Last month saw several interesting developments across Europe in relation to the EU’s Market Abuse Regulation (MAR). The Regulation, which came into force in 2016, strengthened existing requirements in relation to controls for the identification and prevention of actual or attempted insider trading and market manipulation. The technical paper that accompanied the legislation noted it would be difficult to do this without an automated surveillance system.
In the UK, the Financial Conduct Authority (FCA) issued a newsletter that highlighted failings they had identified in the quality of surveillance systems across firms operating in different market sectors, which they believed resulting in potential cases of market abuse going unidentified. Of particular concern was the reliance by firms on systems that were not calibrated to the particular risks of their business. The FCA also observed that the volume of suspicious transaction and order reports (STORs) for fixed income products is lower than it should be and further noted that surveillance of fixed income products was not as effective as it could be. This is the latest evidence that the FCA is looking to tighten up enforcement of MAR, following reports that the regulator has asked asset managers to outline their market surveillance and risk management procedures to detect market abuse.
Significantly, there’s recent evidence that the FCA is willing to act in cases where it thinks a firm has not done enough to ensure market abuse is detected and reported. In September, the regulator fined a wealth and discretionary fund manager in the UK £409,300 for failing to have sufficient controls to detect and report potential market abuse, in particular noting that the limited manual surveillance it had carried out, and its wrongful reliance on market surveillance by the brokers it used, was insufficient.
Finally, last month saw another country complete the implementation of MAR into national law. Italy published a Legislative Decree amending the Italian legislative provisions to transpose the Market Abuse Regulation into law. The decree entered into force on 29 September 2018 finalizing the implementation of MAR in the country.
Firms across Europe need to ensure they have robust, automated surveillance systems in place to avoid falling foul of Regulators. With no time to waste, there’s a strong case to be made for updating existing controls or introducing new surveillance capabilities through cloud-based RegTech offerings, such as those provided by RIMES, that address specific regulatory concerns noted above; in particular, the ability to calibrate detection thresholds to identify potential insider dealing or market abuse to reflect the requirements of different business models and separate asset classes. The approach is low cost, easy to implement and requires minimal disruption to business processes to implement. As firms seek to ensure compliance with MAR before it’s too late, the managed service approach is compelling.
If you are concerned that your market surveillance controls will fail to meet expectations, we can help: please contact us.
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