The Central Bank has fined Goodbody Stockbrokers €1.23 million for failing to put in place an effective system to monitor for suspicious trading activity.
The regulator found that the stockbroking firm breached European Union market abuse regulations (MAR) for a five-year period between July 2016 and January 2022 as a result.
The law requires firms that professionally arrange or execute transactions to establish and maintain effective “arrangements, systems and procedures to detect and report suspicious orders and transactions”.
Trade surveillance systems inform submissions made by firms to the Central Bank, in the form of suspicious transaction order reports (STORs), which then assist the Central Bank in detecting and combating market abuse.
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A Central Bank investigation found that during the 5½-year period in question, Goodbody failed to put in place an effective trade surveillance framework to monitor, detect and report suspicious orders and transactions in relation to market abuse. The regulator did not find that Goodbody had actually missed suspicious trades during the period.
A spokesman for Goodbody said the firm “fully acknowledges that it did not fulfil its obligations” under market abuse rules.
“We apologise for these framework weaknesses. Goodbody co-operated fully with the Central Bank of Ireland during its investigation. The firm has addressed the findings that were identified by the Central Bank in relation to this matter,” he said.
“The board acknowledges that Goodbody plays a critical role in the identification and prevention of market abuse and recognises the importance of effective market monitoring and reporting arrangements.”
The failings that gave rise to the investigation were first identified by the Central Bank during the course of its supervisory Market Abuse Thematic Review in 2020. During most of the period that the shortcomings occurred Goodbody was on the market. Following two abortive attempts to sell the firm to Chinese buyers, Kerry-based Fexco and senior managers of Goodbody managed to sell the business to AIB in 2021 in a €138 million deal.
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The Irish banking regulator determined an original fine of €1.75 million, which was reduced by a settlement discount of 30 per cent.
The Central Bank noted that the level of penalty imposed on Goodbody reflected the duration and gravity of the contravention.
It said the breach was a “serious departure” from the required regulatory standard, the failure to have effective detection and reporting systems in place was a “serious concern”, and the duration of the contravention was “lengthy”.
Seána Cunningham, director of enforcement and anti-money laundering with the Central Bank, said the outcome “stresses the importance of effective arrangements, systems and procedures, such as trade surveillance frameworks, within firms that professionally arrange or execute transactions”.
“This investigation found that Goodbody’s trade surveillance did not operate effectively in respect of risk identification, risk monitoring and governance arrangements, which in turn undermined its ability to detect and report suspected market abuse,” she said.
Ms Cunningham said that MAR requires firms to take “proactive steps” to implement and maintain appropriate systems, and that the Central Bank had repeatedly highlighted the importance of compliance with MAR since it came into force, through supervisory engagements, Dear CEO letters and securities markets risk outlook reports.
“The Central Bank expects the board and senior management of regulated entities to take full ownership of the governance of market conduct risk. This case serves to highlight the importance the Central Bank places on firms’ abilities to monitor, detect and report suspected market abuse, a critical part of protecting the integrity of financial markets,” she said.
At the request of the Central Bank, Goodbody submitted a remediation plan to address the findings of the 2020 review, which has now been implemented.
To date, the Central Bank has imposed a total of €405.9 million in fines across 156 enforcement outcomes.
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