Market Surveillance in the Age of COVID: A Regulator’s View

Thanks to COVID-19, the financial services industry has had to adjust to a new normal marked by distributed working models and turbulent market conditions. During these fast-moving times, firms must be more vigilant that ever to monitor for potential cases of market abuse.

In a recent speech, Julia Hoggett, Director of Market Oversight for the Financial Conduct Authority (FCA), provided a regulator’s point of view. The speech covered key topics ranging from the value of risk assessments to focus on primary markets and insider information, to the tactical surveillance responsibilities of market participants.

The changing face of market abuse

One of the main threads in Hoggett’s speech was a reminder that while the fundamentals of market abuse are constant, the ways in which risk manifests is not; for instance, today’s predominance of remote working means that there can no longer be any arbitrage between office-based work, and home-based work. To keep up with constantly changing risk, market participants must be vigilant and arm their supervisors and compliance teams with the tools they need to do their jobs.

Hoggett also made it clear that the routine monitoring for behaviors identified in the Market Abuse Regulation (MAR) is now expected as a bare minimum.  However, for true risk mitigation, firms need to go further and improve the way they manage alert calibration levels and facilitate communication to the FCA through Suspicious Transaction and Order Reports (STORs).

Surveillance Alert Triage and STOR reporting

Market volatility and disruption to normal workflow has made the job of managing alerts harder by driving up alert volumes – a challenge that the FCA has recognized. Given the increased volume of alerts, the FCA expects firms to:

  • Consider, document and govern changes to alert calibration
  • Back-test detection parameters to assess the need for change where new market dynamics have arisen
  • Control changes to alert calibration in a transparent way so that everyone in the firm can see what is changing and understand the associated impact
  • Manage calibration in a way that accounts for the firm’s risk profile – don’t simply modify calibrations to reduce the workload.

When suspicious trading is identified, clear and timely communication with the FCA is essential. Firms should therefore continue to escalate and report instances of suspicious activity via STORs.

However, the FCA recognizes that significant backlogs of alerts may have accrued due to COVID-19-related workflow disruptions. As part of the STOR process, firms should therefore notify the STOR Supervision team of any backlog, its scale and the anticipated timescales for clearance. STOR submissions should continue to be made as quickly as possible, with reasons for delayed reporting included in late submissions.

Scott Burke, Regulatory Product Manager at RIMES, comments: “Leveraging technology and evolving existing processes should always have the goal of keeping your firm ahead of the curve. Most often, the shape of the curve is decided by response to regulatory action, but occasionally it’s shaped by a seismic shift in market structures or working practices. Today, it’s a case of the latter, and firms must move decisively to ensure their market surveillance capabilities are suited to our new normal.

RIMES’ can help, providing firms with an automated platform that manages all market abuse surveillance needs. With RIMES, alert models can be fully calibrated to respond to market changes and client risk profiles, and our platform provides automated alerts in the format required for STOR reporting.”

Contact us to receive more information about RegFocus℠ Market Surveillance, our award-winning solution which handles the many complex challenges of market surveillance: https://www.rimes.com/contact-us/

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