In a virtual conference, Julia Hoggart, Director of Market Oversight at the FCA discusses the challenges posed by the pandemic and highlights that at this stage firms should have overcome these challenges, improved surveillance and risk assessments. The speech is an indication as to where the FCA may focus their attention during the rest of this year and into 2021.
Risk Assessments
The FCA is making analysis and helping firms by warning them of the risks associated with the new environment in which we are all operating. In addition to the warnings and reports recently published, the regulator wants to ensure that firms are working effectively and that their focus and effort are turned to the “new” market abuse risks.
According to Julia following a process to meet the requirements of the Market Abuse Regulation is not enough. Firms should think "out of the box" when reviewing their risk assessments and controls to mitigate the risks that financial services are facing.
The need to keep markets open and business as usual potentially gave rise to the number of inside information, and the FCA emphasises the need to appropriately handle these.: “The fundamental need for institutions to ensure that they have appropriate controls over inside information and effective information barriers is even more critical at times like these.” Julia Hoggart, Director of Market Oversight at the FCA.
Simple steps, such as the adoption of a risk-based approach and understanding of the guidance on insider lists management and protection of material non-public information (MNPI) can make the greatest difference and protect firms and markets.
Julia adds that working from home, which many still doing can change the controls landscape. The home office environment is a challenge for compliance, and it is even more important to keep information protected in this environment while office and working environment arrangements are not yet equivalent.
The new working environment requires efforts from both, companies and employees. Besides, regulators expectations are high regarding arrangements to avoid the risk of conflicts of interest: “We expect firms to have updated their policies, refreshed their training and put in place rigorous oversight reflecting the new environment - particularly regarding the risk of use of privately owned devices."
Keeping Markets Safe
In a recent Market Watch, the FCA discussed that information requested for investigations or analysis such as insider lists, corporate action chronologies and copies of communications should be treated as confidential and not shared outside the firm’s Compliance department without the FCA’s approval. Sharing such information requirements can compromise the FCA reviews and obstructs investigations, making it more difficult to the FCA prosecute individuals for market abuse.
“Market abuse is not an offence that only applies to individuals working in the financial services industry. Everyone must comply with MAR and criminal law. Any individual in receipt of inside information who trades while in possession of that information, or induces someone else to, is guilty of market abuse.” says Julia.
Furthermore, the FCA noted during the pandemic some confusion around the MNPI constitution. Because of the situation we are living in new formats of MNPI should be considered. To give an example, an issue that did not come up in the past or was never MNPI could be during the pandemic. This kind of situation requires more attention and valuation from companies and advisors to the information they handle. The management of insider information and MNPI requires discipline and the regulator urges for a dynamic risk assessment with proper controls in place.
The new ways of working have brought difficulties for compliance teams and applying some simple steps are critical to maintaining compliance. The FCA specially highlights that keeping staff trained, build and maintain a culture that minimises the risk of poor conduct and make employees conscious of their role will result in safe and clean markets.
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