Butterfield Mortgages Limited

FCA action

fine

1

in fines

£85.0k

most recent

June 2004

• Fined £85,000 on 2 June 2004

  1. On 2 June 2004 the FSA imposed a financial penalty of £85,000 on Leopold Joseph & Sons Limited (LJSL) for breaches of SYSC rule 3.1.1. REASONS FOR THE PENALTY 2. In the period December 2001 to July 2002, LJSL acted in breach of SYSC Rule 3.1.1. by failing to take reasonable care to maintain adequate systems and controls for monitoring adherence to credit limits in the areas identified in the Final Notice. 3. In so doing, LJSL demonstrated serious failings in that: (1) LJSL was made aware in February 1999 by the FSA that additional monitoring of the system for reporting credit limit breaches was required, specifically that the Director responsible for the area should review on a random and occasional basis the report used to identify breaches of credit limits. LJSL agreed to implement this control in March 1999. (2) LJSL's internal auditors confirmed the recommendation of the FSA in a report produced in September 1999, which noted that there was no evidence of the control agreed with the FSA having been undertaken; (3) in addition, a further internal audit report produced in October 2001 found that the reviews had not occurred for a number of months prior to the audit; (4) notwithstanding this second internal audit report, LJSL failed to take effective action to ensure that the reviews were implemented or to introduce an alternative control; (5) the failure to introduce an effective control on the monitoring of adherence to credit limits was such as to increase materially the possibility of LJSL being exposed to unauthorised and unacceptable credit risk; (6) such unacceptable credit risk has the potential to reduce the ability of firms to repay depositors, thereby threatening both market confidence and the interests of consumers; and (7) the failure to maintain the control over the report to identify credit limit breaches was highlighted by a number of breaches of credit limits and a material loss on a discretionary foreign exchange dealing arrangement for a client, where, although the loss was borne by the client, the credit excesses were unauthorised and exposed LJSL itself to increased financial risk. 4. It was only after the limit excesses for this client had come to light that LJSL took decisive action to ensure the control was carried out. 5. The FSA recognised that the failure occurred because three members of staff (two of whom left shortly after the credit limit breaches were identified) did not properly carry out the responsibilities with which they had been specifically charged. However the FSA considered that LJSL's continued failure to take effective action, particularly after the October 2001 Internal Audit report stated that the relevant control had not been performed recently, remained a serious failing on LJSL's own part such as to demonstrate a material breach of SYSC Rule 3.1.1. CONCLUSION 6. Taking into account the nature and seriousness of LJSL's failings and the risks they posed but also the co-operation shown and remedial steps taken by LJSL, as well as the fact that LJSL had a good record in credit quality to date, the FSA decided that a penalty of £85,000 was appropriate in all the circumstances.