What the FCA’s Financial Crime Guide Consultation Tells Us About Market Surveillance

At the end of last month, the UK’s Financial Conduct Authority issued a consultation on proposed changes to its Financial Crime Guide for firms; proposing to add a chapter on insider dealing and market manipulation. Once passed, this will be the first change to the Financial Crime Guide for some years and reflects increasing industry-wide scrutiny of the financial sector in the UK and beyond.

One of the key areas covered by the proposed changes to the Guide relate to market surveillance. This topic had been high on the compliance agendas of financial sector firms for several years now thanks to the introduction of the EU’s Market Abuse Regulation (MAR). Among the various stipulations of MAR, firms are required to proactively monitor the market for potentially manipulative behavior in equity markets and to monitor and perform surveillance for all types of abuse in fixed income and commodity markets.

As the FCA’s Financial Crime Guide only covers criminal offenses, it does not relate to instances of civil insider dealing or market manipulation as outlined in MAR. However, there are clear crossovers, and the FCA explicitly suggests that it may be appropriate for firms to apply their MAR-ready monitoring capabilities to meet their legal obligation to counter financial crime. This advice is, of course, with the caveat that firms need to “assess whether their arrangements to detect and report market abuse can be appropriately relied on to monitor for potential insider dealing and market manipulation”.

What’s clear from these developments is that market surveillance is fast becoming a central part of financial sector firms’ activities. Sell-side firms have something of a lead over the buy-side, in this respect, as the buy-side has historically been able to outsource market surveillance functions to the brokering community; a practice MAR put to an end. Regardless, both buy- and sell-side firms now have an imperative to ensure their surveillance capabilities can both detect abuse and counter financial crime.

As firms go about addressing this task, new RegTech solutions will provide a compelling alternative to in-house development due to their lower cost points and ease of deployment. However, no two solutions will be equal, and firms need to ensure that any market surveillance systems and services they use are can meet the many demands that have been placed upon them.

MAR and other regulatory topics will be discussed at RIMES’ upcoming EMEA Client Conference, which will take place in London on May 2. To register, email events@rimes.com.



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