The financial markets watchdog in Australia has handed out a small penalty of $15,000 to Pershing Securities Australia Pty Ltd, for failing to give confirmations to certain retail clients for market transactions entered into on their behalf, due to certain accounts not having been set up correctly, as per a press release today by the Australian regulatory body.
The Pershing brand operates execution services and broker-dealer technology –through its business lines – including offering Foreign Exchange, and is a subsidiary of Bank of New York Mellon – a major institutional FX provider and custodian.
According to the announcement published by the Australian Securities and Investment Commission (ASIC), based on an infringement notice dated December 5th, 2013, the penalty was given by ASIC’s Markets Disciplinary Panel (MDP) and was noted as paid already, with Pershing cooperating throughout the entire process to help resolve the matter that has now been settled.
Historical Matter Now Settled and No Clients Affected
The development first came to light on March 19, 2012 when one of Pershing’s intermediaries notified Pershing that because certain trading accounts weren’t set up correctly, twelve relevant Pershing clients had not received confirmation for ASX Market Transactions executed on their instructions.
In order to identify potentially affected accounts, Pershing carried out a review of nearly 36,000 trading accounts that had been set up between 2010 and 2012. This review took just over a month after it began in March 2012, and as a result of the review, Pershing identified that a total of 37 trading accounts were set up incorrectly and specified which confirmations were not issued to the relevant Pershing clients between 10 May, 2010 and 26 June, 2012.
As per the MDP, the account setup errors allegedly contravened MIR 3.4.1(1), and subsection 798H(1) of the Corporations Act 2001 (Corporations Act) which requires compliance with the market integrity rules, thus justifying the issued fine.
37 Accounts Set up Incorrectly, Missing Postal Address, Email Not Sufficient
Forex Magnates opines how the fine is minuscule in the scope of the company’s size and revenues, and is more comparable to a small parking ticket – metaphorically speaking – when compared to the size of fines that regulators hand out to large corporations for more serious violations and regulatory actions.
Accordingly, while the seriousness of the fine is not meant to be under emphasized, in the grand picture of things, it appears to be a minor administrative error and ASIC noted that Pershing did not derive any actual or potential benefit, nor cause any actual or potential detriment, as a result of the breach.
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As per the notice, of the Relevant Accounts examined during the internal review, Intermediaries set up 17 of the trading accounts incorrectly and Pershing set up 20 of the trading accounts incorrectly.
Self-Reported to ASIC, After Pointed Out by 3rd Party
From these a total of 701 Market Transactions were executed on behalf of the Relevant Accounts (Relevant Transactions); and the incorrect setup of the trading accounts was attributable to either a missing postal address – because it was mistakenly thought that an email address would suffice for trade confirmations to be sent.
However, those email addresses were not provided and the addresses provided were considered 3rd party addresses and not those as required under MIR 3.4.1, as per the description.
On the 20th of April, 2012, Pershing lodged a self-report with ASIC. The self-report advised, among other things, that:
- Pershing undertook a review of its trading accounts upon being notified by the Pershing Intermediary of the incorrect setup of trading accounts;
- Confirmations were not received by the Relevant Pershing Clients for the Relevant Transactions;
- Pershing was implementing compliance initiatives to ensure the breach did not reoccur.
Fine Indicates the Lower End of the Maximum Fine Spectrum
In the infringement notice, ASIC noted how the combined maximum pecuniary penalty that the Court could have handed out under section 798H(1) of the Act by reason of contravening MIR 3.4.1(1) is $100,000, and maximum pecuniary penalty that could have been payable by Pershing under an infringement notice given pursuant to subsection 798K(2) of the Act, is $60,000, as per the December 5th filing.
An excerpt of the infringement notice, provided below, highlighted among other things how the matter will be settled from the resulting fine:
The effects of compliance with this infringement notice are:
(a) any liability of Pershing to the Commonwealth for the alleged contravention of subsection 798H(1) of the Act is discharged; and (b) no civil or criminal proceedings may be brought or continued by the Commonwealth against Pershing for the conduct specified in the infringement notice as being the conduct that made up the alleged contravention of subsection 798H(1) of the Act; and (c) no administrative action may be taken by ASIC under section 914A, 915B, 915C or 920A of the Act against Pershing for the conduct specified in the infringement notice as being the conduct that made up the alleged contravention of subsection 798H(1) of the Act; and (d) Pershing is not taken to have admitted guilt or liability in relation to the alleged contravention; and (e) Pershing is not taken to have contravened subsection 798H(1) of the Act.
A full copy of the December 5th infringement notice published in the ASIC Gazette can be found on the ASIC website.