Market conduct poses risks to regulated firms irrespective of the markets they are in or the clients they serve. The nature of market abuse varies which we show in the Market Abuse Themes chart below.
The FCA is of the view that in the cases they take against individuals for misconduct, the underlying behaviours are similar and relatively straightforward.
FCA investigations are shown in the line chart below. These are cases being looked at by the FCA enforcement team. Not every case leads to the FCA issuing a Final Notice.
FCA provides their case data broken down into 5 types of market abuse:
breaches of the listing / prospectus, Disclosure, and Transparency Rules
We have added in the data for financial crime investigations. It clearly shows that insider dealing accounts for the majority of investigations. Financial crime cases however are not as high and appear to be declining. This reflects the vast efforts and resources that larger firms were compelled to invest into their anti-financial crime programs after the series of enforcement actions. The FCA wants you to similarly prioritise your market abuse programs.
The data reveals an increase in investigations into market manipulation and misleading statements. 5 of these active investigations are looking into spoofing. Spoofing is placing and then cancelling orders before they can be filled. The US Department of Justice has been cracking down on spoofing after the flash crash of 2010 caused by Navinder Sarao.
In the past few weeks James Vorley and Cedric Chanu were convicted of wire fraud, the US charge for spoofing. They will both be sentenced in January 2021 although appeals are being planned.
There are lessons you can take from this recent case. For example, providing clear internal guidance on when the line is crossed over from legitimate trading practice into illegal behaviour. The absence of which was used as part of Vorley’s and Chanu’s defence case. They argued that it took Deutsche nearly 4 years to incorporate spoofing into their policies and procedures after spoofing had been banned.
Industry Codes have a role to play here in providing examples that clarify where the line sits. This has to be incorporated into your internal policies and procedures to protect your firm. Then you need to protect your people by explaining your standards to them.
You could start by reviewing the Market Abuse Themes we provide at the start of this blog. Check that you have incorporated all of these into your policies and procedures. We provide how to guides and training packs to help you do this. We can also supply additional case studies for your training.