Market Abuse: FCA to Target a Wider Range of Firms for Surveillance Failures
New data shows that the FCA significantly hiked fines on firms for market abuse in 2022. Fines imposed relating to weaknesses in market abuse surveillance have increased significantly, accounting for 19% of all FCA penalties in 2022. Historically, market abuse penalties landed on the desks of brokers and the trading floors of banks, where the volume of public trades are highest. But this focus may be set to change, as the regulator signalled they were looking at market abuse across the industry. In their latest newsletter on market conduct and transaction reporting, ‘Market Watch’, the FCA observed “bulk trading, particularly in less liquid stocks” as a “greater opportunity for manipulation”. The regulator’s observation indicates a reduced focus on execution-only market makers and an increased focus on large, bespoke trades such as “go-privates” undertaken by asset managers with their clients.
The FCA has the green light to be aggressive in its work to tackle market abuse. In March, their suggestions to expand the criminal market abuse regime was welcomed by the Treasury. Perhaps more importantly, advances in data science and analytics could allow the regulator to be less reliant on firms’ own transaction reports, a dependence problem that the FCA has consistently flagged. Regulators worldwide, such as the SEC and Germany’s BaFin, have advanced machine learning algorithms to analyse patterns in financial data to pinpoint errors or gaps in reporting accurately and on a T+1 basis. The FCA has already committed use “data and technology to reduce economic crime.”
