The FCA spotlight is firmly on market surveillance
This week the FCA has published their findings from the thematic review of ‘Asset management firms and the risk of market abuse’. The review considers how firms control the risks of insider dealing, improper disclosure and market manipulation, and sets clear expectations to improve practices and effectively manage market abuse risk.
While pre-trade controls to manage market abuse and insider dealing risk are generally in place, the FCA review found that improvements are required across the industry to adopt effective post-trade surveillance practices, capable of identifying market abuse. Specifically, the review cited shortcomings in the form of reliance on systems and processes that lead to an unmanageable number of false positives, making it harder to spot any potentially abusive trades genuinely worthy of investigation. The FCA also identified as desirable the monitoring of trading activity to detect trading patterns that could indicate market manipulation, for example where an unusually high number of trades were placed by the same person. Good practice also includes post-trade reviews for potentially misleading public statements or media interviews prior to trading, as well as the recording and monitoring of telephone lines for auditing purposes.
Commenting on the FCA’s review, Stefan Hendrickx, Founder and Executive Director of Ancoa, said: “It is clear that the ability to contextualise trading information becomes increasingly important as compliance officers have to sift through large sets of structured and unstructured data to reconstruct an event. Putting things in context is key to identifying genuine issues rather than false positives. A contextual approach and visualisation across all relevant trading sources, coupled with financial news wires, social media and electronic communication channels is no longer a ‘nice to have’ but a requirement in order to meet regulatory and compliance obligations with confidence.”
“We fully support the FCA’s view that market abuse damages market integrity and undermines confidence in financial markets, in addition to causing reputational damage and financial loss. We have developed the Ancoa market surveillance platform specifically to deal with risks of market abuse and insider dealing. We help financial services firms monitor, identify and manage potential issues, and enable full control over their regulatory, reputational and operational risks across many markets, functions and asset classes.”