during the Relevant Period.

4.4.
Firms can submit reports directly to the FSA from their own systems provided those

reports are full and accurate in accordance with SUP 17.

4.5.
The Firm ran an online trading platform offering clients the opportunity to trade as

principals in Contracts for Difference (CFDs) in a range of products. When the Firm

executed a transaction in a CFD with an underlying equity that was listed or dual

listed in the EEA, it was required under SUP 17 to report certain details of this

transaction to the FSA.

4.6.
Throughout the Relevant Period the Firm, in breach of SUP 17.1.4R, failed to ensure

all reportable transactions were captured from their database of executed transactions

and submitted to the FSA. This failure occurred as the filters in place to download

reportable transactions from the Firm’s database were set up using an incomplete

database of reportable products.

4.7.
Throughout the Relevant Period the Firm failed to populate the relevant fields in the

transaction reports it submitted to the FSA in accordance with provisions of SUP

17.4.1EU/SUP 17 Annex 1 EU. For the entire period the Firm reported 967,000

transactions in Greenwich Mean Time instead of British Summer Time, 3,000

transactions with multiple identifiers applied for a single client and 70,000

transactions with the buy/sell indicator inverted. Between 29 June 2010 and 28

October 2010 the Firm acted in a Principal trading capacity. From 29 October 2010

onwards the Firm acted in a Principal Cross trading capacity, this involved

simultaneously executing a ‘buy’ and ‘sell’ trade at the same price and quantity as

Principal in a single product. Principal Cross trades must be reported in a single

transaction report that must correctly identify the transacting client and counter party

in respective fields. The Firm reported details of the transacting client and counter

party in the wrong fields for every Principal Cross transaction they carried out

between 29 October 2010 and 5 November 2011. These failures were due to a

misunderstanding of the reporting requirements.

4.8.
The Firm is a MiFID investment firm. It has admitted culpability immediately and

confirmed that throughout the Relevant Period it had failed to:

(1)
report 189,000 transactions that it executed (all of which should have been

reported in accordance with SUP 17.1.4R);

(2)
accurately report 1,143,000 transactions (which should have been accurately

reported in accordance with SUP 17.4.1EU/Annex 1 EU); and

(3)
set up its transaction reporting system adequately, have any documented

procedures and staff training in place to ensure complete and accurate

transaction reporting (which it should have done in accordance with Principle

3).

5.
FAILINGS

5.1.
Section 206 of the Act give the FSA the power to impose a penalty on an authorised

firm if he has contravened a requirement imposed on him by or under the Act or by

any directly applicable Community regulation or decision made under the Markets in

Financial Instruments Directive.

5.2.
The FSA considers that the Firm has breached SUP 17.1.4R, SUP 17.4.1EU and

Principle 3. SUP 17.1.4R states:

“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 FSA.


5.3.
1,332,000 of the transactions that the Firm executed in the Relevant Period were

reportable and, by failing to report 189,000 of them, the Firm breached its obligations

under SUP 17.1.4R.


5.4.
SUP 17.4.1EU states:

‘Reports of transactions made in accordance with Article 25 (3) and (5) of MiFID

shall contain information in SUP 17 Annex 1 EU which is relevant to the type of

financial instrument in question and which the FSA declares is not already in its

possession or is not available to it by other means.’

SUP 17 Annex 1 EU sets out the minimum content of a transaction report in a table

including Field Identifiers and Descriptions.

5.5.
1,143,000 of the transactions that the Firm executed in the Relevant Period were

reported incorrectly in breach of its obligations under SUP 17.4.1EU as they did not

contain data in the format required by SUP 17 Annex 1 EU.

5.6.
Principle 3 of the Principles states that:

“A firm must take reasonable care to organise and control its affairs responsibly and

effectively, with adequate risk management systems.”

5.7.
In the Relevant Period the Firm breached Principle 3 by failing to properly set up its

transaction reporting system, failing to have any documented procedures in place in

relation to transaction reporting and failing to provide any relevant training to staff.

6.
SANCTION

Financial penalty

6.1.
Effective 6 March 2010, Chapter 6 of the FSA’s Decision Procedures and Penalties

Manual was amended to introduce a new penalty regime. The misconduct in this case

falls entirely within the new regime.

6.2.
The FSA applies a five-step framework to determine the appropriate level of financial

penalty. DEPP 6.5A sets out the details of the five-step framework that applies in

respect of financial penalties imposed on firms.

6.3.
The Firm did not financially benefit from their breaches (for the purpose of Step 1,

DEPP 6.5A.1). For the purpose of Step 2, DEPP 6.5A.2, the FSA considers that the

number of reportable transactions executed by the Firm during the relevant period is

7


an appropriate indicator of the harm or potential harm caused. The FSA has

established the appropriate basis figure at Step 2 to be £1,332,000 by attributing a

value of £1 to each reportable transaction executed by the Firm in breach of SUP17

during the relevant period. The FSA has determined the seriousness of the Firm's

breaches to be Level 3 for the purposes of Step 2 having taken into account:

(a)
DEPP 6.5A.2 (6-9) which lists factors the FSA will generally take into

account in deciding which level of penalty best indicates the seriousness of the

breach

(b)
DEPP 6.5A.2 (11) which lists factors likely to be considered ‘level 4 or 5

factors’.

(c)
DEPP 6.5A.2(12)G which lists factors likely to be considered ‘level 1, 2 or 3

factors’.

Of these, the FSA considers the following factors to be relevant:

(i)
The breach revealed weaknesses in the Firm’s procedures,

management systems and internal controls relating to transaction

reporting;

(ii)
The Firm did not make any profit or avoid any loss as a result of the

(iii)
There was no loss to consumers, investors or other market users;

(iv)
There was a potential effect, albeit limited, on market confidence; and

(v)
There is evidence that the breach was committed negligently or

inadvertently.

For the purposes of this case the FSA has applied the following percentages to the

seriousness factors considered at DEPP 6.5A.2 (3):

(a) level 1 - 0%

(b) level 2 - 10%

(c) level 3 – 20%

(d) level 4 – 30%

(e) level 5 – 40%

The penalty calculation, having taken into account the factors above is therefore 20%

of £1,332,000. The figure after Step 2 is therefore £266,400.

Step 3: mitigating and aggravating factors

6.4.
At Step 3 the FSA may increase or decrease the amount of financial penalty arrived at

after Step 2 to take account of any mitigating or aggravating factors. In accordance

with DEPP 6.5A.3(1) any adjustment must be made by way of a percentage of the

Step 2 figure. The FSA acknowledges that the Firm did take steps to mitigate the

situation, notably acting wholly in co-operation with the FSA from the initial

discovery of the breaches (prior to any enforcement action having been discussed)

admitting culpability immediately and taking positive independent steps to rectify the

breaches (including commissioning an independent report into the matter). However

as stated at paragraph 2.4 above, the FSA considers the reporting failures by the Firm

to be aggravated by the fact the FSA (i) has provided a significant quantity of

guidance to firms on how to report, and check those reports and (ii) had, shortly

before and during the Relevant Period, publicised a number of Enforcement actions

taken in similar failings by other firms. The FSA therefore considers that the

aggravation justifies an increase of 10% to the Step 2 figure. The figure after Step 3

is therefore £293,040.

Step 4: Adjustment for deterrence

6.5.
Pursuant to DEPP 6.5A.4 if the FSA considers the figure arrived at after Step 3 is

insufficient to deter the firm who committed the breach, or others, from committing

further or similar breaches, then the FSA may increase the penalty.

6.6.
The FSA considers that the figure at Step 3 is sufficient to achieve deterrence. The

penalty figure after Step 4 is therefore £293,040.

Step 5: Settlement discount

6.7.
Pursuant to DEPP 6.5A.5, if the FSA and the firm on whom a penalty is to be imposed

agree the amount of the financial penalty and other terms, DEPP 6.7 provides that the

amount of the financial penalty which might otherwise have been payable will be

reduced to reflect the stage at which the FSA and the individual reached agreement.

6.8.
The FSA and the Firm reached agreement at Stage 1 and so a 30% discount applies to

the Step 4 figure.

6.9.
The penalty figure after Step 5 is therefore £205,128.

7.
PENALTY

7.1.
The FSA therefore decided to impose a total financial penalty of £205,128 on the

Firm for breaching SUP 17.1.4R, 17.4.1EU and Principle 3.

8.
PROCEDURAL MATTERS

Decision maker

8.1.
The decision which gave rise to the obligation to give this Notice was made by the

Settlement Decision Makers.

8.2.
This Final Notice is given under and in accordance with section 390 of the Act.

9.
MANNER OF AND TIME FOR PAYMENT

9.1.
The financial penalty must be paid in full by the Firm to the FSA by no later than 31

October 2012, 14 days from the date of the Final Notice.

10.
IF THE FINANCIAL PENALTY IS NOT PAID

10.1. If all or any of the financial penalty is outstanding on 1 November 2012, the FSA may

recover the outstanding amount as a debt owed by the Firm and due to the FSA.

11.
PUBLICITY

11.1. 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 FSA must

publish such information about the matter to which this notice relates as the FSA

considers appropriate. The information may be published in such manner as the FSA

considers appropriate. However, the FSA may not publish information if such

publication would, in the opinion of the FSA, be unfair to you or prejudicial to the

interests of consumers.

11.2. The FSA intends to publish such information about the matter to which this Final

Notice relates as it considers appropriate.

12.
FSA CONTACTS

12.1. For more information concerning this matter generally, contact Neil Gamble of the

Enforcement and Financial Crime Division of the FSA (direct line: 020 7066 1884).

FSA Enforcement and Financial Crime Division