Remote working increases market abuse risks

    

At the beginning of the Covid-19 crisis, the FCA released a statement, where the regulator has shown its concerns regarding companies’ capacity to fight against market abuse considering the context of new working conditions. Earlier, the FCA’s Executive Director of Enforcement and Market Oversight at the FCA, Mark Steward gave a speech on market integrity and how the regulator has been approaching and investigating market abuse cases.

Looking at both occasions, the message and warnings are clear, the regulator will continue its task force to investigate and penalise employees seeking for additional capital by deceiving rules and regulations. Constantly, the regulator suggests that firms shall review and boost their systems and processes to protect the firm’s integrity and market and work against breaches.

"Reviewing and updating risk assessments in response to coronavirus could enable firms to modify their surveillance systems to ensure they remain adequately and appropriately calibrated to detect any new or heightened market abuse risks that they have recognised." Market Watch 63 – FCA, May 2020.

The recently published report, market watch 63 stresses the need for right controls around market abuse, conduct, and conflicts of interest.

It is expected that inside information is appropriately identified and well-handled to avoid misused for insider dealing or business advantage. The FCA wants firms to ensure that inside information is appropriately disclosed.

“Coronavirus has had a significant effect on the businesses of issuers globally, resulting in them needing to raise substantial amounts of debt and equity. This alone potentially gives rise to increased amounts of inside information, which needs to be appropriately controlled."

"In the context of the pandemic, the nature of the information that is material to a business’s prospects may have altered, and what now constitutes inside information should be carefully assessed. In addition, working from home arrangements may raise new, additional risks around identifying and handling inside information.” Market Watch 63 – FCA, May 2020.

Because of market conditions and the current working from home arrangements, additional risks to assess procedures, systems, and controls were added, making it more difficult for firms to maintain compliance and regulatory obligations under MAR. Taking into account the new challenges the report notes the importance of robust market surveillance and suspicious transaction and order reporting (STORs).

Besides, the FCA continues to share its concerns about personal account dealing (PAD) and the crucial role that managing conflicts of interest have on appropriate mitigation of personal account dealing.

Conduct risk mitigation and proper management of conflicts of interest play an important role to protect the market. The FCA will be monitoring market activities to "identify behaviours which may impact the integrity and orderly functioning of the market". As previously disclosed, the regulator is not awaiting on suspicious activities and submitted reports to act. The FCA now has been running outside investigations and using investigators to identify market manipulation.

We can expect regulatory investigation in the coming months, including enquiries when poor behaviour is identified and additional reporting to explain how firms are meeting regulatory obligations. The FCA concludes the report stressing, "we will use our enforcement powers to take action against those breaching our rules".

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