Davy staff could still face criminal probe over 2014 bond deal
DAVY executives and employees could face further individual investigation – including criminal investigation – for insider dealing, market abuse and failure to provide best execution, the Irish Independent understands.
According to numerous regulatory and compliance sources, the 16 Davy staff who were involved in a 2014 bond deal that earned the firm a record €4.13m fine remain exposed to potential individual sanction under European Union market rules.
Those regulations – the Markets in Financial Instruments Directives and Market Abuse Directive – provide the possibility for punishment including criminal charges against individuals for the misconduct of their firms.
It is understood the Central Bank has retained freedom of action to pursue more cases outside the scope of this week’s enforcement action against the company for conflict of interest.
Sources said the most likely avenues of pursuit were insider dealing and failure to provide best execution.
Insider dealing involves trading for your own advantage while using confidential information. Best execution requires brokers to make all efforts to secure the best result for their clients, including providing accurate information and access to a competitive market.
The Davy case is understood to relate to a deal in which businessman Patrick Kearney and his Kilmona Holdings Ltd sold Anglo Irish Bank bonds via Davy at a steep discount in order to settle a debt – without knowing the buyers were Davy employees who went on to sell
Central Bank retains freedom of action to take more cases
the assets at a profit.
Last year, the Central Bank conducted a themed inspection of investment firms’ best execution practices and found
serious deficiencies in policies, governance and delivery – putting investors at a disadvantage.
Insider trading and market abuse cases are rarely taken up by the Central Bank.
A Central Bank spokesperson said the Davy matter was “concluded” and that they could not comment on any potential or ongoing investigations.
The Davy case could help regulatory officials push forward proposals on holding senior executives more accountable for conduct at their firms.
Officials from the Central Bank have been called before the Oireachtas Committee on Finance next Tuesday to discuss the fine against Davy Group and potential new powers to investigate individuals.
Under current rules, senior individuals in financial firms can only be held personally responsible for wrongdoing if their misconduct is linked to a breach by their firm.
The senior executive accountability regime (SEAR) proposals would make it easier for regulators to act against senior executives based exclusively on their own conduct.
Legal and compliance sources say the Central Bank’s low number of enforcement actions against individuals is due to the current high bar. The Central Bank has made the case for several years that it needs a stronger toolkit.