Mark Steward, Executive Director of Enforcement and Market Oversight at the FCA recently gave a speech on market integrity. In his speech, Mark Steward discussed the importance of firms having a smart market abuse risk assessment to comply with MAR, regulatory challenges and capabilities to detect market abuse.
The Market Abuse Regulation (MAR) has been out there for a few years, aiming to make firms more transparent and fight the issues with insider trading. As highlighted by the FCA, businesses are not yet compliant or acting smartly to meet requirements. With regulations and enforcements, the FCA wants to ensure markets uphold and demonstrate the highest examples of market integrity.
We hosted a webinar with CeFPro and Compliance experts to discuss the FCA expectations and compliance to the Market Abuse Regulation. During this webinar we covered how compliance can be enhanced to prevent insider dealing, misuse of MNPI, personal account dealing, and illegal short-selling. You can watch this discussion on-demand now.
FCA Metrics on abnormal price movements
The FCA has been running its annual market cleanliness metric (the MC metric) since 2008 and this year’s report had the lowest score – 10% takeovers showed abnormal price movements 2 days prior to an announcement. In 2018 the FCA reviews the MC metric and launched an additional metric, called the Abnormal Trading Volume ratio or ATV. With richer data, the new metric has produced an even lower figure of 6.4%.
The FCA thanks the good score to a number of factors, including education on what is insider dealing and types of fraud, investments in tackling market abuse and financial sanctions being imposed. Good results are coming out from enforcement, market oversight, supervision, and detection.
“We want market participants to behave properly to prevent abuse, protect inside information from leakage and misuse and reporting suspicious activity.” Mark Steward, Executive Director of Enforcement and Market Oversight at the FCA.
Spotlight on Manipulation
Market manipulation is also a market abuse, where the attempt is to interfere with the market operation by creating false markets or misleading statements. Steward mentioned two cases under investigation in relation to the manipulation of information, one of the cases includes the falsification of an organization's revenue and profits in order to mislead the market.
According to the FCA, cases of market manipulation are usually difficult to investigate. Most of the marketing manipulation cases don’t include transactions or opportunistic trading like insider dealing or other types of market abuse. Mark Steward confess the difficulties to tackle these cases down.
Nevertheless, regulators are not awaiting on suspicious activities and submitted reports by employers, they now have been running outside investigations and using investigators to identify market manipulation. In a recent case following a investigation that started in 2012, the FCA accuses the CEO of Worldspreads (WSL), Conor Foley of committing market abuse by disseminating false information and manipulate transactions. You can read more details about this case here.
“The volume of information the FCA have got at their disposal is far, far superior than they had before — it’s now about how they use it.” Ms Longman.
In order to comply with the Market Abuse Regulation, firms require a system with controls that detects when an event has happened, in addition, a system that can improve conduct and address conduct risks. According to the regulators, firms are required to understand the importance of an effective market abuse risk assessment to detect suspicious behaviour and protect the market.
The regulators' vision is that firms need to take responsibility and make sure their employees understand the consequences of poor behaviour. A better and smarter risk assessment will ensure firms and markets are protected. Controls, surveillance, and supervision still need to be improved inside of firms to avoid market manipulation.
Regulators across the globe are working together to ensure the markets maintain the highest standards of integrity so firms need to do their part on that.
Audit trails can protect firms against irregularities and remain sustainably compliant long-term. If you are looking for a solution to help your firm, contact MCO today.