The Financial Conduct Authority (FCA) recently conducted a peer review of firms offering Contracts for Difference (CFDs) and spread bets to enhance market abuse surveillance arrangements and uplift standards. The review gathered data from 9 carefully selected firms and yielded positive results, with all firms having effective surveillance to detect insider dealing. However, there were weaknesses observed in considering market abuse risks in non-equity asset classes and market manipulation. The FCA’s Market Watch 73 report highlights areas that require improvement despite the positive findings.
One of the key takeaways from the report is that firms must have a comprehensive understanding of all relevant market abuse risks to effectively detect and report suspicious orders and transactions. A general assessment of market abuse policies and procedures is not enough. The FCA stresses the importance of considering all asset classes and execution methods to identify applicable risks. The risk of manipulation can vary within and between asset classes, which is why firms that consider their entire business are more effective at detecting market abuse.
The FCA also highlights the need for effective surveillance systems for all asset classes, including non-equities, to address manipulation risks. Firms with short lookback periods may miss suspicious trading, and those reviewing all trading activity prior to an event are more effective. Market manipulation surveillance and surveillance in non-equity asset classes should also be considered.
Another important aspect the report covers is the need for a balance when sharing surveillance matters with front office staff. While STOR submissions should only be shared on a need-to-know basis, Compliance should challenge and educate front office staff when necessary. Front office staff should refuse to accept orders if they suspect market abuse and relevant policies should be clear and enforced. The decision to restrict or exit clients typically rests with Compliance or an independent committee, but firms should have a formalised structure with appropriate flexibility to take consistent, appropriate and prompt action.
In conclusion, the FCA’s Market Watch 73 report highlights the need for CFD providers to improve their market abuse surveillance arrangements and raise standards. Firms must have a comprehensive understanding of all relevant market abuse risks, effective surveillance systems for all asset classes, and a balanced approach when sharing surveillance matters with front office staff. By taking these steps, firms can mitigate the risk of market abuse-related financial crime and promote consistency in a rapidly changing industry.
How Can Complyport Help?
If you have any questions about the UK MAR, or you think your firm may require assistance with a gap analysis, review of your policies and procedures and systems related to Market Abuse compliance, please contact Jan Hagen via jan.hagen@complyport.co.uk to book a free consultation.
Our RegTech Solution
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About Complyport
Complyport is a market leading consulting firm supporting the UK financial services industry for over 20 years. We specialise in providing Governance, Risk and Compliance services to support the regulated financial services industry to raise standards and thrive.
Complyport advises and assists firms to become authorised and to comply with the rules and requirements of regulators on an ongoing basis. We have successfully assisted over 1000 firms to become authorised with the FCA and EU and are providing regulatory support to over 600 regulated firms on an ongoing basis globally. With presence in the UK and EU, as well as via our Associates Network, Complyport can assist firms across multiple jurisdictions.
We specialise in supporting the UK financial services industry with compliance guidance, advice and best practice including support with:
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