In February 2024, the Financial Conduct Authority (FCA) released Market Watch 77, a critical publication that sheds light on the activities of organised crime groups (OCGs) within the financial markets and the steps firms can take to mitigate these risks.
What are Organised Crime Groups
OCGs can be defined as a group of people working together on a continual basis to plan and co-ordinate criminal behaviour and conduct. Their motivation is often, but not always, financial gain.
Section 45 (6) of the Serious Crime Act 2015 defines an OCG as a group that:
- Has as its purpose, or as one of its purposes, the carrying on of criminal activities; and
- Consists of 3 or more persons who act, or agree to act, together to further that purpose.
Common Characteristics of the Activity of Organised Crime Groups
The publication highlights the sophisticated methods employed by OCGs to exploit the markets for illicit gains. In particular, it outlines how these groups engage in trading based on insider information, particularly in equity spread bets and contracts for difference (CFDs).
Amongst the primary concerns raised by the FCA include the pattern of trading observed before merger and acquisition (M&A) announcements, as well as prior to press speculation about such corporate events. This pattern suggests that OCGs are proactively recruiting sources of inside information and using intermediaries to mask their identities through umbrella accounts at overseas broking firms.
The above, along with the other concerns highlighted by the FCA in its publication, serve as a stark reminder of the risks posed to market integrity by these criminal activities. Moreover, the FCA emphasises the importance of executing firms being vigilant and familiar with their obligations to counter the risk of being used to further financial crime under SYSC 6.1.1R.
Finally, the FCA urges firms to be on the lookout for signs that might indicate trading on behalf of OCGs, such as clients regularly generating Suspicious Transaction and Order Reports (STORs), frequent trading before M&A announcements, and connections to other clients who have raised concerns.
The FCA’s Advice to Firms
Market Watch 77 is not just a warning; it is also a guide. Firms are advised to adopt a zero-tolerance stance towards market abuse, maintain regular communication with the regulator, and be prepared to terminate accounts on low suspicion thresholds.
The need for firms to be proactive in their surveillance and response strategies to combat the sophisticated tactics of organised crime groups is underscored. Furthermore, the FCA states that it will not hesitate to use the tools it has at its disposal where it sees poor compliance with the provisions in the FCA Handbook that are designed to protect and enhance the integrity of UK markets.
As the financial landscape continues to evolve, the FCA’s guidance will be instrumental in ensuring that markets remain fair and transparent for all participants. To that end, it is essential for firms to heed the advice provided by the FCA to safeguard the integrity of the financial markets.
How Complyport can help
Complyport is the City’s award-winning compliance and regulatory consultancy that has been servicing financial services firms for over 20 years. Our Financial Crime Unit includes some of the of the world’s leading specialist in the field, supported by over 25 KYC/AML/EDD specialists bringing a wealth of experience to every project we are engaged in.
Our highly experienced financial crime professionals and forensic experts regularly help our clients navigate the complexities of the financial crime and money laundering environment, in subjects such as:
- anti-money laundering,
- counter terrorist financing,
- anti-bribery and corruption
- and fraud prevention
Whether you are an established firm looking for guidance, an expert ear/sounding board, temporary resource or assistance, or a start-up needing advice, we are here to help.
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About Complyport
Complyport is a market-leading consulting firm supporting the UK financial services industry for over 22 years. We specialise in providing Governance, Risk and Compliance services to support the regulated financial services industry to raise standards and thrive.
Complyport can assist with the preparation of a GAP analysis and impact assessment on the investment firm’s capital adequacy and risk management framework of the Company under the regulatory framework.
We specialise in supporting the UK financial services industry with compliance guidance, advice and best practice.
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