Central Bank of Ireland imposes €4.1M fine on J&E Davy
The Central Bank of Ireland announces today that it has imposed a €4,130,000 fine on J&E Davy for breaches of the MiFID Regulations that occurred over different intervals between July 2014 and May 2016.
The Central Bank’s investigation arose from a transaction a group of 16 Davy employees carried out in a personal capacity with a Davy client in November 2014. Within the consortium was a group of senior executives. In permitting the transaction, Davy prioritised facilitating an opportunity for the Consortium to make a personal financial gain over ensuring that it was complying with its regulatory obligations.
The Transaction highlighted a weak internal control framework within Davy in relation to conflicts of interest management and personal account dealing. All of this served to create an elevated risk of investor detriment.
Following details about the Transaction becoming public four months after it occurred, Davy contacted the Central Bank to provide an explanation. At that stage, Davy failed to disclose the full extent of the wrongdoing. This was treated as an aggravating factor in this case.
The Central Bank’s investigation found failings in the following areas:
- Conflicts of interest identification and management: In permitting the Transaction, Davy breached the MiFID Regulations by failing to take all reasonable steps to identify whether a conflict of interest arose.
- Personal account dealing framework: Davy did not have a robust control framework in place to prevent employees from entering into personal transactions that could give rise to a conflict of interest.The Consortium circumvented the personal account dealing framework completely, such that Davy’s compliance function (Davy Compliance) first became aware of the Transaction four months later, when certain information about the Transaction became public.
- Ensuring the compliance function can discharge its role properly: A compliance function can only discharge its role effectively when it has access to all relevant information.Davy permitted the Transaction to proceed without any oversight by Davy Compliance.Davy Compliance was sidestepped by the Consortium, and as the personal account dealing framework was circumvented, Davy Compliance did not detect the Transaction as part of its monitoring.
The Central Bank determined the appropriate fine to be €5,900,000, which was reduced by 30% to €4,130,000 in accordance with the settlement discount scheme provided for in the Central Bank’s Administrative Sanctions Procedure.