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FCA Questions Effectiveness of Firms’ Market Surveillance Capabilities

On February 13, Julia Hoggett, Director of Market Oversight at the Financial Conduct Authority (FCA), gave a speech on the implementation of the Market Abuse Regulation (MAR) in the UK at an event organized by AFME. The speech provided an opportunity for the FCA to reiterate its expectations around MAR and highlight areas of concern.

MAR was adopted in 2016 and established a new range of obligations for financial sector firms, in order to crack down on market manipulation and insider trading. In her speech, Hoggett recognized the complexity of the regulation, which in effect requires firms to make a series of ongoing situational judgements. She also made the point that simply detecting when an instance of market manipulation has occurred is not enough: firms and regulators alike need to think of ways to stop such events occurring in the first place.

Hoggett also noted that firms need to consider how their market abuse systems and controls can evolve as the risks within their businesses change. Doing so requires control of both information leaving a firm and data moving within the company. Additionally, firms need to ensure that employees are aware of the consequences of unlawful behavior and of the wider risks of market abuse.

So, how are firms doing? Hoggett’s assessment is that many firms have still not done enough to comply with MAR. As Hoggett put it: “as a theme, we believe that the access controls, surveillance capabilities and general mindset in this part of the business is not yet as evolved as it should be. More importantly, it has not had as much focus as the risk profile would suggest it should have.”

When it comes to market surveillance, Hoggett drew attention to the need for firms to increase their capabilities around market manipulation, as opposed to the insider trading elements or MAR, and particularly in the non-equity space. Due to the relatively small number of Suspicious Transaction and Order Reports received by the FCA for the fixed income and commodity asset classes, Hoggett believes that firms that operate in these areas need to do much more to detect and report suspicious activity. Significantly, this is where the FCA will focus its supervisory attention.

This latest intervention from the FCA highlights the complexity of MAR compliance and shines a light on the risk of non-compliance many firms are still under. For organizations that are looking for a way to rapidly comply with the market surveillance and reporting elements of MAR, the fast-evolving RegTech market offers a promising solution.

By taking managed service offering such as RIMES’ RegFocus℠ Market Surveillance, firms can rapidly put in place the market manipulation and insider trading surveillance capabilities they need at a low cost and with minimal disruption to their businesses. Firms may still be behind in their MAR obligations, but they can quickly catch up.

Contact us to receive more information about RegFocus℠ Market Surveillance, our award-winning solution which handles the many complex challenges of market surveillance.

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