Personal Account Dealing, when employees gain personal profit from inside information or other data that they became aware of in their professional capacity, is an area of inherent risk for any firm in the financial services sector.
To identify and mitigate the risk of Personal Account Dealing (PAD), 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 remarks delivered at the Market Abuse and Market Manipulation Summit on 27 Fenruary 2024, Therese Chambers, FCA Joint Executive Director of Enforcement and Market Oversight, noted "We need industry and regulators pulling together to stop opportunistic market abuse. We are committed to this as we know the corrosive effects it can have on the integrity of our markets." Download a white paper on the risk of market abuse in the digital age.
Firms must ensure that employees are aware of the personal account dealing policies and procedures that apply them—and that they fully understand them. Firms should require employees to complete attestations to confirm they read, understood and will comply with the personal account dealing rules. Regulators have raised concerns, however, that some firm attestations are not clear enough and might not cover all PAD rules, lacking effectiveness. To be covered from a regulatory standpoint, firms should require their employees to review and attest to personal account dealing policies at least annually. Watch a webinar on maximizing your compliance attestations.
Regulatory focus on Personal Account Dealing
The FCA has been shining a light on personal account dealing, mandating that firms must put effective compliance controls in place 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.
The FCA expressed its concerns on the topic and released a Market Watch highlighting 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. Read how MNPI remains a high risk area for compliance.
In the newsletter on market conduct and transaction reporting issues, the FCA identified 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
The FCA has also identified that some firms are lacking sufficient training. Firms must take on the challenge of designing effective training to provide education on policy and guidance on required processes to employees. Thorough and consistent training will ensure employees understand their firm’s Personal Account Dealing policy and know how to avoid conflicts. Attestations and frequent reminders will confirm understadning, reinforce knowledge and provide proof to regulators that employees were made aware of their compliance obligations around Personal Account Dealing.
According to the FCA, to be compliant with Personal Account Dealing regulations firms 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.
Is your firm meeting the FCA’s requirements on Personal Account Dealing?
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With MCO's Employee Personal Trading solution you can make your market abuse control stronger and mitigate the risks of misconduct to meet regulatory requirements and avoid fines. MCO's Employee Personal Trading solution enables firms 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
Looking to improve Personal Account Dealing Compliance across your firm to keep pace with FCA requirements?
