In brief
- The FCA has decided to fine BancTrust chief executive Carlos Fuenmayor £99,600 for negligently failing to disclose a US regulatory investigation and subsequent sanctions, alongside a Venezuelan regulatory investigation.
- The FCA found that the omissions breached his regulatory disclosure obligations. Mr Fuenmayor has referred the decision to the Upper Tribunal, arguing that disclosure of the Venezuelan sanctions risks undermining freedom of expression.
- The case highlights the FCA’s expectation of prompt, voluntary disclosure of overseas regulatory matters, alongside its use of routine open-source checks to identify potentially relevant information.
Overview
The Financial Conduct Authority (FCA) has fined Carlos Fuenmayor, Chief Executive of BancTrust Investment Bank Ltd (BancTrust), £99,600 for failing to disclose three separate matters, falling short of the standards expected of someone in his position.
The Decision Notice is available here.
Background
Since October 2012, Mr Fuenmayor had been approved by the FCA to hold a number of controlled functions and senior management functions at BancTrust.
In April 2017, he was interviewed by the US Financial Industry Regulatory Authority (FINRA) as part of an investigation into potential violations of federal securities laws in relation to a company he was associated with in the US. In December 2017, FINRA informed Mr Fuenmayor's US lawyers that he was the subject of FINRA's investigation (the FINRA Investigation), and that their preliminary determination was to recommend disciplinary action against him.
In the period following the FINRA Investigation, BancTrust submitted two applications to the FCA, seeking approval for additional controlled functions and additional permissions for Mr Fuenmayor. Neither application referred to the FINRA Investigation, notwithstanding the second application explicitly asking for information that was directly relevant to the subject matter of the FINRA Investigation, and the guidance notes for the application making it clear that he was required to disclose matters pertaining to overseas financial regulators.
In his interview, Mr Fuenmayor said that, despite the guidance notes, it was not clear whether extra-territorial matters had to be disclosed, and that he submitted the second application without fully reading the form.
In June 2019, FINRA imposed a 15-month suspension and US$20,000 financial penalty on Mr Fuenmayor (the FINRA Fine). In October 2019, BancTrust submitted a further application to the FCA for additional permissions, but it made no mention of the FINRA Investigation or the FINRA Fine.
In November 2019, all of Mr Fuenmayor's companies in Venezuela were the subject of without notice 'Special Inspection Visits' by the Venezuelan National Financial Intelligence Unit (UNIF), which is part of the Venezuelan securities regulator. Shortly before the visits, UNIF froze the local currency bank accounts of Mr Fuenmayor, his companies in Venezuela, and the directors of those companies (the UNIF Investigation).
It was not until 22 December 2021, following discussions BancTrust's Compliance Officers, that Mr Fuenmayor made a disclosure to the FCA by way of a Form D notification. However, the notification failed to reference the UNIF Investigation, despite the notes to the form emphasising the importance of disclosing information, even if there is any doubt as to its relevance. Mr Fuenmayor later told the FCA that he believed it was not relevant because he thought it was connected with his political opposition to the Venezuelan government and that there was no formal action.
In January 2023, the FCA became aware of a Spanish-language website article "through routine open-source checks on BancTrust", that UNIF had “blocked” Mr Fuenmayor’s bank accounts, those of his Venezuelan companies, and accounts belonging to the companies' directors. Despite the FCA writing to BancTrust seeking clarification on the article's accuracy, including whether Mr Fuenmayor and/or his companies had been sanctioned by the Venezuelan regulator, the response, which Mr Fuenmayor helped draft, omitted any reference to the accounts having been “blocked". This was only confirmed after further FCA correspondence in which the FCA specifically asked about this.
Findings
The FCA found that Mr Fuenmayor had breached APER Statement of Principle 4 and Senior Management Conduct Rule 4, by negligently failing to disclose the FINRA Investigation, the FINRA Fine and the UNIF Investigation when submitting the three application forms, in a timely manner, and/or at all.
In the Decision Notice, the FCA stated that it "expects such firms and applicable individuals to promptly and voluntarily notify it of information about which it would reasonably expect notice. […] Information of which the [FCA] would expect notification includes (but is not limited to) information relating to any actions taken, investigations and/or sanctions imposed by other regulators (including overseas regulators) as well as any information which could be materially important to the [FCA's] assessment of an individual's fitness and propriety."
Despite the FCA's findings, Mr Fuenmayor has referred his Decision Notice to the Upper Tribunal, arguing that disclosure of the Venezuelan sanctions risks undermining freedom of expression.
Comment
First, this case underscores the FCA's requirement that disclosure of relevant matters extends to overseas as well as domestic matters. Whether Mr Fuenmayor's freedom-of-expression argument will find favour before the Upper Tribunal remains to be seen, but the clear message from the Decision Notice is that foreign investigations must be disclosed.
Second, it is noteworthy that the FCA became aware of the UNIF Investigation through "routine open-source checks". It is unclear what prompted those checks, though they do post-date the notification of the FINRA Investigation and FINRA Fine, so it may have been the case that there was additional focus on BancTrust at the time. It is perhaps surprising that intelligence was not provided directly by FINRA. Nevertheless, this should serve as a reminder of the FCA's pro-active approach to monitoring, which has become increasingly effective and targeted.
Finally, this another example in which an individual has referred a decision notice to the Upper Tribunal, but has almost certainly suffered irreparable reputational damage, regardless of the Upper Tribunal's decision. One therefore has to question what value or protection, if any, is offered by the disclaimer appearing on decision notices.