The London Metal Exchange (LME) has published a notice of a settlement with Category 2 Member, Nanhua Financial (UK) Co Limited (NHF) which includes a financial penalty of £115,000. Following an investigation by the LME, the LME and NHF have reached a settlement pursuant to Regulation 14.69 of Part 2 “Membership, Enforcement and Discipline” of the Rulebook. The Enforcement Committee has approved the settlement.

The alleged Act of Misconduct against NHF relates to a minor breach of Regulation 12.6(b) of Part 2 “Membership, Enforcement and Discipline” of the Rulebook, which requires that a Member shall organise and control its internal affairs in a responsible and effective manner, with appropriate and adequate risk management systems.

The Investigation commenced following NHF’s receipt of a “Failure to Comply” audit rating which was issued by the LME’s Member Audit Programme in June 2021 as a result of a thematic audit that the LME had commenced into several of its Members (of which NHF was one) in 2020 regarding the surveillance systems and controls that each of the Members had in place.

The Investigation further assessed the systems and controls that NHF had in place to detect, deter and deal with suspected instances of market abuse being routed to the LME between the period 2 June 2020 and 27 November 2020 (the “Relevant Period”).

The LME found that, in respect of the Relevant Period, NHF:

1. failed to produce sufficient evidence of adequate risk assessment arrangements to identify the market abuse risk that it faced in relation to the business that it conducted on the LME market;
2. failed to produce sufficient evidence of having an adequate process in place to review and record alert calibrations in its surveillance system; and
3. did not have adequate written procedures in place for surveillance staff to follow when analysing alerts and escalating suspected abusive activity.

It is not alleged that any suspected instances of market abuse went undetected by NHF during the Relevant Period.

The LME and NHF agreed a settlement in which NHF will pay a financial penalty of £115,000, reflecting the minor nature of the alleged Act of Misconduct.