Compliance

Why Compliance Officers Need To Know Their Responsibilities

By The Enforcd TeamThe Enforcd Team

Spare a thought for Gregory Rupert Nathan. Recently, the FCA publicly rejected his application for approval to carry out the controlled functions of Compliance Oversight and Money Laundering Reporting Officer at Goldenway Global Investments (UK) Limited. The firm offered contracts for difference trading to Chinese nationals. 

Rather coyly, the FCA did not spell out Nathan’s employment history. A look at the FCA Register filled in the blanks. He had worked at Beaufort Securities, and Mint Financial (UK) Limited.

Beaufort Securities was the former Hoodless Brennan, censured twice by the Financial Services Authority. The FCA restricted its permissions earlier this year, to make clear that it cannot take on new discretionary fund management clients. This was because it stuffed at least one of its customers’ accounts with AIM listed securities it owned. The issuer went bust not long after. It’s also been covered by Share Prophets, providing high interest loans to Eurasian Mining at the same time as acting as its broker.

Mint Financial (UK) trades as Fat Prophets, and has been slammed multiple times by the Financial Ombudsman Service, for accepting fees for services it did not deliver.

His most recent employer Fortrade Limited is doing well, based on its latest Companies House returns. Director Nick Collison joined from Saxon Financials. A limited company of that name became insolvent in 2013, leaving unsecured debts of £ 5 million and sundry tax authorities and inter-dealer brokers out of pocket. Nick Collison was a Director of Saxon.

A few lessons here. Those proposing themselves for controlled functions should do their homework on the risks for which they will be responsible. This includes the firm’s customers, products, operating model (including third party suppliers), and legal entity structure.

The FCA’s view was very clear here:

During the second of the Interviews, Mr Nathan had characterised the Firm’s business model as “very, very simple”, which the Authority considers demonstrates that Mr Nathan failed to recognise the complex nature of the CFD products offered by the Firm to retail clients and the complexities arising from the composition of the Firm’s client base, the reliance on other parties, the concern over managing the risk of offering inappropriate products to clients and the implications of the Firm’s being authorised in a different jurisdiction to the majority of its client base.

Money laundering risk was very, very simple (performing sufficient know your customer checks), but here Nathan slipped up by not having a sufficiently detailed understanding of the actual process:

Mr Nathan did not show sufficient in-depth knowledge and understanding regarding the third party provider which operated the database tasked with confirming the authenticity of Chinese National Identity Cards, which was a key step in the client on-boarding process; nor was he sufficiently familiar with how the confirmation process worked. This meant that Mr Nathan was unable to appreciate the limitations of the system and he appeared not to have anticipated the concerns about the consequence of this lack of knowledge and the other issues and risks that need to be addressed in verifying clients based in China.

Those seeking to hire compliance officers should not rely on the FCA to perform their due diligence for them. The FCA’s process was a two panel interview, a scan of his CV, and a reference to any material held by the Financial Ombudsman Service. This was enough to damn Mr. Nathan.