Mitigate Employee Insider Risk With Compliance Technology

    

Insider dealing is a perennial concern for regulators around the globe. Agencies like the SEC, the FCA, BaFin and the AMF are using the latest technology to detect insider trading, misuse of insider information and market abuse. Regulators increasingly expect as well that firms will have the latest technology in place in order to demonstrate that they are taking a comprehensive and proactive approach to managing access to insider information and employee personal account dealing compliance.

 

To achieve effective compliance, firms need to understand the Personal Account Dealing risks posed by their business models, design clear policies and processes around those risks and develop a culture where adherence to their rules is the norm. When breaches of PAD policies do occur, firms need to investigate them and, where appropriate, take disciplinary action.

Failing to adequately assess the conduct risks that PAD may pose, or to have adequate systems and controls in place or to train staff to observe appropriate standards of market conduct may leave a firm or its staff exposed to raised risks of regulatory action.”

FCA Market Watch No. 62

 

Just take a look back at the last few years. The enforcement keeps coming and the penalties are significant.

The days of writing off regulatory fines as a cost of doing business are long over. Keeping a handle on employee trading activity and proactively identifying areas of potential risk and concern is critical to protect the firm’s brand and reputation—and the bottom line. Below are some examples of recent fines for trading violations in financial services firms across the globe.

In February of 2023, the AMF fined a real estate investment trust that was an acquistion target of a leading insurance and financial services provider €350,000 for failure to maintain and update insider lists. The action also fined a holding company €400,000. Penalties for 10 individuals that profited from insider dealing in the case exceeded €2.4 million.

In late 2022, BaFin fined a financial services firm €190,000 for failure to prevent insider dealing in their German mergers ans acquisitions group. The individuals involved had already recevied suspended jail sentences. 

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In July of 2023, a London-based investment banking firm was fined £2,837,600 by the FCA for failure to have effective systems and controls in place to properly assess, monitor and manage the risk of financial crime such as fraudulent trading. The firm was also fined for failing to follow up on red flags that indicated fraudulent trading.

In December of 2022, the FCA fined a global brokerage firm £4,775,200 for failure to ensure that appropriate systems and controls were in place to effectively detect market abuse.   

In August of 2022, the FCA fined the international broker-dealer arm of a large global financial institution £12,553,800 for failure to properly identify significant gaps in its arrangements, systems, and procedures for monitoring for the risk of potential insider trading and market manipulation.

In August of 2023, the SEC charged a broker-dealer with insider trading for the second time, resulting in penalties of $1,173,926 for the individual and $490,353 for the related firms. 

In November of 2022, the SEC obtained a final judgement against an index fund manager for insider trading, resulting in a penalty of $246,000, In a parallel action,  the U.S. Attorney's Office for the Eastern District of New York entered a forfeiture order for $912,082.

2022 was a record year for SEC enforcement, with over 700 actions and obtained judgments and orders totaling $6.4 billion. Read about it here.

Recent enforcement actions are showing that insider dealing and misuse of insider information remain high risk areas for compliance teams—and there's no indication that the regulatory scrutiny will let up. It's both a regulatory expectation and a business imperative that firms have the latest compliance technology in place to manage employee personal account dealing compliance and the potential misuse of insider information. 

We can help! MCO offers a comprehensive, flexible, and cost-effective solution that enables firms to identify and mitigate conduct risk, effectively manage compliance obligations and minimize the risk of fines and reputational damage.

 

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MCO's Personal Trade Manager and Insider and MNPI solutions enable firms to reduce the risk of employee personal account dealing and manage insider information across the organization. Contact us today to chat with our global team of experts and see the solutions in action!

 

 

Additional Reading

SEC Priorities Focus on MNPI, Insider Trading and Crypto

Insider Trading in the Lead-Up to the Banking Crisis

Adopted SEC Rule 10b5-1 Amendments Increase MNPI Scrutiny

Insider List and MNPI Management under MAR

Infographic: Personal Account Dealing Compliance

Get the Message! Preserve eComms or Face Steep Regulatory Consequences

Insider Trading, Crypto and SPACs top the SEC’s List of Concerns

When Does Personal Trading Become Insider Trading in Finance Firms?