Last month, the Financial Conduct Authority (FCA) fined a UK brokerage firm just over one million pounds for poor market abuse controls and failing to report suspicious client transactions.
The regulator said the UK broker had outsourced surveillance of trades on its venue to a US subsidiary, which failed to adequately design, test and implement effective oversight to monitor for potential market abuse. Specifically, the firm failed to monitor the review of reports produced and ensure that the reviewers were adequately trained. The FCA considers the breach to have revealed ‘serious and systemic’ weaknesses within the firm’s procedures.
FCA director of enforcement and market oversight Mark Steward said: “Firms not only have a key responsibility to report suspicious conduct in our capital markets, they also have an obligation to ensure their trading systems are not used for the purpose of financial crime… The FCA will continue to enforce appropriate standards of market conduct to ensure our markets function well.”
The recent FCA fine is one of the largest fines against a retail broker for weak surveillance procedures. There are real and significant consequences for firms and individuals found out of compliance with global regulations. The FCA will continue to focus reviews on market abuse and firms’ procedures. This serves as a reminder to review your policies and procedures to ensure you have adequate controls in place to detect and report potential violations of insider trading.
Monitoring electronic communications can be incredibly effective to find early indicators any wrongdoing or sharing of non-public information. To help mitigate risk, The Archiving Platform from Smarsh has Policies and Supervision features that allows firms to flag activities that may be illegal or may represent insider trading. For example, if a client texts one of your firm’s employees that says, “this is nonpublic,” or “material, nonpublic information” the message will be flagged for review, with the indication of a potential insider information policy violation. Lexicon policies can help test and verify that your firm’s supervisory procedures are reasonably designed to achieve compliance with applicable regulations.
Training and ongoing education are critical for effective oversight. Provide focus training on specific topics to inform reviewers of prohibited practices. Your reviewers should know how to detect and report potential violations.
With the new MiFID II rules in effect this year, the FCA and the European regulators will take stricter enforcement action against firms and individuals for non-compliance.
Author: Marianna Shafir Esq. Corporate Counsel, Regulatory Advisor at Smarsh.
Marianna Shafir is Corporate Counsel and Regulatory Advisor at Smarsh, where she’s responsible for legal and regulatory affairs worldwide. In addition, she helps Smarsh clients navigate compliance obligations, technology trends, and new industry regulations through her vast knowledge of best practices related to electronic communications supervision. Prior to joining Smarsh, Marianna worked for BNY Mellon and Invesco in varying compliance roles.
How can we help!