Personal Account Dealing is an area of inherent risk for any firm in the financial sector. In many cases, employees have the potential to make personal profit from inside information or other information that they became aware of in their professional capacity.
In consequence of such risks, regulators require firms to establish, implement and maintain adequate arrangements aimed at preventing employees from committing market abuse and from misusing or improperly disclosing confidential information.
In advance, most firms require employees to complete attestations to confirm they read, understood and will comply with the personal account dealing rules. Although, some attestations are not clear enough and might not cover all PAD rules, lacking effectiveness. From a regulatory standpoint, firms should require their employees to review their attestations more often, considering the rise of conflicts of interest and potential market abuse.
The FCA has been shining a light on personal account dealing and highlights that firms must achieve effective compliance to combat market abuse. Firms must understand PAD 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.
In late 2019, the FCA expressed its concerns on the topic and released a document stating what firms should consider when designing their PAD policy and requirements to create a control framework to reduce the risk of conflicts of interest, insider dealing and market abuse.
On the newsletter on market conduct and transaction reporting issues, the FCA identified several apparent breaches of PAD policies due to:
- Employees’ lack of understanding of the firm’s PAD policy
- Firms and employees considering that ignorance of PAD policies provides reasonable mitigation for PAD in breach of that policy
- Lack of declaration of external accounts to their employer, including undeclared accounts in the names of relatives.
Challenges for Firms
As identified by the regulators, firms were lacking in training. Firms have the challenge to design effective policy and guidance with appropriate processes to employees. It’s mandatory to improve training, so employees understand their firm’s Personal Account Dealing policy and know how to avoid conflicts.
In addition, emphasize the attestation processes with frequent reminders of the firm’s policy and requirements will help on the training aspect.
According to the FCA, your compliance and risk assessment on Personal Account Dealing should:
- Identify conflict of interest or market abuse risk
- Ensure employees are aware of their compliance obligations and put the appropriate processes in place to assess their PAD requests or notifications
- Provide real-time reporting on potentially suspicious activity with which the firm can review and if necessary, report to the FCA
- Mandate senior managers lead by example and act as advocates of strict compliance with the firm’s PAD rules.
We created a infographic with questions for you to identify if your firm is prepared for the FCA’s requirements on Personal Account Dealing.
With MyComplianceOffice Personal Trade Manager (PTM) you can make your market abuse control stronger and mitigate the risks of misconduct to meet regulatory requirements and avoid fines. MCO can help you to:
- Simplify the employee trade pre-clearance process
- Automate the capture of trade confirms from brokerages
- Review employee trading activity against restricted lists and insider trading rules
- Check employee trade activity for front-running and tailgating
- Facilitate annual employee attestations and disclosures
- Provide a complete audit history of pre-clearances and order attempt