Tullett Prebon paid £15.4M for wash trades run behind lavish entertainment

Between 2008 and 2010, the Rates Division of interdealer broker Tullett Prebon (Europe) ran a brokerage business the UK Financial Conduct Authority later called entirely improper. Brokers executed 'wash' trades — trades with no change in beneficial ownership and no legitimate commercial purpose — that generated unwarranted and unusually high brokerage for the firm. What made the desk work was lavish entertainment and an absence of questions: controls around broker conduct existed on paper, but management never used or directed them.

The warning signs were loud. When the firm once asked a broker to explain inordinately high brokerage on a single trade, his entire answer was 'you don't want to know' — and the firm took no steps to identify the reasons, let alone whether the trades were appropriate. The FCA found obvious red flags were missed and that management and compliance were cocooned from seeing the misconduct. The trades did not mislead the market and were not market abuse, but the FCA's Mark Steward said the market 'is not a private game of self-enrichment'.

The second failure was a cover-up of silence. When the FCA requested broker audio tapes in August 2011, Tullett Prebon had most of the audio required, yet produced nothing until 2014 and initially gave an incorrect account of how the recordings had been discovered — breaching the FCA's Principle 11 requiring firms to be open and cooperative. In October 2019 the firm agreed to resolve the case, and the settlement discount cut its fine from £22 million to £15.4 million.

A £15.4M FCA fine — £22M before the 30% settlement discount — for wash trades that generated unwarranted brokerage

Senior management believed systems and controls were adequate without ever directing them at how brokers actually generated commissions.

Wash trades produced high brokerage with no legitimate purpose, and nobody probed where the revenue came from.

An explicit verbal red flag from a broker was treated as the end of an inquiry rather than the start of one.

The firm sat on requested audio tapes for three years and misdescribed how they were found, turning a controls case into a candour breach too.

Controls that exist on paper but are never pointed at how brokers actually earn are decoration. The first 'you don't want to know' is the finding; treating it as an answer is the failure.

The FCA announced the £15.4 million fine on 11 October 2019 for breaching its principles on due skill and care, risk management and cooperation; the 30% settlement discount reflected Tullett Prebon's agreement to resolve the case. By then the parent, Tullett Prebon plc, had merged with ICAP's broking business and renamed itself TP ICAP in 2017, so the penalty landed on a firm built from the rival it once was. The FCA noted the conduct did not amount to market abuse — the harm was to the proper functioning of the market, not to counterparties misled about prices.